China is one of the most important foreign investment markets in both volume and growth. However, property rights protection in China is extremely weak and expropriations by both public and private actions are rampant. How can the booming of foreign investment and the looting of property co-exist? Why is protecting property rights so difficult in China? This article shows that the different paces of institutional change between formal and informal constraints are the major cause behind the lack of property right protection in China. It discusses policy considerations for China to improve property right protection and raises two fundamental issues for multinational firms doing business in China.
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