This study finds that the Chinese experience cannot, as some have claimed, pose a challenge to the property rights theory. The unsatisfactory economic performance of the Chinese private sector in the 1980s is attributed to the discriminatory legal environment within which private property rights developed. Private property rights had to develop under the disguise of collectives. Once the political and legal environments improved in the 1990s, the private sector achieved significantly greater productivity gains and contributed more to economic growth than all other sectors. Accordingly, private property rights are crucial to economic performance; China is no exception.