This article revisits the prevailing wisdom regarding property rights based on empirical research on the behavior of foreign investors in China. The Property Law did not exist in China until 2007—four years after China replaced the United States as the most popular foreign direct investment destination worldwide. This seems to contradict the conventional wisdom about the indispensable role of property rights in economic growth. This article argues that China’s experiences in fact do not overrule the orthodox view, but rather shed light on the evolution of the regulatory property regime. Property rights still matter in China, but the structure of property institutions deviates from conventional configurations. Focusing on land tenure, this article demonstrates an institutional substitute strategy adopted by foreign investors to fulfill their institutional needs. This article also identifies the specific forms of substitutes for property rights and conceptualizes two general approaches to establishing such substitutive property institutions—the contract and corporate law approaches. The findings show that the bifurcated notions of “formal/informal” or “property/non-property” institutions cannot characterize the dynamic evolution of property rights in China. Unlike the image conveyed by informal institutions, foreign investors do not operate their businesses under the shadow of law but beyond the shadow of law by piggybacking on various regulatory regimes and areas of law. Nonetheless, the institutional substitute as a development strategy may facilitate economic growth but will not be sustainable in the long term if it fails to address structural problems caused by accelerating changes in market conditions.
Arbitrage for Property Rights: How Foreign Investors Create Substitutes for Property Institutions in China,
24 Wash. L. Rev.
Available at: https://digitalcommons.law.uw.edu/wilj/vol24/iss1/12