It has long been argued that the legal system does not have a strong role in explaining China’s economic miracle; therefore, China is often presented as an anomaly for the “law matters” hypothesis. This study contributes to the debate from a unique perspective by examining the connection between law and the operation of factor markets. In China, laws and regulations governing factor markets have been systematically distorted by the government, intentionally or unintentionally, to facilitate the nation’s enormous economic growth in the short run at the cost of environmental quality, ordinary citizens’ welfare, and long-term economic health. Thus, China has become a fast-growing but unsustainable economy.
