Saturday, June 28, 2008
The Economic Observer Online has a very interesting story about the efforts of lawyer Hao Jinsong (郝劲松) to uncover government information about the notorious "South China tiger photograph" both in court and through administrative processes, including the new Regulations on the Disclosure of Government Information. Here are the links: English | Chinese. (Hat tip: China Digital Times.)
Tuesday, June 24, 2008
I came across a great paper the other day: Peng Sun and Yi Zhang, "Is There Penalty for Crime: Corporate Scandal and Management Turnover in China" (March 2006). The authors are trying to figure out whether top executives suffer when they perpetrate corporate frauds. [UPDATE: A correspondent has noted that, strictly speaking, the paper is talking about what happens to executives when the company or the executive perpetrates a fraud. Thus, the sample could include cases where we would not want to say that the executive had actually perpetrated the fraud.] They discover, somewhat to their surprise, that CEOs and board chairmen (COBs) do tend to lose their jobs after a scandal. But then the authors take an interesting extra step that, surprisingly, few studies in this area seem to take: they track what happened to the executives after they lost their jobs. And here's the amazing result: fully 70% of COBs and 66% of CEOs actually get promoted to higher positions in industry or government, or move across to positions no worse than the ones they had. Only a tiny number suffered severe administrative sanctions (banned from the market, barred from serving as officer of listed company, or recommended for dismissal by CSRC) or legal sanctions (prison time). Finally, Party membership was positively correlated with milder sanctions.
Here are the numbers and a graphic I put together:
Here’s an interesting story about the foreign investment approval process in China, and in particular about how the RMB valuation problem is infecting policy in strange ways all across the board.
A lawyer for a foreign law firm in China told me about his experience negotiating with the foreign investment approval authorities in a certain large, commercially sophisticated city. His client was acquiring a privately owned Chinese firm in that city. In accordance with relevant regulations, a valuation report had been prepared by an independent appraiser. The price negotiated by the parties (unrelated parties negotiating at arm’s length), however, was 50% than the appraised valuation.
A market price higher than an appraised value is not surprising or indicative of anything wrong; Chinese appraisers often rely on book values that take no account of certain intangibles and future earning power. In the past, foreign acquirers have run into difficulties with approval authorities when the negotiated price was lower than the appraised price; the authorities, who have more faith in the solidity and apparent objectivity of book numbers than in evanescent and subjective market valuations, would suspect that assets were being sold off cheaply to crafty foreigners, or that kickbacks or other underhanded dealings were involved.
In this case, however, the authorities objected that the negotiated price was too high. The foreign buyers should pay less money. When asked what an acceptable margin on either side of appraised value might be, they responded, “10 percent.”
What’s going on here? The problem is that apparently approval authorities are now more worried about hot money inflows than they are about Chinese sellers getting taken to the cleaners by crafty foreigners. They just don’t want all this money coming into the country. Surely there is something wrong with an exchange rate policy that leads to this kind of result. Michael Pettis over at the China Financial Markets blog has written frequently about the dog-wagging effect on monetary policy of the tail of exchange rate policy; here’s another dog being wagged.
By the way, the resolution of the lawyer’s problem is as interesting as its original cause. The lawyer insisted that the negotiated price couldn’t be changed; it was the product of four months of hard bargaining between the parties. (Who could have imagined that a lawyer would be put in the position of saying, "My client insists on paying more than you want it to pay!") Eventually the approval authorities were convinced that the price was reasonable. The agreed solution? Amend the appraisal report!
Monday, June 23, 2008
Chinese visa policies are something of a moving target these days - and the target itself is in part well lit, in part camouflaged, and in part completely invisible. Here's a web site with some updated information, gathered from here and there, on current Chinese policies. The information here is unofficial, subject to change, and possibly inaccurate, but it's more comprehensive than anything the Chinese government has chosen to make available so far.
Sunday, June 22, 2008
Readers of this blog will probably already be familiar with the litany of complaints about the Olympics-related tightening of rules on visa issuance, among other things. I am not a security expert, but I can't disagree with the general notion that those in charge have lost all sense of proportion. The other day when I went back to my apartment - an ordinary apartment in an ordinary apartment complex, just like hundreds or thousands of other complexes in Beijing - I had to walk through a double line of camouflage-suited young men (quite friendly, however) at the entrance. I don't know what threat they were guarding against, or who had the idea that wearing green leafy-colored clothing in Beijing would make you blend in with your surroundings. In any case, here's an interesting Chinese view: an essay [Chinese | English] on an MP3 player that could not be sent through the mail. (HT: China Digital Times.)
Thursday, June 19, 2008
The New Beijing News (新京报) yesterday carried a report on what purports to be the first case heard by Beijing courts on access to government information under the Regulations on Open Government Information (政府信息公开条例), which came into effect on May 1.
The facts of the case are quite interesting and involve all kinds of historical complications. The plaintiff's father owned quite a bit of housing stock in various parts of Beijing prior to 1949. In 1951, the (Beijing?) Real Estate Administration Bureau (房屋管理局) confirmed his ownership. (Urban land was not officially uniformly nationalized until the 1982 constitution declared all urban land to be state-owned.) Later, for "historical reasons" (usually a code word for things that happened during the Cultural Revolution), the housing "underwent changes" such that the plaintiff's family could no longer occupy and use the housing. In May, the plaintiff apparently decided to try to trace what had happened with a view to asserting her rights over the property. She went to the Dongcheng District Real Estate Administration Bureau to present an official request under the Regulations to see ownership records for the properties. A week later, the Bureau officially refused her request.
The Bureau's Notice of Refusal did not specify a particular reason for refusing, stating instead that the reason was "other circumstances under laws, regulations, or relevant rules in which information is not made public" (this language appears in quotation marks in the news report, but the Notice of Refusal does not appear to be quoting any passage from the Regulations). Needless to say, this wasn't very helpful to the plaintiff. Upon further inquiry, she was told that the housing in question had become "managed rental property" (经租房). This refers to housing stock that around 1958 was essentially taken over by the municipal government and rented out by it to tenants, possibly with some symbolic payment to owners and without any formal expropriation proceedings. (This was 1958, remember; it was consistent with the spirit of the times to say that landlords could own real property but that all rentals should be under unified state control, just as peasants could own their crops but all sales had to be under a uniform state purchasing system.) According to Document No. 2007107 issued by the Beijing Construction Commission (date unspecified), the housing's ownership had changed; the ownership of managed rental property vested in the state, and so individuals had no right to see information about it.
The plaintiff naturally disagreed, and so filed suit under the Regulations. She has also asked the Beijing Construction Commission for a copy of Document No. 2007107, but has not yet received a response.
Sunday, June 15, 2008
Monday, June 9, 2008
In the course of doing some research on fiduciary duties, I just ran across an interesting 2005 case from the Haidian Basic-Level Court in Beijing. In this case, a director, shareholder (albeit small), and senior executive of a company affiliated with the Chinese Academy of Sciences violated a contractual agreement not to compete for two years following separation from the company. The plaintiff sued both the executive (in contract and tort) and the competitor that hired him (in tort, for unfair competition).
The judgment contains two interesting employer-favorable rulings. First, it allows an escape from the normal rule that employment disputes must first go through labor arbitration proceedings (PRC Labor Law, Chapter 10) - proceedings that are often (or so I'm told) tilted in favor of the employee. The court held that there was no legal objection to the plaintiff's choosing to sue both the executive and the competitor jointly in tort for unfair competition arising out of the breach of the contract, and that such a choice turned the dispute into an ordinary civil case ("本案中原告以竞业禁止为由起诉被告陈晋苏和索贝公司不正当竞争，明确主张陈晋苏违反竞业禁止约定成为侵犯原告权利的手段，索贝公司 由于共同侵权而成为不正当竞争者，原告选择的不正当竞争之诉于法不悖，该争议已转化为普通的民商事纠纷").
Second, the judgment allowed an exception to the normal rule that non-compete agreements must be supported by specific, separate, and identifiable consideration. In this case, the plaintiff argued that the consideration was part of the defendant executive's overall compensation package, and the court agreed.
I'm not a labor law expert, but it's my impression that Chinese courts and labor arbitration bodies have been pretty rigid in their rejection of this kind of argument, even though I think it's a sensible one: employees sign on to a package of rights and obligations, and employers sign on to a package of rights and obligations. It makes no more sense to insist on separating out the value of the non-competition agreement than it does to separate out the value of the agreement to do any other part of the job. The court may have accepted the plaintiff's argument in this case for very idiosyncratic reasons unlikely to be repeated in other cases. First, the plaintiff was a company affiliated with the Chinese Academy of Sciences, a quasi-state organ. The non-compete obligation was spelled out not only in an employment contract, but also in internal rules of the CAS and in the company's Articles of Association, which (it was argued but not clearly decided here) can bind shareholders, directors, and senior executives. Second, the defendant was a highly compensated senior executive, shareholder, and director, in addition to being a co-founder of the company, and so his argument that the non-competition obligation was something forced on him against his will and that he did not understand was not terribly convincing. Thus, that the plaintiff was almost a state organ and that the defendant was a highly compensated and sophisticated person seem to have been important facts.
It's also worth noting that this decision pre-dates the explicit requirement of consideration contained in the recent Labor Contract Law - consideration that must be paid during the post-employment period during which the restriction is in effect. To be sure, there was a requirement of consideration in effect at the time - it was spelled out in a 1996 Ministry of Labor document (see para. 2), and has generally been interpreted to mean explicit, separate, identifiable consideration. Thus, the decision might be helpful in thinking about how courts might interpret similar rules. But the rule now strikes me as much harder to get around.
Tuesday, June 3, 2008
Nineteen years have passed since this tragic date in Chinese history. Since it is easy to forget what actually happened, here's an excellent article published in 1990 by an eyewitness, Robin Munro, entitled "Who Died in Beijing, and Why". Well worth reading.
Vietnam workshop on implementing WTO obligations seeks expert on China to present comparative experience
A colleague in Vietnam is planning a workshop in Hanoi at the beginning of July on the responsibilities of the Vietnam National Assembly in implementing WTO-related legislation, and they are looking for an expert to present comparative experience from China about the implementation and implications of WTO obligations.
The expert should be able to participate in English. This is a short term paid consultancy.
Attached is a description of the expert’s role in the workshop. If interested, please contact Jonas Lovkrona at jonas.lovkrona [at ] isp.org.vn.