Backwards into the Future

Abstract

The assumptions behind the past ten years of economic and legal reform in the People's Republic of China (PRC) have been rooted in the belief that creation of a legal regulatory mechanism can engender the very institution which the law has been created to regulate. Although this may sound like a logical conundrum, Chinese experience has recently confirmed it. For example, the 1979 Sino-Foreign Joint Venture Law' encouraged the creation of equity joint ventures between Chinese and foreign participants where no such entities had existed before the law's promulgation. Indeed, no company law of general applicability has ever been put forward by the PRC Government, and only in the past few years have some of the implications of the term limited liability been explicated by the newly announced General Principles of Civil Law.2 In general, this experience controverts the usual relationship between economic and legal change. Over the course of history, legal regulation has necessarily lagged behind developments in the economic sphere, imposed when the appearance of or the evolution of certain phenomena has created a need for it.3 Much more rarely have legal rules been drafted with a view to creating wholly new economic institutions which presumably would not otherwise arise. The problems in the PRC which both engender and explain this seeming paradox are that the demands of its statist political order will not allow any new actor to emerge in the economy without explicit authorization from the state, which only legislation can provide; and, conversely, certain components of a modern economy require the support of a regulatory framework to function properly, making the existence of such regulation a