China above the Law; A Poorly Functioning Legal System Is Supposed to Hurt Economic Growth. but Nobody Told the Chinese

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Byline: Sarah Schafer

On Feb. 2, a Communist Party journal published a speech by Luo Gan, a Politburo member and China's top law-and-order official, that startled the country's burgeoning legal profession and foreign investors. Luo declared that the Communist Party should maintain its dominance over the nation's courts and resist "enemy forces" that were trying to Westernize its legal system. Just a week earlier, Beijing had announced that the country's economy was continuing to grow at a dazzling pace, hitting 10.7 percent last year. The two headlines pointed to an increasingly conspicuous paradox that is puzzling observers: how is China's economy managing to grow so quickly without an independent and modern legal system? And how long can it continue?

Western economists and legal scholars have long argued that a robust legal system and impartial courts are prerequisites for a mature market economy. Effective, transparent and predictable judicial institutions are deemed necessary to assure businesses and customers that investments will be protected, contracts enforced and disputes resolved equitably. The rule of law encourages innovation by establishing intellectual-property rights and …