Finance against Law: The Case of China

58 Pages Posted: 7 Sep 2022 Last revised: 13 Sep 2023

See all articles by Shitong Qiao

Shitong Qiao

The University of Hong Kong - Faculty of Law; Duke University School of Law

Date Written: August 15, 2022


Can there be a highly developed financial market without the legal protection for investors and creditors? The highly influential law and finance literature is built on the assumption that legal protection is essential to the development of an impersonal financial market. This Article investigates how two financial markets of trillions of dollars have developed extralegally in the past two decades despite the risk of regulatory enforcement and contract defaults. Specifically, I examine (1) how Chinese internet companies from Sina to Alibaba have designed contracts to circumvent the Chinese government’s ban on foreign capital in its internet industry and (2) how Chinese entities and foreign investors contract out of China’s stringent regulations on the issuance of international bonds. These extralegal contracts incur significant legal risks and are unlikely to be enforced in Chinese courts. Nevertheless, numerous international investors have invested in China through such contracts, providing capital essential to the country’s economic growth over the past two decades. My research reveals that (1) the extralegality of both the international capital market supporting China’s internet companies and the market of Chinese-issued international bonds originates from China’s struggle between development, which requires access to the international capital market, and control, which requires keeping both Chinese enterprises and foreign capital on a short leash; and (2) networks of Chinese state actors, market intermediaries, and Chinese corporations concentrated in certain industries replace judicial enforcement in supporting financial development of a remarkable duration and scale.
Based on the above case studies, this Article coins the term “finance against law,” challenging the necessity of law to developing impersonal and sophisticated financial markets. Law and finance scholars are right that impersonal finance needs the backing of the state, but wrong to assume that the state can only back impersonal finance with legal institutions. China’s approach, “governing by extralegality,” sheds light on the role of the state and politics in extralegality, pointing to a new direction that scholars of law and social norms who mainly focus on private ordering should attend to. The Chinese experience also demonstrates an approach of developing markets by circumventing existing legal and regulatory barriers, further complicating the relationship between law and development.

Keywords: China concepts stock; variable interest entities (VIE); Chinese-issued dollar bonds; keepwell deeds (KWD); law and finance; judicial enforcement; relational contracts; network; private reputation; state reputation; governing by extralegality; credible commitment

JEL Classification: K10; K22; K42

Suggested Citation

Qiao, Shitong and Qiao, Shitong, Finance against Law: The Case of China (August 15, 2022). Harvard International Law Journal, Vol.64. No. 2. 431-487., University of Hong Kong Faculty of Law Research Paper No. 2022/48, Duke Law School Public Law & Legal Theory Series No. 2022-51, Available at SSRN:

Shitong Qiao (Contact Author)

Duke University School of Law ( email )


The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong

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