Growth without Institutions? The Case of China

Scholars and policymakers have always been interested in what matters to economic growth. The 'legal origins' hypothesis suggests that legal systems have a long-run impact on patterns of economic growth. Alternatively, it has been suggested that a political economy based explanation may be stronger than the legal origins hypothesis. Indeed, there can be a spectrum of factors which are relevant. This article seeks to present a comprehensive and contextual analysis of these factors in the context of China, with the support of existing empirical evidence. In relation to legal institutions, although gaige kaifang, the twin strategies of reform and opening-up the economy, was initiated in 1978, a formal framework of company, financial and labour laws did not come until around mid-1990s. Moreover, only until mid-2000s, these laws were then revised and polished to international standards. However, the growth of China remained strong amid a fairly long period of ‘institutional void’. This article first offers a brief explanation to the importance of re-considering institutions, especially after the financial crisis. Then, it discusses the role of these institutions in the context of China. One focus will be on the legal institutions in China. Afterwards it goes on to discuss the role of other institutions such as politics, culture, as well as certain professionals. Institutions have constantly been built and fine-tuned in China. Undoubtedly, this will be an on-going process.