Explaining China's Legal Flexibility: History and the Institutional Imperative

China’s legal system appears to harbor a major tension, or even a paradox. Certainty in law facilitates economic progress, which most observers agree the Communist Party requires to maintain its power—yet the Party has opted for a flexible legal system that often impedes predictability. Prior studies explain China’s legal system as a product of certain constraints and as an expedient that allows for policy adjustments. These factors undoubtedly are at work but do not fully explain the rationale for a legal design seemingly at odds with the Party’s economic goals.

To obtain a fuller view, it is necessary to consult the historical circumstances in which the designers of China’s legal system were embedded. This Paper argues that the Party’s reformers achieved a percipient historical insight: the Party would require an ongoing competitive advantage in institutional entrepreneurship to survive after Mao. Moreover, the reformers understood this competency to embody not only the substance of policy, but also, crucially, the Party’s institutional stewardship. Of its many advantages, flexible law reinforces the Party’s dominance in institutional entrepreneurship, enabling the Party to impede rival entrepreneurs without disrupting the broader economic frameworks in place.

Institutions with strategic functions emerge and viewed thusly, the economic tradeoffs inherent in China’s flexible laws are not the paradox that they seem. The Paper briefly considers the implications of this historical context for multinationals’ strategies in China and for states’ strategic uses of flexibility in international legal institutions.