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.