China's Rule of Law in New Era: The Rise of Regulation and Formalism

Journal of Chinese Economic and Business Studies, Forthcoming

11 Pages Posted: 6 Feb 2020

See all articles by Jiafu An

Jiafu An

University of Portsmouth

Wenxuan Hou

University of Edinburgh - Business School; Shanghai Lixin University of Accounting and Finance

Yun Zhang

Shanghai Lixin University of Accounting and Finance

Date Written: September 30, 2019

Abstract

China’s financial development and economic growth is achieved under weak legal institutions. The literature attributes this counterexample of law–finance–growth nexus to (a) alternative mechanisms in China such as incentives, reputation and relationships and (b) a well-functioning xinfang system with common law features. In recent years, China has made increasing efforts to strengthen its rule of law. The Communist Party of China (CPC) has taken the lead by launching a far-reaching campaign against corruption, establishing a system of inspection tours, and promulgating a large number of regulations. We argue that using regulations to complement laws is effective: CPC has enough bureaucratic prowess to crack down on corruption whereas the courts are subject to subversion by powerful interests. We also discuss the drawbacks of this approach: regulations aiming at ex ante control of corruption substantially increase procedural formalism and limit the discretion of local governments and state-owned enterprises.

Keywords: Anti-Corruption Campaign, China, Procedural Formalism, Regulation

JEL Classification: G38; K20

Suggested Citation

An, Jiafu and Hou, Wenxuan and Zhang, Yun, China's Rule of Law in New Era: The Rise of Regulation and Formalism (September 30, 2019). Journal of Chinese Economic and Business Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3517975

Jiafu An

University of Portsmouth ( email )

Portsmouth, PO1 3DE
United Kingdom

HOME PAGE: http://www.jiafuan.net

Wenxuan Hou (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.wenxuanhou.com

Shanghai Lixin University of Accounting and Finance ( email )

Yun Zhang

Shanghai Lixin University of Accounting and Finance ( email )

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