Property and Prosperity : A Demythifying Story

Commonsense wisdom holds that legal protection of private property rights is essential for economic growth. China presents a “puzzle” for commonsense wisdom. Scholars agree that China achieved tremendous growth in the past 40 years―without formal property law, and more specifically, without a legal system to recognize and protect private property rights.This Article presents a different story. It refutes the myth that China’s economic development occurred without formal property law and formal property rights and, instead, argues that both are central to China’s development. The country’s success—and struggle—is accomplished precisely through the Chinese state designing and redesigning property rights and institutions since the beginning of the economic reform. An eminent domain system operationalized a sectoral transfer of land from farmers to entrepreneurs, enabling China’s industrialization and urbanization while creating large-scale dispossession of ordinary residents. Zoning operationalized urban development at the expense of rural development, allocated development benefits and costs among competing groups, and allowed local governments to capture land rents to build urban infrastructure and amenities. Secure and freely alienable property rights were created for entrepreneurs, allowing them to develop or transact newly acquired land and pursue maximum wealth on a newly created urban real estate market. A social security model for rural land externalized the costs of social reproduction onto rural China and produced a cheap, abundant, and flexible labor force for urban-industrial China. After these institutions created massive social strife and inequality in the 1990s and 2000s, the Chinese state once again redesigned these institutions in the 2010s in an effort to induce more inclusive growth