Asian Journal of Law and Society

Research Article

Is China an Anomaly for the “Law Matters” Hypothesis?

Guangdong XU *

Associate Professor of Law and Economics in the Research Centre for Law and Economics at the China University of Political Science and Law


It has long been argued that the legal system does not have a strong role in explaining China’s economic miracle; therefore, China is often presented as an anomaly for the “law matters” hypothesis. This study contributes to the debate from a unique perspective by examining the connection between law and the operation of factor markets. In China, laws and regulations governing factor markets have been systematically distorted by the government, intentionally or unintentionally, to facilitate the nation’s enormous economic growth in the short run at the cost of environmental quality, ordinary citizens’ welfare, and long-term economic health. Thus, China has become a fast-growing but unsustainable economy.


  • China;
  • economic imbalance;
  • factor markets;
  • law and regulations


*  Guangdong Xu’s research focuses on law and economic growth, the economic analysis of property law, and corporate governance. Different versions of this paper have been presented in seminars at the University of Bologna Law School, Rotterdam Institute of Law and Economics, and International Institute for Asian Studies (Leiden). I benefited greatly from discussions with and comments by those seminar participants.