Market Economy under the Rule of Law

By staff reporter ZHOU LIN

Along with deepened reforms and anti-corruption actions such as the Fox Hunt 2014 campaign, China’s economy has entered a “new normal.” The concept of governance according to law was raised once more at the Fourth Plenary Session of the 18th Central Committee of the Communist Party of China (CPC) last October. It signifies that the rule of law will govern the future sound development of the Chinese economy.


 China’s economy is saying goodbye to breakneck development speed and accepting medium and high growth as the “new normal.”

The Rule of Law, a Boost to China’s Economy

The Chinese government revealed core economic data two days before the closing ceremony of the Fourth Plenary Session of the 18th CPC Central Committee which included the record low growth figure of 7.3 percent for the third quarter of 2014. This signifies a new challenge for Chinese economy that means bidding farewell its erstwhile mega economic development speed and accepting medium and high growth as the “new normal.” At this decisive stage of deepening reform and building a moderately prosperous society, how to unleash the “dividends” brought by the rule of law as an auxiliary boost towards steadily upgrading China’s economy has become the focus of all social sectors. 

The rule of law is the hallmark of a market economy, and also the basis of the modern state system of governance. The focus of the Fourth Plenary Session of the 18th CPC Central Committee on China’s rule of law signaled a new era of governing the economy according to law. Experts point out that promoting rule of law reforms will have positive impact on the economy and business, and that China’s future anti-corruption activities will also promote reforms to its economic structure.

So what are the challenges that China’s rule of law reform must meet in order to achieve stable and sustainable economic development?

Professor Xu Chenggang of the School of Economics and Finance at the University of Hong Kong believes that the constitutional governance system is the basis of development for financial markets. China’s biggest challenge, however, is that it has never had private laws, while the market economy is one governed by law. China, therefore, in order to transform its economic growth mode and achieve modernization of state governance, has to build a new order of rule by law, to clarify as a matter of urgency the boundaries between government and market, protect private rights and constrain public power.

Professor Xu has moreover pointed out that China’s current reform has entered deep waters wherein development is geared to the rule of law and the establishment of a governance system in line with the Constitution. This reform cannot be restricted to the minutiae of contract law, company law, insolvency law, financial law, etc., which although necessary are far from enough. To sustain long-term, sustainable and stable economic development, China’s law reform must tackle the problem of its absence of private laws. It must protect the independent operation of private law by establishing governance according to the Constitution.


New Order of Law-based Governance

Constraining the power of all levels of government to violate private property rights is at the very core of constitutional governance and judicial independence. Constitutional governance is the cornerstone not only of democracy and the legal system but also of sound economic and financial development.

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