How did the Chinese private de novo firm develop during market transition, when the formal institutional structure wasn’t benevolent?

Abstract: This thesis will focus on one of the most external factors that drove the institutional change particularly in Chinese industry, which is the emergence of private de novo firms. The purpose of this thesis is to bring together the important role of emerging private firms in a marketizing economy and the impediments imposed by the government. Several institutional problems need to be addressed in order to understand their complex development. The most serious ones that we would focus are the lack of sufficient legal framework to protect private property rights, the importance of political capital for securing future business transactions and finally, poor developed financial institutions. We will further discuss the alternative methods these de novo firms entail which uphold additional institutional framework for China’s economic success. The paper will present four hypotheses which will be based on earlier research and econometric analysis using World Bank Investment Climate Survey conducted in 2003.