Bringing Dead Capital to Life: Property Rights Security in China

China’s 2007 Property Law provides a rare large-scale quasi experiment to examine the impact of restoring property rights protections for privately owned assets. We test hypotheses about property rights insecurity using novel firm-level administrative data that cover the universe of Chinese firms from 1998 to 2012. We find evidence confirming the counterfactual to de Soto’s “dead” capital, wherein the law increased new privately owned firms and enabled more firms to survive the early years and produce more; the converse to be true for state-owned enterprises, which indicates the law’s role—indeed, intent—to reallocate; and evidence of capital reallocation in the birth of more productive firms, specifically firms that became exporters.