Reform and Development in China by Yao Yang L.;Wu Ho-Mou;Lin Justin Yifu;

Author:Yao, Yang L.;Wu, Ho-Mou;Lin, Justin Yifu;
Language: eng
Format: epub
Tags: Economics, Finance, Business & Industry
Publisher: Taylor & Francis Group
Published: 2010-07-30T00:00:00+00:00

Laws and markets: China and the US

Although there are pitfalls with a comparative perspective, an examination of whether markets precede or follow laws in China and the US can inform the debate over whether the rule of law is necessary before markets develop. Examining the respective legal developments at similar stages of economic development for these two countries would be informative.

Although Table 10.7 outlines the key pieces of commercial law for the US and China as compared against the level of economic development, there are notable differences as between the two countries to consider. The first is that the US common law tradition means that cases rather than legislation shape the law, though laws can certainly be amended, such as the Bankruptcy Act of 1898 which was entirely superseded by the Bankruptcy Code of 1978 which governs corporations today. This can take place in federal or state courts, and much of US corporate law is state law, with notable exceptions such as bankruptcy and patents which remain under federal jurisdiction. The corporation law identified in the table refers to the State of Delaware, which accounts for some half of all US corporations due to its favourable climate for corporate governance.

China, by contrast, has elements of civil law and a strong administrative component, as compared with the common law and judicial review emphasis of the US. Its laws, moreover, have to contend with the transition of its economy from the dominance of SOEs to one with private domestic and foreign enterprises, of which the latter was gradually managed through specific legislation. For instance, the United States was confronted with the “robber barons” of US Steel and other monopolists at the conclusion of the Industrial Revolution, which raised concern about anti-competitive practices. The “trust busters” of the late nineteenth century, therefore, enacted the Sherman Act of 1890 which was geared at dismantling monopolies. China, however, did not pass an anti-monopoly law until 2007, quite late in its market transition, due the unique dominance by SOEs which accounted for over 90 percent of GDP in 1978 and gradually declined in importance throughout the next three decades. With the creation of a more competitive market after the large-scale SOE reform of the late 1990s as well as the incursion of foreign firms after WTO accession in 2001, there was a need to ensure that monopolies did not distort the market. In China, moreover, there were numerous laws geared at managing foreign investors to control their presence in the domestic market, e.g. Chinese-foreign Equity Joint Venture Law of 1979, as well as those which governed the gradual emergence of domestic private firms, e.g. Law on Individual Wholly-Owned Enterprises in 1999. Parallel laws for foreign and domestic firms resulted. Therefore, there was subsequent unification of various pieces of law governing the same issue, such as the Contract Law of 1999 which unified the three forms of contract law that had governed domestic and foreign enterprises separately (see Appendix I).

Examining the periods of adoption of key commercial laws harkens back to the age of industrialization.

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