Adaptive Efficiency and China’s Economic Growth: Contractual Arrangements and Enforcement
This paper uses the development of informal contractual arrangements in Wenzhou, China, and three formal contractual arrangements in China to examine the role of adaptive efficiency in China’s economic growth. I argue that China’s high rate of economic growth is consistent with adaptive efficiency. Adaptive efficiency used in this sense is reflected in the processes when people develop informal contractual arrangements and adapt to formal contractual arrangements used in other countries through transplantation and adaptation. My research, therefore, has the potential of not only examining North’s adaptive efficiency in a specific context but also providing new or additional explanations of China’s economic growth. Part II will examine the informal contractual arrangements in Wenzhou to show that China’s reform has provided incentives for people to develop decentralized decision-making processes to exploit contractual gains. Part III will treat three formal contractual mechanisms widely used in China, namely, bills of exchange, letter of credit, and secured debt. This part will show that these formal contractual mechanisms play important roles in China’s economic growth. Unlike others, I argue, along the line of Johnson et al., that commercial parties and the courts in China can, albeit imperfectly, get to utilize these formal legal mechanisms much more quickly.
Keywords: Adaptive Efficiency, China’s Economic Growth, Formal and Informal Contractual Arrangements, Contract Enforcement
Prof. Guanghua Yu
Associate Professor, Faculty of Law, University of Hong Kong
Senior Lecturer, Leads University