Chinese Law Prof Blog

Editor: Donald C. Clarke
George Washington University Law School

Wednesday, October 28, 2015

Criminalization of test cheating? Less than meets the eye.

The Shanghaiist blog recently reported on a recent amendment to the Criminal Law that will come into effect on Nov. 1st, saying, "Chinese students who cheat on exams could now face up to 7 years in prison." (Here's a similar story from the China Daily headlined "Cheating in civil service exams means seven-year jail".) Well, not exactly. Actually, not even close.

There is indeed a new rule about cheating on official state examinations, including the all-important gaokao (university entrance examination). It will appear as Article 284A (第二百八十四条之一) in the revised Criminal Law.

Here's the full text in Chinese:

  • 在法律规定的国家考试中,组织作弊的,处三年以下有期徒刑或者拘役,并处或者单处罚金;情节严重的,处三年以上七年以下有期徒刑,并处罚金。This provision provides for up to seven years' imprisonment for those who organize cheating in serious circumstances. This is not a punishment for the cheaters themselves.
  • 为他人实施前款犯罪提供作弊器材或者其他帮助的,依照前款的规定处罚。 This provides punishment under the previous paragraph for those who assist in the above offense by providing cheating equipment or other assistance. Again, no punishment for cheaters themselves.
  • 为实施考试作弊行为,向他人非法出售或者提供第一款规定的考试的试题、答案的,依照第一款的规定处罚。This provides punishment under Para. 1 for those who sell or other supply exam questions and answers in order to help people cheat. No punishment for cheaters themselves.
  • 代替他人或者让他人代替自己参加第一款规定的考试的,处拘役或者管制,并处或者单处罚金。Finally, we have some language that provides punishment for cheaters themselves. But it applies only to one kind of cheating: impersonating a test-taker to take the test, or having someone impersonate you to take the test. There is no punishment for any other kind of cheating. And the punishment for cheating by impersonation is light: detention (拘役), which is for between one and six months, or control (管制), which is similar to probation.

Bottom line: The headline should read, “Chinese students who cheat in one particular way on exams could face up to six months in detention.”

October 28, 2015 in Commentary, News - Chinese Law | Permalink | Comments (0)

Monday, September 21, 2015

Central Committee and State Council issue document on state-owned enterprise reform

Last month, the Chinese government (to be precise, the Central Committee of the Communist Party together with the State Council) issued a document on state-owned enterprise (“SOE”) reform: the Guiding Opinions on Deepening the Reform of State-Owned Enterprises (关于深化国有企业改革的指导意见) (the “Opinions”). Given the level at which they were formulated and issued, the Opinions seem intended to be a major statement about SOE reform. But what do they actually say? The following comments are based on a quick read and are not, for better or worse, informed by what anyone else has written, because I have not come across any other commentary so far. (I haven’t looked.)

If you are looking for a statement that the government will reduce the role of SOEs in the economy, or engage in large-scale privatization, this is not that statement. Quite the contrary. Indeed, it still scrupulously avoids the term “private” when talking about investment or ownership, using instead such clumsy circumlocutions as “non-public”. (This term has been used for so long it doesn’t even sound silly any more, even though Cao Siyuan properly skewered it many years ago, pointing out that we don’t refer to our right hand as our “non-left” hand.) I think it’s safe to say that if in 2015, policymakers still can’t bring themselves to say the word “private” in a major document about the economy, there are certain conclusions we can draw about policy goals.

The Opinions declare that public ownership shall remain the mainstay of the economy. For the Opinions, the point of reforming SOEs is to do state ownership better, not to reduce it or even eliminate it. This goal appears not only in the specific proposals of the Opinions, but also in the language that permeates the document: a mounting pile of clichés that I last saw in such profusion back in the 1980s, when the same goal prevailed.

The diagnosis of SOE problems seems as muddled as ever and no good solutions are offered. For example, the Opinions promote the separation of ownership (所有权) from control (expressed as “the right to manage” (经营权)) as a positive good. This has been a mantra of SOE reform for decades. Yet it fails to recognize that where the state is an owner, it must necessarily act through human agents. Those human agents—SOE managers—exercise control. If there is any aspect of SOE operations they don’t control, that’s because someone superior to them—another human agent of the state—controls it. Thus, ownership and control necessarily are now, have always been, and always will be, separated in SOEs. If SOEs are not performing properly, it is not because ownership and control are insufficiently separate. It is because management does not have the right set of incentives that align their interests with those of the state owner. The separation of ownership from control is an unavoidable problem to be managed, not a solution to be embraced.

This inattention to the problem of incentives is reflected in the language about enhancing internal supervision of SOEs, among other things by strengthening the oversight role of the enterprise’s staff and workers congress (职工代表大会). Assuming the staff and workers congress is not dominated by management and in fact represents the interests of the staff and workers—a big assumption—then one would expect it to exercise any power it had in the interests of staff and workers, which will not be congruent with the interests of the state owner. There is no point in giving people power over management decisions without a clear understanding of the direction in which they are going to pull such decisions.

A great deal of language in the Opinions is devoted to the idea that SOEs should be more “independent”. But independent of what or whom? The chief significance of separate legal status in a US corporation is that it delineates a pool of assets that are available to corporate creditors—the assets of the corporation—as against the assets that are not—the assets of the stockholders. Protection works the other way, too: creditors of the stockholders cannot seize corporate assets. They can seize only the rights of the stockholder, and those rights don’t include a right to take a percentage of corporate assets at will.

Yet the Opinion seems to conceive of independence as meaning that SOEs have a kind of will and interest of their own. They should manage themselves, be responsible for their own profits and losses, and bear risks themselves. One sees what the Opinions are getting at, of course: SOEs (more accurately, people who work at SOEs) shouldn’t expect endless subsidies from the state. But this way of putting it obscures two important points. First, it’s entirely appropriate for SOE managers to be accountable to some outside body, and a body representing the state, which after all put up the money, is a reasonable candidate. Second, the state shareholder is taking risks when it owns SOEs. If the SOE is profitable, the shareholder wins. If the SOE loses money and eventually becomes bankrupt, the shareholder loses. The state shareholder is not legally required to pay the debts of the bankrupt SOE—that’s what limited liability is all about—but that doesn’t mean that the SOE as such bears risks. It’s all the interests associated with the SOE—state investor, management, workers, and suppliers, among others—that actually bear the risks of things going bad.

One possible meaning of “independence” is the idea expressed in the Opinions that SOEs shouldn’t have to answer to multiple masters, and that no government department may interfere in their operations without proper authority. The question is, what allows that to happen now, and how will it be prevented? If managers are appointed by and responsible to Agency X, why do they need to listen to Agency Y? If Agency Y is going beyond its mission to impose burdens on the SOE, why does the SOE have no remedy at present? The approach of the Opinions seems to be to ask those doing improper things to stop doing them, not to give the victims of the improper doings a means to resist.

While promoting the independence of the SOE (and presumably its management), the Opinions proclaim at the same time the critical and leading role of the Party organization in the SOE. The Party’s role should be written into the SOE’s corporate charter, and the Chairman of the Board should generally be the Party secretary. The Opinions call for upholding the unity of the principle of Party control over cadres and corporate procedures for electing directors and appointing management (i.e., election by shareholders and selection by the board respectively), but don’t make clear how the apparent contradiction between the two principles is to be resolved.

The Opinions propose that SOEs should be divided into two categories: commercial and public-interest. (The actual work of categorization is to be carried out by whichever state body acts as the investor.) The goal for commercial SOEs? Strengthen the state-owned economy and maintain and increase the value of state assets. In other words, do SOE operations better. Private investment in these enterprises may be allowed in order to diversify the shareholder base. As long as the enterprises remain controlled by the state, this of course has the effect of increasing the amount of assets under state control.

For commercial SOEs in competitive sectors, the Opinions encourage diversification of the shareholder base by allowing in private investors and other state investors. Curiously, the Opinions state that in addition to retaining absolute or relative state control in such enterprises when private investment is allowed in, it will also be permissible for the state merely to have equity participation, which presumably means something less than even relative control. But if the state has neither control over, nor a majority economic interest in, an enterprise, in what sense can we continue to call the enterprise “state-owned”? In any case, the Opinions set forth standards for the assessment of managers in such commercial SOEs; the standards are about business results and asset values.

For commercial SOEs in key economic sectors and sectors related to national security, private shareholding is permitted, but the state must maintain a controlling interest. The standards for assessing managers are the same.

With respect to public-interest enterprises, the Opinion suggests, albeit not very clearly, that the state must maintain a controlling equity interest here as well. Managers will be assessed on business results and asset values, with some attention paid to “social assessment” (社会评价).

The Opinions also address the issue of state holding companies, also known as group companies (集团公司). These companies are not well understood; apparently some have yet to undergo formal corporatization under the Company Law and are still structured as traditional SOEs. The Opinions encourage further corporatization of holding companies, and suggests that in some circumstances they could be listed. State equity could in some circumstances be converted to preferred shares, and the Opinions also suggest the possibility of something that looks like a golden share—that is, a state share with super voting rights or a veto over changes in control. Since it is customary for interests labeled “preferred shares” not to have voting rights, it is not clear how the Opinions contemplate that state control or influence will be maintained in companies where the state’s interest takes that form.

The Opinions devote a great deal of text to what they call the principle of management over capital as opposed to management over enterprises, and stress the importance of the former. Judging from the content of the discussion under this heading, it seems to mean that enterprises as such shall no longer be sacrosanct in the state’s approach to managing SOEs; instead, it will be quite acceptable to close down one enterprise and move state-owned capital to a sector where it will be more productive. In other words, the goal is not to maximize the performance of state-owned enterprises as such; it is to maximize the performance of state-owned capital—within, of course, the limits of the policy that the state must remain invested in certain sectors and types of industry. This could be an important change in the way the state manages its assets.

* * * * *

On the whole, the Opinions do not seem to set forth a radically new policy toward SOEs. The language can seem quite old-fashioned at times; it seems to come from the 1980s. It contains no hint at all that the state intends to get out of the business of owning enterprises; instead, its goal is to have the state manage its enterprises better. But this is not a new goal; the state has been trying to do this since SOEs first came into existence. And basically no radically new policies are proposed to achieve this goal. The one new policy (at least, new to me) is that of the principle of managing capital instead of enterprises. This is sufficiently vague, however, to require that we wait and see how it is implemented before pronouncing it meaningful.

Comments welcome.

September 21, 2015 in Commentary | Permalink | Comments (0)

Monday, September 7, 2015

Robert Precht on the ABA's non-statement about the crackdown on lawyers in China

Here's his op-ed.

[POSTSCRIPT Sept. 7, 2015: Here's Jerome Cohen's statement about the statement.]

September 7, 2015 in Commentary | Permalink | Comments (2)

Friday, August 7, 2015

Follow-up to post on contempt for law by lawmakers

I recently blogged about a notice of "residential surveillance at a designated place" (RSDP) that I stated was blatantly illegal because it wasn't for investigation of one of three statutorily designated crimes. I didn't discuss one exception to the restriction--RSDP may also be imposed where the suspect has no fixed residence (无固定住处的)--because I figured (and still believe) that the suspect in this case was not homeless, and since I was tired it didn't seem worth undertaking an extended discussion only to conclude that the exception didn't apply.

I still believe it doesn't apply, but my friend and colleague Joshua Rosenzweig has kindly permitted me to reproduce an email he sent me (part of which quotes from a forthcoming paper of his (earlier version here)) that shows that the issue isn't quite as undeniable and blatant an illegality--at least from the standpoint of the police--as I had originally supposed.

Both the MPS and SPP [have issued] regulations [that] define ‘fixed residence’ as a ‘legal’ (合法) residence (住处 or 居所) in the city or county where the case is being handled. There is, however, no clear standard for what constitutes ‘legality’ of a residence in the context of criminal procedure, leaving the matter open to a degree of interpretation. According to the definition of ‘domicile’ under civil law, legal residence might be defined as the place of household registration. Many Chinese reside in locations different from their places of household registration, however. Chinese civil law provisions also contain the concept of ‘habitual residence,’ which requires a period of continuous residence of one year or more. But there is also the problem of determining whether a rental unit can be considered a ‘fixed’ residence or how to handle individuals who reside in shared rentals or dormitories.61

This probably has something to do with why the case is being handled by police in Tianjin. Since the lawyers are all from Beijing, they don't have 'legal' residences and thus become eligible for this form of detention.

In other words, this is how the police could respond if accused of violating the Article 73, whereas if the language about "no fixed residence" weren't there, they would really have no defense at all, even a spurious one.

Josh of course is not defending any of this; he's just making the point that there is this linguistic escape hatch. It's a pretty spurious defense, though. If there were a neutral arbiter deciding these issues, I would argue back that given the intention of the new Article 73 (to reduce long-standing police abuse of RSDP by strictly limiting its application), it couldn’t possibly be correct that it could still be used on anyone not living in the place specified in their domicile registration, since that’s probably hundreds of millions of people, and neither could it be right that all you need to do to get around it is to send in police from somewhere other than the suspect’s place of usual residence. And of course mere departmental regulations can’t override a statute, anyway.

But this just underscores the real problem: there is no neutral arbiter, and the police are the judge in their own case. Before the revision to the Criminal Procedure Law, the police were already violating the law on residential surveillance by cooking up RSDP, which had no statutory basis. The law allowed residential surveillance, and there is no basis for thinking that the lawmakers really meant to include surveillance not at the suspect's residence. But there was no institution in China willing and able to call them on this and rein them in. Then in 2012 the legislature decided to try again by allowing it, but only in limited circumstances. As before, the police can issue their own interpretive regulations and engage in practices that clearly violate the spirit of the law and the intention of Article 73, but there is no neutral third party capable of making that call. All the legislation in the world is not going to change police practices; what's needed is institutional change. This is not a breathtakingly original insight; I mention is just to put this particular phenomenon in context.

August 7, 2015 in Commentary, News - Chinese Law | Permalink | Comments (0)

Thursday, August 6, 2015

Should the United States send Ling Wancheng back to China? Could it?

The New York Times recently carried a story confirming a long-standing rumor that Ling Wancheng, brother of the toppled top aide to China’s former top leader, Hu Jintao, was living in the United States. Apparently China wants him back in China—not surprisingly, given his intelligence value. Presumably—apparently it’s all unofficial so far—China is telling the US that he’s wanted on corruption or other criminal charges. This has led to quite a bit of discussion on the question of whether the US could or should send Ling back. (This blog post is a slightly expanded and more legally technical version of my contribution to a discussion at the Asia Society’s ChinaFile site.)

I think it might be useful to lay out some of the legal issues involved here. First of all, let’s distinguish between extradition and deportation. Extradition would take place pursuant to a treaty between China and the US, and critically would not require a finding by US authorities that Ling had violated any US law (or even Chinese law). Nor would any other legal basis for sending Ling back (aside from the treaty) be required. All that is necessary would be for China to make a case—presumably meeting some standard of plausibility—that Ling had violated Chinese law and should be returned to face trial. But for the very cogent reasons discussed by Jerome Cohen in his contribution, there is no extradition treaty between China and the US.

Thus, if the US government wants to keep Ling, it has no obligation to send him back. This raises two issues: (1) Should it want to send Ling back? (2) Assuming it wants to send him back, can it?

On the first issue, one of the points raised in this discussion has been the idea that sending Ling back will promote cooperation by China in US law enforcement. I’m dubious about this. In a wide range of fields, China has over the years been consistently and highly uncooperative with both the US and other countries in their efforts to investigate unlawful activities in China. The Securities and Exchange Commission and the Public Company Accounting Oversight Board have experienced years of frustration in seeking Chinese cooperation in their efforts to investigate securities fraud and accounting malpractices involving Chinese firms and citizens. Just two months ago, an Associated Press report described the “legal firewall” shielding Chinese parties from foreign investigations, in this case Italian attempts—utterly stonewalled by China—to investigate the flow of $4.9 billion in laundered money to China. And despite its denunciations of hacking and denials of government involvement, the Chinese government has refused to help foreign authorities bring Chinese hackers to book. China doesn’t need to do more than anyone else, but it does need to offer the degree of cooperation that’s normal in the international community before it can reasonably ask others to cooperate with it. If the US government has good policy reasons for wanting to send Ling back, so be it, but a vain hope that it will induce greater cooperation by China in a range of law enforcement activities should not be among them.

The second issue is whether the US government can send Ling back, assuming it wants to.

The short answer is maybe. There are three general types of legal basis. (There may be others.) The first is contained in 8 USC § 1227(a)(4)(C)(i), which states that “[a]n alien whose presence or activities in the United States the Secretary of State has reasonable ground to believe would have potentially serious adverse foreign policy consequences for the United States is deportable.” There are some exceptions to this deportation power but they don’t seem applicable to Ling’s case.

The second legal basis would be in a violation by Ling of immigration law in connection with his entry into the United States. This is not of course to say that Ling did violate immigration law when he entered the United States—I have no knowledge of the circumstances under which he came here—but if, for example, he entered on a non-immigrant visa without the intention, at the time of entry, to depart when the time came, that would be a violation of immigration law and likely grounds for deportation, as would any other kind of false statements (at least if they were material) in the visa application process.

The third legal basis—which I use as a catch-all category—would be the commission of various acts (for example, terrorism and other crimes) that Congress has deemed grounds for deportation. Again, I have no reason to believe that Ling has committed any such acts.

The point, then, is that the US government operates under some constraints where deportation is involved. It cannot just decide to deport and then deport. There must be a statutory basis.

Let us suppose, then, that the US government relies on deportability on foreign policy grounds—the first basis above, which does not depend on any violation of US law by Ling. That is still not the end of the story. There is a further complication posed by the fact that Ling could raise various bars against deportation. He could, for example, claim that he is the subject of political persecution and seek asylum on those grounds. Such a claim would not, of course, necessarily succeed.

A second and more plausible claim—since it relies importantly on conditions in China and not much on Ling’s personal characteristics—would be that he was in danger of being tortured if returned to China. The United States is a party to the United Nations Convention Against Torture (CAT). The CAT is one of the reasons that the Canadian courts made it so difficult for Canada to send Lai Changxing back to China. Art. 3 says, "No State Party shall expel, return ("refouler") or extradite a person to another State where there are substantial grounds for believing that he would be in danger of being subjected to torture.” The US has declared that it interprets this to mean "more likely than not."

The status of the CAT under US law is complicated, but the long and the short of it is that Ling can raise a claim of possible torture to try to avoid getting sent back to China. (As with all claims, to say he can raise it is not to say he can raise it successfully.) In 1998, Congress passed legislation intended to incorporate the rules of the CAT, which the US had ratified, into US law, precisely because the US had specifically declared upon ratification that the CAT would not automatically become part of US law. Congress specifically directed the executive to enact regulations implementing the US’s obligations under the CAT, and to use as definitions of various terms the definitions of those terms in the CAT. But Congress also added that any regulations so enacted would not be reviewable by courts. In other words, the executive branch would have the last word on what compliance with CAT meant. Other countries might disagree, but that wouldn’t affect anyone’s rights under US law. Thus, Ling could attempt to resist deportation by asserting whatever rights he has under the relevant Department of Homeland Security (DHS) regulations designed to implement the CAT.

Even assuming he can successfully make a case under those regulations, however, there is still a final question: does the Secretary of State’s power to deport under 8 USC § 1227 trump an alien’s right not to be deported under the relevant DHS regulations implementing the CAT? Who wins in case of a conflict? The same conflict could crop up if Ling seeks asylum on the grounds of political persecution. I do not know the answer under US law, but it might well be different from the answer under international law.

Finally, let me caution readers that I am not an expert in this area of law, and would welcome correction where I have got it wrong.

August 6, 2015 in Commentary, News - Chinese Law, People and Institutions | Permalink | Comments (0)

The Ai Weiwei visa mess - how it might have happened, from a Foreign Office insider

With the kind permission of the author, I'd like to share Kerry Brown's take on how this whole mess might have happened:

I worked as the Head of Policy at UK Visas for six months in 2005. It was my last Foreign Office job, though the department was one shared between the Foreign Office and the UK Home Office. Since then I have been fully rehabilitated back into society! I have to say though, from knowledge from that period, that the Ai Weiwei visa case has all the hallmarks of a cock up. In some ways, it would be preferable had there been high level fiat about this, because at least it would have shown that someone, somewhere was making decisions.

The truth is that Entry Clearance Offices, at least in the British system have God like powers, and the only person who can overturn their decisions, in the end (as this case proves) is the Home Secretary. That means that often very junior and inexperienced visa staff, who are more often than not utterly clueless to the changing rules and regulations governing visa issuance, can make the most extraordinarily perverse judgments. The case I remember best from my brief, inglorious stint in this position (it was hard to do a job where the words in the job title were so completely at odds with the reality of what I was doing - there was, and I suspect still isn't, a visa `policy' - just mildly contained bedlam, so I spent my days reading Guy Debord and the situationists and gazing at the MI6 building gardens next door) was that of issuing work visas to people needed to come and be employed in UK abattoirs. Unsurprisingly, these positions were hard to fill with local staff, so at that time, for some reason, they were recruited from (I think) Ukraine. Staff before going out to post to be visa offices were told that unmarried, largely uneducated, young men from underdeveloped countries were the highest risk and the ones they needed to be most careful about issuing work visas too! (Needless to say, UK Visas resisted all attempts to include its work in relevant racial and gender equality legislation). However, it was precisely this demographic that tended to apply to come to the UK for six months to work in abattoirs.

All worked well, and the annual quota of abattoir workers were happily delivered, until a more pure minded, zealous visa official was sent to work in Kiev, and promptly turned down the whole batch of new applicants, causing chaos in the farming community in the UK reliant on this source of labour, who of course used their considerable clout to protest. It was to no avail though, The person who did the refusing was acting within the law, and there was no way that year any were let through. I think it was only resolved with them being offered some other tasty post to exercise their budding bureaucratic skills, and a more compliant official sent to replace them. .

So I can well imagine the scenario with Ai Weiwei. A visa officer with a sheen of knowledge of his case, mostly culled from the Daily Mail (still no doubt shipped by air freight to the post in Beijing), who sees this Chinese avante garde artist attempting to sully the pure morals of the Great British public, and deciding to make a silent majority stand by turning him down. His or her Entry Clearance Manager, probably a Foreign Office appointee with a bit more political sense, would no doubt have had the `discussion' when reviewing the refusal, and suggesting a compromise (the 20 days). We have, ladies and gentlemen, the final result - a classic, great British cock up. I can well imagine the weary sighs in the Chancery the morning this story broke, because as ever they would be left to clear up a mess which, in this case, I truly believe, was not of their making.

Oh that there had been sinister calculations about how to avoid Ai bashing into Xi Jinping during his September visit. Or at least some artfulness and signs of intelligent (albeit perverse) life. But no, I really don't think there was.

But I would be happy (and relieved) to be proved wrong.

August 6, 2015 in Commentary, News - Chinese Law, People and Institutions | Permalink | Comments (0)

More contempt for law from the lawmakers

Over the last month or so, the Chinese authorities have been engaged in a crackdown on rights lawyers of unprecedented ferocity. Here's Jerome Cohen in a Wall Street Journal article about it:

New York University law professor Jerome Cohen, one of the first American lawyers to work in China after the country opened up in the late 1970s, described the sweep as “insane.” China’s leaders “must be in desperate straits to engage in this extraordinary, coordinated attack on human-rights lawyers,” he said.

Strong words! In any case, after all that stuff at the Fourth Plenum about the rule of law and exercising power within a cage, you might think that the authorities, with the power to make law completely in their hands, would manage to abide by it, right? Wrong. There are of course many stories about lawyers and others being rounded up without proper procedures, but today I came across a particularly glaring example that exists in black and white and cannot be denied or explained away.

Take a look at the document below: it's a notice of "residential surveillance at a designated place", i.e., so-called residential surveillance where the police hold you at some place that is neither a nail nor your residence -- and we're not talking about a fancy hotel here. The suspect is the lawyer Xie Yuandong, and the suspected crime is that of "stirring up trouble".

  Residential surveillance

The problem with all of this is that under Article 73 of the Criminal Procedure Law, which reflects a 2012 amendment designed to reduce police abuses of this procedure, "residential surveillance at a designated place" may be imposed on a suspect only for three crimes: “Where there is suspicion of the crime of endangering national security, the crime of terrorist activities, or the crime of receiving bribes in serious circumstances, and implementing residential surveillance at the suspect's residence could hinder the investigation, then upon approval by the next higher people’s prosecutor’s office or public security authority, residential surveillance may be implemented at a designated place of residence[.]" (对于涉嫌危害国家安全犯罪、恐怖活动犯罪、特别重大贿赂犯罪,在住处执行可能有碍侦查的,经上一级人民检察院或者公安机关批准,也可以在指定的居所执行。)

Thus, placing Xie in residential surveillance at a designated place is an open-and-shut violation of the Criminal Procedure Law and is nothing more than kidnapping. Of course, the whole problem could easily have been avoided had the authorities had the wit to fill in the blank for the suspected crime with one of the eligible ones. But this is exactly the point: the law means so little to them that they can't be bothered to understand or follow it even when it would be easy to do so.

[AUG. 8th UPDATE: The situation is a bit more complicated. See this follow-up post.]

August 6, 2015 in Commentary, News - Chinese Law | Permalink | Comments (1)

The Peter Humphrey/Yu Yingzeng case (again)

I last blogged about this case in August 2014, when Peter Humphrey and Yu Yingzeng were convicted and sentenced in Shanghai on charges of unlawful acquisition of personal information of citizens. I had some preliminary comments on the case based on the trial transcript and some quick-and-dirty research. I've now had the chance to do much more extensive research and to look at the text of the judgment as well, and have written up the results. They pretty much confirm my initial take: that this was a case of selective prosecution, and the sentences were out of line with cases with comparable facts. Humphrey was sentenced to 30 months' imprisonment; no previous defendant in any of Shanghai's 92 cases had ever gotten more than 24 months. (For those not following this story, Humphrey and Yu were recently released and have gone to the UK.)

The abstract is below; the full paper can be found here at the Social Science Research Network site.

The case of Peter Humphrey and Yu Yingzeng, convicted in China on August 2014 on charges of unlawful acquisition of citizens’ personal information, raises important issues about Chinese law. A narrow but important issue is how Chinese law draws the line between lawful and unlawful acquisition of information, a practice routinely carried out by businesses and individuals. This article examines the trial transcript and judgment in the Humphrey/Yu case and finds that it sheds regrettably little light on what remains a murky question. A broader issue is whether the Chinese legal system can be counted on to operate in a fair and impartial manner. This article presents the results of a study of all reported cases in Shanghai (ninety-two cases) involving the same provision of the Criminal Law that was the basis of the Humphrey/Yu conviction. It finds that the Humphrey/Yu sentences are outliers relative to other cases with comparable facts. In particular, Humphrey’s sentence of 30 months’ imprisonment was by far the heaviest sentence ever meted out by Shanghai courts, even though the circumstances seem conspicuously less serious than those of many other cases where lesser sentences were imposed.

August 6, 2015 in Commentary, People and Institutions | Permalink | Comments (0)

Thursday, July 30, 2015

More Catholic than the Pope: UK government states Ai Weiwei has criminal conviction in China (he doesn't)

In an astounding cock-up of monumental proportions (because it could so easily have been avoided by spending a few minutes searching around the web), the UK government has accused Ai Weiwei of lying on his application for a UK visa. In a letter issued to Ai, the "Entry Clearance Manager" for Beijing stated:

It is noted that in answer to the question on the visa application form on whether you have ever had any of the following in the UK or a different country:

  • A criminal conviction, at any time
  • A driving offence, at any time, e.g. for speeding or no insurance
  • I was arrested or charged, and I am currently on or awaiting trial
  • A caution, warning, reprimand or fixed penalty notice
  • A court judgment, e.g. for debt
  • A fine for breaking UK immigration law (called a 'civil penalty')

You have stated: 'No, I have never had any of these'. It is a matter of public record that you have previously received a criminal conviction in China, and you have not declared this.

The ECM goes on to say that Ai will be granted a visa, but for less time than he had applied for. He or she urges Ai to respond truthfully next time, and notes that there is a place on the form to explain any answers.

Let me be clear about my own view: It is not unreasonable for the UK government to ask these questions, and applicants should respond truthfully. It would, of course, be unreasonable for the UK government to treat politically-motivated criminal convictions as equal to a genuine criminal history, but that's not what's at issue here. If Ai had had a criminal conviction, he should have said so.

The problem is that Ai does not have a criminal record in China. It is most emphatically not a matter of public record that he has previously received a criminal conviction in China. Anyone who claims this should be asked to produce this public record. (After all, it's public, right?) It's rather astounding that when the Chinese government, for all its harassment of Ai, did not see fit to charge and convict him on criminal grounds, the UK government should step up to the plate and do it for them. 

Some people say, "Oh, but didn't he have some tax troubles a while back?" And others respond, "Yes, but those were politically motivated." All beside the point. To the second group, I say that he should respond truthfully and then explain, even if only as a practical matter, given that not telling the truth about things that really are in the public record is just not going to work. To the first group, I say that the ECM did not state an objection to Ai's failures to mention (a) his 2011 detention, allegedly for investigation of tax issues, or (b) the assessment and fine levied as an administrative (not criminal) matter on his company (not him). The ECM's objection was to Ai's failure to state that he has a criminal conviction. But he doesn't have one.

The ECM might have been on firmer ground had he or she said something along the lines of, "Really? No 'caution, warning, or reprimand'? Ever?" I suspect Ai has received a lot of communications that would qualify. Of course they are politically motivated, but that's what the place on the form for an explanation is for. But that's not what the ECM said.

It's understandable that everyone's memory is a little fuzzy about what happened back in 2011. What's harder to understand is how someone could give legal effect to that fuzzy memory without bothering to take just a few minutes to google around to verify the facts. Even more disappointing is that the UK authorities seem to be digging in their heels and refusing to admit their mistake. A Foreign Office spokesman, confronted with questions on this issue, said, “This is a visa issue, where applications are decided by UKVI [UK Visas and Immigration] based on relevant legislation.” Yeah. thanks. We know it's a visa issue. And we know that UKVI is supposed to decide on applications on the basis of relevant legislation. Does the relevant legislation really call for decisions to be made on the basis of made-up facts?

By the way, if you think you've heard this kind of bland, bureaucratic non-answer before, you have. Here's Chinese Foreign Ministry spokesperson Hong Lei on questions about Ai's 2011 detention: “China is a country under the rule of law, and relevant authorities will work according to law.” And here's Chinese Foreign Ministry spokesperson Hua Chunying on questions about Pu Zhiqiang's detention: "The judicial authorities of China handle the relevant case in accordance with the law."

Well done, Britain!

POSTSCRIPT: I'm not yet willing to dismiss the theory that this is just a low-level bureaucratic cock-up: somebody thinks he's fibbing because they misremember; they ask their superiors what to do, precisely because they don't want to deny him a visa, not because they do; the superiors, who assume that their subordinates have got their facts right, say, "Well, just give him a slap on the wrist and tell him not to do it again."

AUGUST 6th UPDATE: Kerry Brown, formerly of the Foreign Office, has kindly permitted me to publish his take on how this might have happened.

July 30, 2015 in Commentary, News - Chinese Law | Permalink | Comments (1)

Sunday, June 21, 2015

E-commerce policy: who's in charge?

The Ministry of Industry and Information Technology (MIIT) has just issued a pronouncement stating that foreign investors will, in an exception from existing rules, be allowed to own 100% of companies engaging in e-commerce. Here's a post from the China Accounting Blog, which suggests that this offers an escape route for VIEs. (I think the post is incorrect in stating that the relaxation is limited to the Shanghai Free Trade Zone; the relevant language says, "On the basis of experimentation in the Shanghai Free Trade Zone, [MIIT] has decided to relax on a nationwide basis [the restriction on foreign ownership]" (我部决定在中国(上海)自由贸易试验区开展试点的基础上,在全国范围内放开在线数据处理与交易处理业务(经营类电子商务)的外资股比限制).)

I want to raise a different question: what authority does the MIIT have to relax this requirement? According to the MIIT's notice, the requirement seems to come from a State Council regulation, the "Rules on the Administration of Foreign Investment in Telecommunications Enterprises" (商投资电信企业管理规定). Or perhaps it can be found in the Guidance Catalogue for Foreign Investment, issued jointly by the National Development and Reform Commission and the Ministry of Commerce. As for the first, the MIIT has no authority to override a State Council regulation. As for the second, approval of foreign investment must come from the NDRC and the MOC, so if they aren't on board with this rule, the MIIT can't make them get on board. It's hard to believe we'd see this notice if other relevant ministries weren't on board. But if they are on board, why isn't this notice jointly issued with their signatures under it as well?

[UPDATE JUNE 22: Apparently it's not an exception to existing rules. The latest version of the Guidance Catalogue seems by implication to allow 100% ownership of e-commerce ventures - see Item 20 under "Restricted Industries" here.]

June 21, 2015 in Commentary, News - Chinese Law | Permalink | Comments (0)

Monday, May 25, 2015

Jerome Cohen on Lee Kuan Yew, the rule of law, and China

Friday, May 15, 2015

More resources on the draft Overseas NGO Law

Here's a follow-up to my post of a few days ago on the draft Overseas NGO Law:

First, there's a very good set of comments by a number of experts at the Asia Society's ChinaFile web site. These are fairly big-picture in nature and not article-by-article.

Second, Anthony Spires has a web site where he has links to various resources, including a collection of Chinese-language comments from Hong Kong groups.

Third, here are some Chinese-language comments from the Shanghai 复恩社会组织法律服务中心.

May 15, 2015 in Commentary | Permalink | Comments (0)

Wednesday, May 13, 2015

China's draft law on overseas NGOs

The Chinese government recently released for public comment a draft of a proposed law on overseas NGOs. ("Overseas" is the standard translation for 境外, which means non-mainland, i.e., territories not under the direct control of the Chinese government, including Hong Kong and Macao as well as foreign countries.) The law's reach is very broad, prohibiting any activities within China by any overseas NGOs (meaning any organization that is neither governmental nor for-profit) unless they register with the police.

This goes way beyond making life difficult for NGOs now operating in China. It means that foreign universities, for example, can't have any "activities" in China unless they register with the police (and their registration is approved). It means that the Poughkeepsie Optometrists Association can't have its annual convention on the beach in Hainan without registering with the police. Oddly, it means that the US Chamber of Commerce can't (without registering) hire a consultant in China to do a marketing study, even though any of its for-profit members, or even the Department of Commerce itself, could. Can this result possibly have been intended?

Here are some links [see May 16 post for more links]:

Chinese text:


China Development Brief:

China Law Translate:


China Law and Policy blog:

Part 1:

Part 2:

Part 3:

Prof. Jia Xijin 贾西津 (Tsinghua Univ.) (in Chinese):


May 13, 2015 in Commentary | Permalink | Comments (1)

Saturday, April 25, 2015

Life as an official, from the inside

I just read an interesting essay by Zhang Xingxiang, currently a Practitioner-in-Residence at Indiana U.'s Research Center for Chinese Politics and Business, about his life as an official in China.

I was struck by one observation he made:

Although government agencies were required to abide by the stipulations of laws and regulations, the enforcement of laws was a big headache in China. The law itself did not have intrinsic mechanisms to ensure its implementation. The State Council usually issued regulations or circulars which specifying how to enforce the law. Without that, most of time the law was just a written piece of paper posted on the wall but never seriously executed. The Constitution and Legislation Law stipulate the rank of legal instruments: among laws, regulations, rules, circulars and decisions, from highest to lowest. In practice, however, it went in a totally different direction. Whenever companies or individuals had a legal issue, they did not just look up the law, but sought decisions from a mayor, a governor of a province, or even the Premier because they knew such disposition was more effective.

Zhang is not the first to observe that the actual hierarchy of norms is virtually the opposite of the formal hierarchy of norms; in terms of actual binding force, for example, the Constitution is far weaker than a rule on, say, severance pay issued by an urban district labor department.

But the process he describes for compliance is also interesting and worth discussing, because it goes to the issue of how far even rule by law can prevail, to say nothing of the grander idea of rule of law. [Subsequent text inadvertently omitted in original post; added on April 25, 2015] Consider how the norms of securities or tax law, for example, are enforced in the United States. A great deal of reliance is placed on voluntary compliance by regulated parties coupled with occasional audits and other after-the-fact means of detecting and punishing non-compliance. But taxpayers and issuers can't possibly know all the applicable law. How do those who want to comply do so? They ask their lawyers. The government has cleverly managed to make the private sector pay for its own compliance efforts, and by and large it secures a high level of compliance.

But think about what must be true for this system to work. There must be law for lawyers to become expert in. In other words, there must be a reasonably predictable and unified system of rules. Ad hoc, discretionary decisions by government officials cannot supply this kind of legal environment. Thus, regardless of what we think of ad hoc decision-making from a fairness perspective, it's important to see that it renders impossible a certain mode of governance that has the advantage, among others, of being a lot cheaper.

April 25, 2015 in Commentary | Permalink | Comments (1)

Friday, February 20, 2015

First successful case against administrative monopoly

The Feb. 16th isue of the Legal Daily carries three articles (see below for links) about administrative monopolies, prompted by the recent decision by the Guangzhou Intermediate People's Court against the Guangdong Department of Education for requiring the use of a particular brand of software in a contest. This was not only the first court victory against an administrative monopoly; it was the first time such a case had even been accepted by courts and made it all the way to trial.

Among the issues in the case were (1) the role of expert witnesses (they were allowed), and (2) whether the designation in a notice issued by the defendant of a particular piece of software constituted concrete administrative action or abstract administrative action. (Under the Administrative Litigation Law (ALL), one can sue for the former but not for the latter, but since this case was not brought under the ALL, I'm not sure why the distinction was considered important.)

The court found that the defendant's acts were indeed concrete administrative actions and that the defendant violated Art. 32 of the Antimonopoly Law (AML), which states:

Administrative agencies and organizations authorized with administrative powers of public affairs by laws and regulations  shall not abuse their administrative powers by limiting, or limiting in disguised form, organizations or individuals by requiring them to deal, purchase, or use commodities provided by designated undertakings.

The reports don't say, however, what (if any) remedy the court provided beyond a mere declaration of illegality. Article 51 of the AML deals with the issue of remedies for administrative monopolies vaguely, but on one point it's pretty clear: courts can't order a remedy. The basic remedy is to hope that the offender's administrative superior will make it come into line:

The administrative agencies or organizations authorized with administrative powers of public affairs by laws and regulations shall be admonished by the superior authorities if they abuse their administrative power to eliminate or restrict competition; the individuals who are directly responsible shall be punished in accordance with the law.

This article shall not apply to cases in which other administrative regulations or laws provide for the regulation of the abuse of administrative power.  The Anti-monopoly Enforcement Authority may propose suggestions to deal with in accordance with the law to the superior authorities.

(Translation credit for the AML provisions above: T&D Associates)

Here are some relevant reports:

February 20, 2015 in Commentary, News - Chinese Law | Permalink | Comments (0)

Thursday, February 5, 2015

Big Four settlement imminent?

Here's the take of Paul Gillis at the China Accounting Blog on a possible settlement between the Big Four affiliates in China and the SEC over issues relating to access to their workpapers in SEC investigations.

February 5, 2015 in Commentary | Permalink | Comments (0)

Saturday, January 31, 2015

Shen Kui and his Three Questions

Just when you start getting depressed about the way things are going in China, along comes Shen Kui (沈岿), a professor and former vice dean at Peking University Law School, to show that at least some of China's thinking people are not going to take the government's policy of intellectual anesthesia in higher education lying down. [Feb. 1 update: A previous version of this post had out-of-date information about Prof. Shen, identifying him as an associate professor and current vice dean.]

On Jan. 30, Minister of Education Yuan Guiren (袁贵仁) spoke at a conference on ideological and propaganda work in higher education, declaring that it was necessary "to strengthen control over the use of original-edition [i.e., not processed through some Party-controlled mechanism] Western materials. We must by no means allow materials that propagate Western values into our classrooms; it is absolutely forbidden for all kinds of speech that attacks and slanders the Party's leadership and blackens socialism to appear in university classrooms; it is absolutely forbidden to have all kinds of speech that violates the Constitution and the law spread in university classrooms; it is absolutely forbidden for teachers to complain and vent in the classroom and to transmit all kinds of harmful moods to students." (加强对西方原版教材的使用管理,绝不能让传播西方价值观念的教材进入我们的课堂;决不允许各种攻击诽谤党的领导、抹黑社会主义的言论在大学课堂出现;决不允许各种违反宪法和法律的言论在大学课堂蔓延;决不允许教师在课堂上发牢骚、泄怨气,把各种不良情绪传导给学生。)

In response, Prof. Shen posed three questions. The first is especially subversive, since it reminds us of the obvious and exposes the whole anti-Western-values campaign for the ridiculous charade that it is:

How do we distinguish "Western values" from "Chinese values"? As everyone knows, the specter of Communism that hovered over haunted Europe almost two centuries ago, after crossing mountains and seas to get to China, helped bring about the birth of the Chinese Communist Party; the Marxism that our current Constitution stipulates we must uphold, and the education in internationalism, communism, dialectical materialism, and historical materialism that the current Constitution stipulates we must undertake, are all from the West and have influenced China. There are countless examples of Western learning traveling east. Let me ask Minister Yuan, would it be possible for you to clearly delineate the line between "Western values" from "Chinese values"? (如何区分“西方价值”和“中国价值”?众所周知,近两个世纪前游荡在欧洲的共产主义幽灵“跨洋过海”来到中国后,才促成中国共产党的诞生;我国现行宪法规定必须坚持的马克思主义,必须进行的国际主义、共产主义、辩证唯物主义和历史唯物主义等的教育,也是源于西方,影响中国的。西学东渐的例子数不胜数,请教袁部长,是否可以请您清晰划出“西方价值”和“中国价值”的分界线?)

Here's his second question:

How do we distinguish "attacking and slandering the Party's leadership and blackening socialism" from "reflecting on the bends in the road in the Party's past and exposing dark facts"? No political party would dare to declare that it never did and never would make errors, and no society, whether socialist or capitalist, would dare to declare that it has no dark side. Let me ask Minister Yuan, would it be possible for you to clearly give us the standard for distinguishing between "attack" and "reflect", and between "blacken" and "expose darkness"? (如何区分“攻击诽谤党的领导、抹黑社会主义”和“反思党曾经走过的弯路、揭露黑暗现实”?没有任何政党,敢于宣布自己是从不会也永远不会犯错,也没有任何社会,无论是姓“社”还是姓“资”,敢于宣称自己是没有任何黑暗面的社会。请教袁部长,是否可以请您清晰给出“攻击”与“反思”、“抹黑”与“揭露黑暗”的区别标准?)

And finally, the third question:

How should the Education Ministry that you lead implement the policy of governing the country according to the Constitution and the law? If you have a clear and understandable answer to the above two questions, please publish another speech in good time; if you still don't have a clear answer, then please henceforth be cautious in your words and actions, because the Education Ministry that you lead relates to "the scientific and cultural level of the people of the whole nation" (Constitution, Art. 19), "the development of the natural and social sciences" (Constitution, Art. 20), and the citizens' "freedom to engage in scientific research, literary and artistic creation, and other cultural pursuits" (Constitution, Art. 47); in short, it relates to the renaissance of the Chinese people. If you casually talk about what can be done and what can't be done, then the least bit of incaution could mean a violation of the Constitution or the law. (如何让您领导的教育部贯彻执行依宪治国、依法治国的方针?如果您本人对以上两个问题已有明显易懂的答案,还请您适时发表另外一次讲话;如果您本人尚无明确答案,还请您以后谨言慎行,因为您所领导的教育部,关系到“全国人民的科学文化水平”(宪法第19条),关系到“自然科学和社会科学事业”(宪法第20条),关系到公民进行“科学研究、文学艺术创作和其他文化活动的自由”(宪法第47条),归根结底,关系到中华民族的复兴。您如果轻言什么可为、什么不可为,稍有不慎,就会存在触犯宪法、法律的可能性。)

Good stuff.



January 31, 2015 in Commentary, People and Institutions | Permalink | Comments (2)

Wednesday, January 28, 2015

Chinese competition law: the anaconda in the chandelier

Back in 2002, the China scholar (and my first teacher of Chinese) Perry Link published in the New York Review of Books what has now become, at least in the world of China studies, a famous essay: "The Anaconda in the Chandelier" [NYRB link | non-paywalled Word version]. In it, he explored the mechanisms of self-censorship, conscious and unconscious, that operate not just among Chinese--for example, the vague dread of crossing an unstated line--but also among foreigners who comment on Chinese affairs, including the fear of visa denial.

That anaconda seems to be present again today (I won't say visible, because one characteristic of the anaconda is that you don't see it) at the hearings of the US-China Economic and Security Review Commission (the USCC) on the foreign investment climate in China, particular as regards competition policy.

China's competition policy has been very much in the news in the last several months; I blogged last September about a highly critical report issued by the US Chamber of Commerce. But although a lot of people want to talk about it, there are also a lot of people who don't, and the presence of the anaconda is manifested by their absence from the hearings.

Here's where I must regrettably get a little mysterious. I know some people who know something about Chinese competition law. One of them, my colleague Bill Kovacic, a former chairman of the FTC, knows a lot about Chinese competition law and is testifying today. Another, however, commented (as slightly edited by me):

Bill will have the courage to say important things. No business wanted to go on the record. [Having been able to pre-read the comments of some panelists], I can tell you that that everyone who has a potential business interest (law firm and consulting firm) will really soft-pedal some procedural fairness issues as well as mention of some industrial policy.

Not having read the comments and not knowing enough about competition policy, I do not know whether witnesses are in fact pulling their punches. But there are some academics who really know a lot about Chinese competition law other than Bill Kovacic, and they are not on the witness list. Obviously, I am not naming any names, but in at least one case the person concerned turned down the opportunity to testify because of visa concerns related both to the content of the testimony and to the fact that it would be before the USCC, which is viewed by the PRC authorities as hostile. (Personally, I don't think that an academic would get on the visa blacklist just for badmouthing the NDRC before the USCC, but everyone has to make their own judgment in these things, so I'm not criticizing.) This is a real shame. Not only is the USCC being deprived of good information, but the Chinese government itself has, as they say in Chinese, lifted a rock only to drop it on its own feet (搬起石头打自己的脚): the threat of visa denial for testifying before the USCC will disproportionately drive away witnesses who are less hostile to the Chinese government, since the more hostile ones have presumably already decided to accept the consequences or are on the blacklist already.

January 28, 2015 in Commentary | Permalink | Comments (0)

Tuesday, January 27, 2015

Dentons-Dacheng merger: some questions

The New York Times has a report today about a merger between Dentons and Dacheng, a Chinese law firm. According to the report, "[l]ike a number of other large law firms, the partnership will be structured as a Swiss verein, which allows for the companies to maintain separate profit pools." I would really appreciate comments on this post from knowledgeable readers, because I'm mystified by several aspects of the deal. I'll number the paragraphs for ease of reference in the comments.

  1. There have been previous deals between Chinese and law firms that were announced as mergers--for example, between Mallesons and King & Wood--and I don't know the details of those, or whether this one uses the same model. But it does raise interesting questions about whether it really makes sense to call this a "merger" as opposed to a simple agreement to share certain kinds of business.
  2. First, the report says that the firms maintain separate profit pools. It's a strange merger where the two parties don't merge their revenue streams and profit calculations.
  3. Second, if they maintain separate profit pools, then it pretty much follows that they are going to maintain separate decision-making structures. Dentons will continue to decide what clients Dentons will take, how much to charge, etc., and Dacheng will do the same for Dacheng. I don't know this for a fact, but it would be very unusual to separate profits from decision-making power. Again, a strange merger where decision-making remains separate and not unified.
  4. Third, surely Dacheng has not disappeared as a Chinese business organization. Foreign law firms--and although I know almost nothing about the Swiss verein, I'm pretty sure it's Swiss--cannot practice Chinese law, so there has to be a Chinese business entity that remains in existence to engage in the practice of Chinese law. A strange merger where the supposedly merging entities remain in existence.
  5. Fourth, some jurisdictions have rules forbidding lawyers from sharing certain aspects of law firm operations with non-lawyers. I suppose any rules against sharing profits are taken care of by the separate profit pools. I don't know if China has rules about Chinese firms sharing control with foreigners. Again, if the firms are sharing neither profits nor control, in what world does it make sense to call their arrangement a "merger"? The report also speaks of "a unified compensation system." Will that amount to profit-sharing, and is that allowed by all the relevant jurisdictions?
  6. Finally, how much information will be shared between the "merged" firms? Will they develop a unified client database that all attorneys can access? This raises serious issues of information security. It is an unfortunate fact that if the state security folks show up at Dacheng's offices and demand access to information that Dacheng attorneys can access, Dacheng attorneys are in no position to say no. If client information is vulnerable in this way, will Dentons clients feel comfortable about that?

Comments welcome and indeed earnestly solicited.


January 27, 2015 in Commentary, News - Chinese Law | Permalink | Comments (1)

Saturday, January 24, 2015

China's draft Foreign Investment Law and VIEs: one more point

I want to add one more point about VIEs to my post from yesterday on the draft Foreign Investment Law (FIL) (it was late and I forgot to include it before hitting the "Publish" button).

Let's not forget that as this law goes through the discussion and review process before its enactment in final form, there's going to be a lot of politicking, which is another word for people trying to protect their financial interests. What kind of treatment for VIE structures best serves the interests of existing VIE structures? The answer is: grandfather in the existing ones and bar new ones. It's easy to imagine that in some industries, companies with access to foreign financing can be in a competitively superior position to companies without such access. If foreign financing is forbidden in those industries, then companies that manage to access it despite the prohibition are clearly in better shape to dominate.

Take Alibaba or Baidu. In both cases, the offshore parent--a Cayman Islands company listed in the US--is controlled by Chinese citizens. This means that as the FIL is currently written, it is a Chinese company, not a foreign company. Poof! The illegal (or at least very dicey) foreign investment in a prohibited industry disappears; it's now Chinese investment.

Of course, this result doesn't protect Alibaba and Baidu from competition from other Chinese investors who raise money via controlled offshore companies, since the competition's offshore vehicle would also count as Chinese. But it does protect them from competition from VIE structures that are not controlled by Chinese, since the government now seems more serious about not allowing such structures to exist. I wonder what's going to happen to The last time I looked, its shareholding was widely dispersed and there was no controlling shareholder.

UPDATE JAN. 24: Check out Paul Gillis's China Accounting Blog post on winners and losers. In fact, check out all his posts on this issue.

January 24, 2015 in Commentary, News - Chinese Law | Permalink | Comments (0)