Law, Trust and Institutional Change in China: Evidence from Qualitative Fieldwork

46 Pages Posted: 13 Jan 2017 Last revised: 1 Mar 2017

See all articles by Ding Chen

Ding Chen

University of Sheffield; University of Cambridge - Centre for Business Research (CBR)

Simon Deakin

University of Cambridge - Centre for Business Research (CBR); European Corporate Governance Institute (ECGI); University of Cambridge - Faculty of Law

Mathias Siems

European University Institute (EUI); Durham University

Boya Wang

University of Cambridge

Date Written: January 12, 2017

Abstract

China’s rapid growth in the absence of autonomous legal institutions of the kind found in the west appears to pose a problem for theories which stress the importance of law for economic development. In this article we draw on interviews with lawyers, entrepreneurs and financial market actors to illustrate the complexity of attitudes to contract, corporate and financial law and economic growth in contemporary China. In the case of product markets, we find that business relations are increasingly characterised by a mix of trust-based transacting and legal formality which is not fundamentally different from practice in the west. Financial markets are less like their western counterparts, thanks to the preponderant role of government in asset allocation, and a lack of transparency in market pricing. However, in both sets of markets we find evidence of a transition from inter-personal trust (guanxi) to impersonal transacting, and of growing demands from business and legal groups for the impartial application of legal rules and market regulations. China’s experience does not suggest that law is irrelevant or unrelated to growth, but that legal and economic institutions coevolve in the transition from central planning to a market economy.

Keywords: Chinese law; new institutional economics; law and finance; law and development; guanxi

JEL Classification: G20, K12, K22, K41, K42, N25, O17, O43, P20

Suggested Citation

Chen, Ding and Deakin, Simon F. and Siems, Mathias and Wang, Boya, Law, Trust and Institutional Change in China: Evidence from Qualitative Fieldwork (January 12, 2017). University of Cambridge Faculty of Law Research Paper No. 15/2017. Available at SSRN: https://ssrn.com/abstract=2898174 or http://dx.doi.org/10.2139/ssrn.2898174

Ding Chen

University of Sheffield ( email )

17 Mappin Street
Sheffield, Sheffield S1 4DT
United Kingdom

University of Cambridge - Centre for Business Research (CBR) ( email )

Top Floor, Judge Business School Building
Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Simon F. Deakin

University of Cambridge - Centre for Business Research (CBR) ( email )

Top Floor, Judge Business School Building
Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+ 44 1223 335243 (Phone)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom

Mathias Siems (Contact Author)

European University Institute (EUI) ( email )

Via Bolognese 156 (Villa Salviati)
Firenze, 50139
Italy

HOME PAGE: http://www.eui.eu/siems

Durham University ( email )

Stockton Road
Durham, County Durham DH1 3LE
United Kingdom

HOME PAGE: http://www.dur.ac.uk/mathias.siems

Boya Wang

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

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