Navigating the Regulatory Void: A Social-Legal Exploration of Third-Party Funding in Mainland China
Third-party funding (TPF), a mechanism where a third-party funder invests in the outcome of a claim, has emerged as a transformative force in global dispute resolution markets. While scholarly attention has primarily focused on regulatory frameworks in well-established jurisdictions, the market behavior of funders operating in legal vacuums remains underexplored.
This article addresses that gap through an empirical analysis of China’s nascent and under-regulated TPF market. Drawing on interviews with key stakeholders, it examines the challenges faced by funders and the adaptive strategies they employ in navigating regulatory uncertainty. By uncovering these dynamics, the article contributes to broader theoretical implications. It reconceptualizes funders, as market actors, as policy entrepreneurs who actively shape soft regulatory environments; highlights the complementarity—rather than substitutability—between trust and formal regulation in sustaining contractual performance; and underscores the institutional advantages of arbitration, particularly the party-appointment mechanism, in supporting emerging markets. Beyond this, China’s experience provides a practical foundation for policymakers in similarly underregulated jurisdictions seeking to harness the benefits of TPF while mitigating its risks.