Economic governance and marketisation: understanding the institutional roots of China’s achievements and challenges

As an institutional infrastructure for market economy, law is crucial in underpinning market transaction enforcement. However, it is imperative to recognise the gap between legislative reform and marketisation in China. This paper attempts to explain why China has experienced astonishing marketisation without satisfactory legislative building. It is aimed to explore institutional roots of marketisation by arguing that lawlessness creates challenges to further development while it goes along with the achievement of marketisation in China. Additionally, this research focuses on promoting China’s economic governance. It argues that law is not the only governance mechanism to ensure market transaction enforcement. There are other governance mechanisms such as relational governance and private third-party governance enforcement. Relational governance plays an important role in China’s transition. However, relational governance alone is inadequate in supporting China’s long-term development. Private third-party enforcement can link relational governance with formal governance mechanism. While focusing on the development of institutional infrastructure, it is important to build a governance framework in which the governance mechanism based on formal institution, such as law and government regulations, private third-party enforcement and relational governance are coordinated and complementary.