Markets and institutional change in China

This chapter examines China’s economic reform. It discusses the rise of a dynamic private manufacturing economy; the role of informal norms, business networks, and economic institutions; and the theory of endogenous institutional change. It shows in the years following the state initiated economic reforms, bottom-up institutional innovations in the private sector initially enabled the development of a dynamic capitalist economy, and then the political elite followed up with accommodative change of formal rules that legitimized what had already taken place on the ground in order to enable the gains in productivity to be channelled into taxable revenue.