Transaction costs and market culture under China's contract law reform

The New Economic Institutionalism credits voluntary, enforceable contracts with lowering transaction costs, thus enabling efficient use of resources. Political theorists see in freedom of contract the conceptual precursor of liberal democracy. This thesis weighs the prospect for China's post-Mao contract regime to lower transaction costs and foster democratic values by examining the state's laws, regulations, and organizational arrangements for dealing with contracts, and societal economic actors' contract values and decision-making processes.; The formal institutions of law and state organization are found to keep transaction costs high. Local officials retain discretion to arbitrarily grant or deny legal capacity to enter an economic contract (juristic personhood). The law treats contracts as mandatory obligations rather than agreements which may be terminated for a price (specific performance), but permits state units to renounce obligations directly and indirectly (state interests, plan prices, force majeure). Mediation Committees are extensions of the Ministry of Justice, subject to Party policy, and prone to impose settlements. Courts are permeated by structurally-induced local protectionism. Interviews and surveys of businesspersons and lawyers are used to show that these formal institutional phenomena influence contractors' decisions much more than supposed 'informal' institutions like custom and distinctively 'Chinese' psychological traits. Contractors recognize that the actions of dispute resolution forums are usually influenced by personal connections, they understand that contractors are unequal before the law (official rhetoric to the contrary), and they rely on private ordering to make official enforcement unnecessary.; Contract-related values and ideals of societal economic actors were not found to presage a strongly liberal democratic political culture. Respondents placed high value on the negative liberty of the 'right to refuse' to enter a contract, but were acquiescent to violations of equal legal status and often unconcerned with negotiating the terms of their agreements. However, they criticized partiality in enforcement and upheld the ideal of strong, autonomous contracts. While state discourses were reflected somewhat clearly in societal attitudes, society evinced a more liberal and rule-centered sense of contract values, suggesting the possibility of a dialectical, but non-unilinear, evolution of contract culture and political culture.