The Birth of Insolvency in China: Judicial Innovation during the Wenzhou Curb Crisis

In this paper, through a case study focusing on the evolution of China’s insolvency law, we test the ‘transplant effect’ hypothesis, in particular the claim that transplanted laws can only work when there is local or ‘endogenous’ demand for them in the ‘host’ or ‘receiving’ state. We also test claims made for a ‘co-evolutionary’ understanding of the law-economy relationship in the context of China’s development. In addition to documentary sources, this paper draws on interviews we carried out in Wenzhou in September 2017 and December 2018. Our study shows that aspects of the transplant and coevolution hypotheses are in need of some modification if they are to explain China’s legal and economic development. The embedding of legal transplants is less a response to the demands of business actors, and more the result of proactive interventions on the part of judges and officials. The study also suggests that formal rules can be operationalised at the level of practice once they are seen as legitimate. While this is a process which takes time, a period of crisis provides opportunities for the learning process around the use of formal rules and procedures to be accelerated.