Based on a systematic analysis on the evolution of contract economics, combining with China’s status quo of contract economics research, this paper aims to explore the issues over its application of contract economics in China. Beginning with the evolution of the contract conception, an analysis on the causes of incomplete contract is followed by an examination on the issue of incentive mechanism design under information constraints. Having originated in the religious thoughts of the rights-based contract, the evolution of the connotation of the contract has experienced a transformation from the debtor-creditor agreement in legal contracts, to the norms and informal arrangements in political contracts, and then to the paradigm of transaction analysis in economic contracts. The contract had also become an important category in economic research from the ″outdated legal concept″ in the 1870s. The economic contract lies in taking a step towards repairing the paradigm of the general equilibrium in neoclassical economics, which can be broadly divided into formal and informal contracts, explicit and implicit contracts. Formal contracts and informal contracts tend to be parallel in practice. The choice of contract arrangement is essentially determined by the signing and enforcing costs. The economics of contracts is broadly divided into three main branches: principal-agent theory, transaction cost theory and the property rights theory. These three branches provide explanations for the contract arrangements from the perspective of symmetric allocation of rights, economization of transaction costs and internalization of externalities and risks, respectively. Modern contract is the governance structure regarding contracting parties’ rights and responsibility under the constraint of transaction costs, uncertainty and risks. Bonded rationality and incomplete rationality inevitably lead to contract incompleteness. The matching of exchange and residual rights in incomplete contract is the prerequisite for the achievement of economic efficiency. Comprehensive research of economics of contracts have been conducted in China covering the issues of contract incentive mechanism, connotation of transaction cost, risk allocation and property rights distribution in incomplete contracts. Localization and further development of the economics of contract is facing with the difficulty in the measurement of transaction cost, the lack of research on contract enforcement mechanism, and function of trust and reputation in self-enforcement contract. A market economy is in essence a contract economy, the contract is the institutional foundation to ensure that the market transaction is predictable, stable and reliable More attentions should be given to the issue how to ensure the implementation of the contract through the coordination of formal and informal institutional arrangements, which is the major obstacle to the healthy and orderly development of China’s market economy.