Abstract
China’s rapid growth in the absence of autonomous legal institutions of the kind found in the west appears to pose a problem for theories which stress the importance of law for economic development. In this article we draw on interviews with lawyers, entrepreneurs and financial market actors to illustrate the complexity of attitudes to contract, corporate and financial law and economic growth in contemporary China. In the case of product markets, we find that business relations are increasingly characterised by a mix of trust-based transacting and legal formality which is not fundamentally different from practice in the west. Financial markets are less like their western counterparts, thanks to the preponderant role of government in asset allocation, and a lack of transparency in market pricing. However, in both sets of markets we find evidence of a transition from inter-personal trust (guanxi) to impersonal transacting, and of growing demands from business and legal groups for the impartial application of legal rules and market regulations. China’s experience does not suggest that law is irrelevant or unrelated to growth, but that legal and economic institutions coevolve in the transition from central planning to a market economy.
Highlights
What has been the contribution of the legal system in general, and of contract, corporate and financial law in particular, to economic growth and development in China? The Chinese experience of rapid growth in recent decades appears to contradict the claim that ‘law matters’ for economic development
In this article we have reported findings from interviews with entrepreneurs, managers, lawyers and bankers in China, carried out between November 2013 and December 2015, on the theme of law and trust in contractual dealings, and on the relationship between the legal system and finance, in particular as regards the role of contract, corporate and financial law
We do not find evidence to support the claim that China’s growth, or in the recent past, has depended on the absence of law and on the presence, instead, of interpersonal trust or guanxi. While this may have been the case at the start of the period of market-based reforms several decades ago, our interviews suggest that legal and business actors increasingly see costs attached to the use of guanxi as the basis of contractual relations in China
Summary
Others refer to it as a ‘rule by law’, see e.g. R Peerenboom, China’s Long. The interview data provide evidence that attitudes to trust and law are changing as the market economy develops and deepens, and that a transition from guanxi-based transacting to a more formal, legally-driven approach to contracts is taking place, unevenly across industrial sectors and regions. Closer attention should be paid to identifying in which respects China’s trajectory is distinct from that of other countries undergoing industrialisation, and those aspects of its experience which may not be so very different after all
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