The Role of Law in Chinese Value Chains

Abstract

Global Value Chains (GVCs) rely on division of labor within and beyond borders to minimize production costs and build regional and global value chains. Since starting its economic reform four decades ago, China has been highly successful in integrating its economy into regional and global value chains. This started with simple assembly and processing, then expanded to low-end labor-intensive manufacturing, and gradually moved up to technology-intensive and capital-intensive industries. Much has been written on global value chains and China, but little as regards their relation to law. Over time, China changed its laws and developed its legal system in ways that incentivized GVCs, including through attracting foreign investment, liberalizing its internal market, diversifying its exports, supporting the GVCs of foreign-based multinational companies, and (more recently) building outbound Chinese GVCs. This article analyzes the development of Chinese law, legal institutions, and international and transnational legal initiatives to support the development of GVCs, which we divide into five phases. The article does not idealize law in terms of “commitment” or “rule of law,” but rather, in the legal realist tradition, views law as an important, contributing factor in economic change. It presents law as a signaling and coordinative device that serves to channel private conduct for business planning and coordination. The article provides insights for understanding current developments in the trading system and their implications for regional and global value chains in a world fraught with trade conflicts and the undermining of international institutions.

Keywords: global value chains, design and production networks, china, Chinese law