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Thursday, October 5, 2006

Law on the books vs. law in action

More than one observer has commented that while all societies show a gap between law on the books and law in action, in China the gap often seems wider. Without expressing an opinion on the (ultimately somewhat pointless) empirical comparative question, let me offer an observation about the procedure for obtaining a driver's license in China. This is reproduced (with permission) from an e-mail from a long-term foreign resident of Beijing doing business there.

Mine was a steal at two US silver dollars (a friendly gesture in the spirit of cultural exchange) plus 10 kuai for the "physical" (the first time around, I had to buy someone else's lung x-ray at the gate of Chaoyang Hospital - 2 kuai at the time. The second time I took the exam - because I had inadvertently let my license expire two years earlier - the x-ray requirement had been removed and the "physical" required telling an examiner how tall I am, reading a color chart, and paying 10 kuai). My husband (having put all my speeding tickets onto his license and therefore exceeding the legal number of points by 200%) had to actually take the exam. He studied the average weight of a tractor and the wheelspan of dumptrucks for two weeks and passed the exam, only to find that really taking the test is virtually unprecedented, and the examiners don't know how to save the test results on the computer. So his computerized results disappeared and they just gave him the license.

The road test is a little more complicated to pass. My business partner once paid for about 5 employees to get driving lessons, including himself. He never attended classes. In the end, the employees all failed the driving test but the examiners worried that Max (my then-partner) had not gotten his money's worth, so they gave him a license. Fortunately for the rest of Beijing, he had a driver.

I have another friend, who speaks perfect English and Chinese but is Swiss, who brought an "interpreter" to the exam, claiming he spoke only German. My friend would recite nursery rhymes in German and the "interpreter" would "translate" into the correct answers. This was helpful not only because of the exam but because the friend is colorblind and could not otherwise tell red from green.

My correspondent adds:

This is why I find it difficult to take investment regulations very seriously. It is almost a point of honor for us long-term residents to be able to get out of any legal requirement.

If I may be serious for a moment, lest anyone get the wrong impression from this concluding remark, I should add that in my own experience what may be true for small businesses run by long-term residents is not necessarily true for large multinational corporations advised by large international law firms. American corporations in particular need to worry both about the Foreign Corrupt Practices Act and (even where corrupt practices are not involved) the possibility of getting sued by shareholders should a violation of local law result in a loss to the company. As a lawyer for such a company, I would not relish trying to explain to an American jury that from a legal realist perspective, Chinese laws against bribery and payoffs that were ignored by virtually everyone in China shouldn't count as "real" law. Paradoxically, then, the US legal system may have a bigger role in enforcing Chinese anticorruption laws than the Chinese legal system.

A particularly good article about all this is Patrick M. Norton, "The Foreign Corrupt Practices Act: A Minefield for US Companies in China," China Law and Practice, No. 9 (Nov. 2004), at 15 (available on Westlaw at 2004 WLNR 14891069).

SUBSEQUENT NOTE: After posting this, I discovered that quite by coincidence there is a relevant post on the China Law Blog about whether US companies violate the FCPA and other US statutes in their China operations: click here.

http://lawprofessors.typepad.com/china_law_prof_blog/2006/10/law_on_the_book.html

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Comments

I wonder how much of this is special to the expat? FWIW, my wife (native Beijinger) recently got her license, and the process appears to have worked as intended. No bribes, no guanxi, and actual tests (driving and written) with a significant chance of failure.

Please note, I am not doubting the truthfulness of the tales. What I am wondering is whether the fact of being an expat might significantly color the way the Chinese handle such applications.

Posted by: Mike Dowdle | Oct 6, 2006 7:25:57 AM

Small foreign companies in China (probably some large ones also) get away with engaging in illegal conduct every day, ranging from paying bribes, to not paying taxes and even not having permission to be there at all. This works for some companies for some amount of time, but I have taken far too many phone calls in my career from companies that have been pushed out of an emerging market country without any recourse because they were violating the law.

It is my experience that foreign companies in China (and elsewhere as well) are always vulnerable and those that violate local laws are even more so. Also, how much is someone going to pay for a business that is not operating legally?

Posted by: China Law Blog | Oct 8, 2006 10:18:38 PM

At one time I would have explained this casual attitude toward legal standards as somethng to do with the Chinese temperament (anthropologists would refer to it as a "Primary Sympathetic Orientation"). But it's interesting to note the contrast with Singapore (about 75% Chinese) where, in the words of one local, "If there is a regulation you will bloody well follow it otherwise all h*** will break loose."

Posted by: David Carnes | Oct 10, 2006 5:32:06 AM

A lot depends on the consequences of violating a regulation, and a lot more depends on the degree to which the regulations are considered legitimate by the parties involved.

In the case of investment regulations, if you are dealing with your own money then you have a lot more freedom to break the rules than if you don't. If you are spending your own money and something bad happens, then you are just out your own money. However, if you are breaking the law with someone else's money (which would typically be the case in large corporate transactions), the people whose money that you are risking can and will do very bad things to you if you lose their money.

Posted by: Joseph Wang | Oct 16, 2006 4:35:28 PM

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