Chinese law provides compensation to enterprises when their financial interests are affected by legal transitions. While statutes broadly guarantee this compensation, court decisions on such matters vary from case to case. Empirical evidence suggests that courts generally offer stronger protection to enterprises in the manufacturing and real estate sectors than to those in the coal mining industry. This chapter applies the theory of regulatory costs to explain these varying levels of protection across different sectors. It argues that in sectors where the boundaries between public power and private property are more difficult to define, regulatory costs tend to be higher, leading to weaker legal protection. Consequently, the protection offered to private enterprises is hierarchical rather than equal – it is stronger in some sectors than in others, depending on the need for intense regulation and frequent policy adjustments. Under China’s legal system, the regulatory costs are likely to be borne by private investors in the regulated sectors, which discourages private investment and amplifies the role of state-owned enterprises.

Despite China’s efforts to corporatize state-owned enterprises (SOEs), these entities have not fully adopted the pure corporate form typical of private corporations. This chapter employs the theoretical framework of regulatory costs and ownership costs to explain the distinctive characteristics of SOEs by examining how they differ from the corporate form characterized by five features: legal personality, limited liability, delegated management, transferable shares, and investor ownership. While the corporate form is essential for financial purposes – particularly when a firm needs to obtain equity financing from a large group of investors – the benefits for governance purposes are less clear. Although adopting a corporate form reduces ownership costs, it incurs relatively higher regulatory costs. The chapter concludes by considering how different organizational forms can be utilized to achieve both financial and regulatory objectives in various contexts.

Despite the Chinese government’s efforts to privatize infrastructure construction through the public-private partnership (PPP) market, the majority of investors in this sector are still state-owned enterprises (SOEs). Moreover, the government that contracts for the infrastructure construction and service usually holds a significant proportion of shares in PPP projects. This chapter explains this phenomenon using the legal theory of SOEs. It finds that, in practice, the government typically retains the power to terminate PPP projects in the public interest when new circumstances arise, while the courts offer limited protection to private investors. As a result, private investors may be deterred from investing due to concerns about government opportunism. Furthermore, it observes that a judicial reform enhancing the independence of judges is associated with an increase in the proportion of shares held by private investors and a decline in shares held by SOEs and local governments. These findings suggest that a robust legal system promotes the extent of privatization by boosting the confidence of private investors.

The legal theory of state-owned enterprises (SOEs) posits that SOEs persist due to legal failures rather than market failures. It views privatization fundamentally as a process of legalization rather than liberalization. Privatization does not always suggest the state’s withdrawal from private sectors; in many cases, it is accompanied by expanded or stricter regulatory oversight. This perspective generates two implications. First, the successful reform of SOEs depends on the state’s ability to clearly define its control and establish institutions that deter opportunistic actions. A judiciary capable of effectively distinguishing between government opportunism and the legitimate exercise of power – thereby restraining abuse of power while upholding lawful decisions – is crucial. Second, if the government can develop effective regulation of private firms without ownership, the need for maintaining SOEs diminishes. Given the advantages of private firms in terms of ownership costs, further investment in developing robust legal and regulatory institutions could promote social efficiency by reducing the role of SOEs.

The competing forces of ownership costs and regulatory costs explain the sectoral distribution and historical development of state-owned enterprises (SOEs) in China. While SOEs are generally believed to incur higher ownership costs and have thus been reformed in many sectors, they continue to play a significant role in others. This chapter focuses on several sectors where a trend of "advance of the state, retreat of the private sector" has been observed. In the water utilities sector, empirical evidence suggests that in prefectures where the government fails to frequently adjust water tariffs according to the law to reflect changes in production costs, SOEs are more prevalent, indicating that challenges in tariff regulation likely deter private investment. In the steel and coal mining sectors, frequent changes in state policy have also likely negatively affected private investment. Additionally, in the commercial banking sector, the state maintains SOEs probably due to concerns that regulatory failures could lead to a financial crisis. These examples illustrate how regulatory costs influence the development of SOEs in regulated sectors in China.

When a government regulates an enterprise, regulatory costs arise due to bounded rationality, uncertainty, and asset specificity. To preserve flexibility, regulators are sometimes granted discretion by law to respond to new circumstances. However, such discretion can be abused to expropriate the interests of private investors, especially when private investments become specific assets that cannot be easily used for other purposes. State ownership alleviates regulatory costs by aligning the interests of the government and the enterprises, although it incurs higher ownership costs. In sectors where regulatory costs are low, private enterprises prevail because of their advantages in reducing ownership costs. Conversely, in sectors where regulatory costs are high, state-owned enterprises (SOEs) are more likely to prevail and are not easy to privatize. The degree of regulatory costs depends on several factors, including the need for intense regulation in a particular sector, the degree of uncertainty, and the availability of alternative institutions that support effective regulation.

Despite sustained efforts to privatize state-owned enterprises (SOEs) across various sectors in China, they continue to play a significant role in certain industries. Existing scholarship has yet to provide a fully satisfactory explanation for the historical development and sectoral distribution of SOEs. Economists frequently argue that SOEs serve as tools for addressing market failures, while others interpret them as outcomes of political decisions shaped by ideology and interest group dynamics.

This book advances a legal theory of SOEs, asserting that prevailing accounts are incomplete. Market failures, after all, can also be addressed through regulatory measures. The more pertinent comparison, therefore, is between the use of SOEs and the use of regulation. When regulatory costs are high, SOEs are more likely to arise, endure, and resist privatization.

This chapter examines the discontinuous history of Chinese multinationals and their role in China’s evolving globalization. It highlights that China’s global engagement has been shaped by both market forces and geopolitical dynamics. The first wave, following the Opium Wars, saw Chinese firms competing unequally with Western multinationals, with growth ultimately limited by political forces. A resurgence occurred in the 1980s as China reengaged globally, leading to renewed overseas investment by Chinese firms. Currently, amid rising geopolitical tensions, Chinese multinationals are strategically reorienting investment from developed economies toward emerging markets. The chapter emphasizes the multifaceted impact of this globalization, but also a changing global landscape where politics and power are equally pivotal to understanding the trajectory of Chinese firms’ activities abroad.

This chapter examines the impacts of cumulative changes since 1949 on workers. As state-owned enterprises and export-oriented factories are large users of agency workers, this chapter presents a case study of both formal and agency workers in a large state-owned enterprise with relatively stable orders, and accounts of agency workers in export-oriented factories, with relatively fluctuating orders. It thus covers the two major types of agency workers in China in the 2010s: one with job tenure of years and managed solely by user enterprises, and another one with job tenure of six months or less and managed by both user enterprises and labour dispatch agencies.

China’s development under the Chinese Communist Party’s rule challenges the conventional understanding of the correlation between wealth and democracy that the more well-to-do a society, the more likely it will democratize and business owners will be driving such political changes. Despite the unprecedent growth and prosperity over the past decades, the authoritarian system has neither collapsed not embraced democracy. Instead, the one-party rule has remained stable and the business owners complacent, which invites the question of why China’s economic liberalization has not created a business class who are not advocates of political change. This chapter aims to answer this question by looking into the interactions between the party-state and private business owners. It argues that the state–business relationship in China is one of interdependence, where the business owners depend on the party-state for business success and the party-state depends on business owners for economic growth.

How can the state make durable policies and control resistance of incumbent fossil fuel interests for rapid decarbonization? Through the lens of policy feedback and coalitions, we argue that in certain contexts the state can manage political conflicts to ensure durable policies for decarbonization. We use the case of China – the world’s largest carbon emitter with a political economy system where the state has large influence on the market – to illustrate the possibility of conflict management for energy transition. We show how the central government has used regulatory power to induce big power companies to shift away from fossil fuels toward renewable energies. Reflecting upon the Chinese case, we identify some conditions under which the state can redirect the interest of incumbent actors toward net zero transition. Our study suggests that while political conflicts are inevitable to combat climate change, policymakers can strategically manage them to deepen and accelerate transition.

This chapter explores how the interpretation of customary international law (CIL) can be shaped by the underlying premises and political values of a system. The argument it develops focuses on how investor–state arbitration has interpreted the CIL law rule establishing that the actions of state-owned enterprises will be attributed to the controlling state, as expressed in Article 8 of the Articles on the Responsibility of States for Internationally Wrongful Acts.