The Role of Law in China's Economic Development
Donald C. Clarke
George Washington University Law School
University of Maryland - Department of Economics
Susan H. Whiting
University of Washington - Department of Political Science
In Thomas Rawski and Loren Brandt (ed.), China’s Great Economic Transformation (Cambridge University Press, 2008): 375-428.
This paper surveys China's legal system in the economic reform era. We analyze the role of law in the economy, assessing whether China's formal legal system contributed to those expectations of stable and predictable rights of property and contract that are prerequisites for growth. The paper begins by detailing legal developments. The relationship between legal and economic development was bidirectional - a coevolutionary process. We then examine three spheres of activity - property rights, agreements to trade, and corporate governance - asking whether law plays an important role, how that role has changed, and what the current problems are. Common themes arise. First, there have been profound changes, with law playing an increasingly important role. Second, formal legal institutions have not made a critical contribution to China's remarkable economic success. This latter conclusion leaves open the question of which mechanisms generated the necessary expectations of reasonable returns from decentralized economic activity. We briefly reflect on mechanisms other than law that might have produced such expectations, for example, the role of local Communist Party officials. However, lack of empirical information suggests this is a topic for future research.
Number of Pages in PDF File: 27
Keywords: China, institutions, law, property rights, contracts, corporate governance
JEL Classification: P20, P26, P30, P37, N45, K00, K20, K40, D02
Date posted: January 30, 2006 ; Last revised: July 26, 2014