Sunday, September 21, 2014
If you're following Hong Kong politics, you'll know that the pan-democrats in Hong Kong are upset about the Chinese central government's idea of how to interpret its promise of "universal suffrage" in the next election for Chief Executive: everyone will get to vote, all right, but the choice of candidates will be limited to two or three approved by a Beijing-controlled nominating committee. Just by coincidence I ran across a 3rd Circuit case today in which the court discussed this kind of democracy in the context of elections to a corporate board of directors:
We rest our holding as well on the common sense notion that the unadorned right to cast a ballot in a contest for office, a vehicle for participatory decisionmaking and the exercise of choice, is meaningless without the right to participate in selecting the contestants. As the nominating process circumscribes the range of the choice to be made, it is a fundamental and outcome-determinative step in the election of officeholders. To allow for voting while maintaining a closed candidate selection process thus renders the former an empty exercise. This is as true in the corporate suffrage contest as it is in civic elections, where federal law recognizes that access to the candidate selection process is a component of constitutionally-mandated voting rights.
Note how the court (along with everyone else in the world other than the Chinese government) viewed the principle as obvious in the political context; it was just clarifying that the same principle applied in the corporate context as well.
Tuesday, September 9, 2014
US Chamber of Commerce releases report on (actually, indictment of) Chinese competition law enforcement
I just finished reading the U.S. Chamber of Commerce’s indictment of Chinese antitrust enforcement that was made public yesterday. [Text | NY Times story] It’s very well done – quite detailed and terrifically sourced. My congratulations to the anonymous authors for great research.
The main complaint is twofold: First, that what I have called “enforcement” isn’t really enforcement of law as such; it’s more in the nature of case-by-case extortion having very little to do with whether laws were actually violated. After all, if that were the concern, why is the National Development and Reform Commission (which seems to be the main culprit here) warning targets that they had better just do what they’re told and not call in their lawyers? Second, that “enforcement” is biased against foreigners. The report points out that in MOFCOM’s review of mergers, only 7.6% of the transactions reviewed were domestic-to-domestic; a huge number of domestic transactions that should have been reported were not, and MOFCOM was not doing anything to punish the companies that didn’t report. Moreover, all the cases in which MOFCOM had blocked a transaction or imposed conditions on its proceeding involved at least one foreign company. (Hats off to my friends Lester Ross and Kenneth Zhou of WilmerHale’s Beijing office, whose research is responsible for this information.)
The report makes a good case in showing that something more than just inexperience by the regulators or whining by sore-loser foreign companies is going on here. It does that by showing that China is an outlier in three ways. First, many of its practices are unique and not reflected in international practice. Second, the practices that the report complains about are not observed in other countries that also have new antitrust regimes administered by inexperienced officials. Third, China’s regulators have not joined the International Competition Network, the international club of antimonopoly regulators, even though it has joined similar bodies in the areas of banking, insurance, and securities.
I have to say that in a few places the report seems to be reaching a bit in its arguments. For example, the presence in Article 1 of the Antimonopoly Law of language talking about the “healthy development of the socialist market economy” is taken as sinister evidence of the improper integration of industrial policy into competition policy. This kind of language is compatible with just about any economic policy or lack of policy and to my mind is basically just meaningless fluff.
Second, the report suggests that China’s antitrust policy (as actually implemented) violates its WTO obligations. With the caveat that I’m not really a WTO expert, I think this argument is extremely weak. The report simply gets its facts wrong when it says (p. 6) that China made a WTO commitment via the section of the Working Party Report that says, “The representative of China noted that the Government of China encouraged fair competition and was against unfair competition of all kinds.” Not only is that language way too weak and general to support a concrete commitment—it’s not even phrased as a commitment—but it appears in Para. 65 of the Working Party Report, which is not one of the paragraphs incorporated by reference as a commitment in the final Protocol of Accession. It’s the Protocol of Accession as well as all the WTO agreements, and not the Working Party Report, that tells you what China’s commitments are.
The report also notes (in a footnote) the existence of Para. 203 of the Working Party Report, which was incorporated by reference into the Protocol of Accession. That paragraph says, inter alia, “Permission to invest, import licences, quotas and tariff rate quotas would be granted without regard to the existence of competing Chinese domestic suppliers.” To the extent that antitrust policy blocks investment by foreign companies in order to protect Chinese domestic suppliers, then it’s a violation of this commitment. Since this is a stronger argument, it might have been better to highlight it in the text and relegate the much weaker argument about Para. 65 to the footnote.
Finally, the report injects a nice bit of comedy into the subject by showing what happened to the supposedly confidential submissions of InterDigital to the NDRC during the latter’s investigation of the former: they ended up on Chinese television! If you look in the upper right hand corner of the document shown at 0:20 in the clip and in the screen shot below, you can see the characters 保密文件 (confidential document). I don’t think any lawyer working with foreign clients dealing with Chinese regulators believes confidential submissions will really stay confidential and not get leaked to competitors, but we never had this kind of smoking gun before to validate the belief conclusively. Actually, this is not just a smoking gun; we are watching the gun actually being fired. Hats off to the intrepid researcher who found this broadcast and noticed this outrageous and irresponsible leak.
Saturday, August 23, 2014
I recently came across an open letter to Xi Jinping published in April 2014 in the medical journal Transplantation on behalf of The Transplantation Society. The letter notes with approval the government's adoption of new policies. "Nonetheless," it continues, "TTS remains skeptical about the enforcement of Chinese government’s policy and law. Chinese media report that even as the new program is being piloted, it has already been infiltrated by persons driven by the same corrupt practices who have assumed authority for the distribution of organs."
Here's the link.
Monday, August 18, 2014
Yes, there really is an on-line game (also available in downloadable form) about protecting your IP in China - brought to you by the European Commission's China IPR SME Helpdesk. It's available here.
HT to the China Law Blog, which has a post on it here.
Tuesday, August 12, 2014
I have now had time to read quickly through the transcript of the trial of Peter Humphrey and his wife and business partner Yu Yingzeng as posted on the Shanghai No. 1 Intermediate Court’s weibo feed, and have a few observations that may be of interest. First, some caveats:
- There is no way of knowing if the transcript represents everything that happened in court during the trial.
- These are very preliminary comments. I have not seen the indictment or any other prosecution arguments, the defense brief, or the judgment. The trial took place on August 8th and an oral judgment was delivered that very day. A written judgment was promised within five days and that five-day period is not up yet. Thus, these comments are based entirely on the transcript. I hope to have better informed comments when I have seen more materials from the trial and after I’ve done a little more background research.
- When I say “Humphrey”, I will usually mean Humphrey and Yu.
- Certain issues were apparently discussed by the parties and perhaps disposed of in pre-trial proceedings.
- I do not know all the matters that the defense had to take into consideration in deciding on its strategy. Thus, if I seem to raise questions about the defense’s strategy, that’s all they are: questions. They are not informed assertions that the defense did something wrong. A case like Humphrey’s is extremely sensitive and all kinds of things might have been going on behind the scenes.
Now for the comments:
1. The main defense lawyer for Humphrey, who did most of the talking among all the defense lawyers during the trial (Yu had separate lawyers), was Zhai Jian (翟建) of the Shanghai branch of the Dacheng Law Firm. By coincidence, I met Zhai in December 2012 at a conference in Hainan. He represented Yang Jia (杨佳), the Shanghai man who slashed several police officers to death in a Shanghai police station in 2008, in Yang’s unsuccessful death sentence appeal.
2. Humphrey seems to have been charged with both unlawfully receiving personal information about citizens and unlawfully supplying it. The facts necessary to support these charges are quite different and need to be discussed separately. They were not rigorously distinguished in the hearing as reflected in the transcript.
3. It’s not completely clear that the section of the Criminal Law Humphrey was charged with violating, Art. 253, was even intended to apply to people like him or his company, China Whys. Here is the part of Art. 253 under which he was charged; it was added to the Criminal Law in 2009. I have added paragraph numbers.
 Any staff member of a state organ or an entity in such a field as finance, telecommunications, transportation, education or medical treatment who, in violation of state provisions, sells or illegally provides to others personal information on citizens that was obtained during the organ’s or entity’s performance of duties or provision of services, shall, if the circumstances are serious, be sentenced to fixed-term imprisonment of not more than three years or criminal detention, and/or be fined.
 Whoever illegally obtains the aforesaid information by stealing or any other means shall, if the circumstances are serious, be punished under the preceding paragraph.
 Where an entity commits either of the crimes described in the preceding two paragraphs, it shall be fined, and the person in charge who is directly responsible and other directly responsible persons shall be punished under the applicable paragraph.
It seems clear that this rule is aimed at cases where an organization legitimately obtains information about citizens in the course of its functions, and employees then sell this information to others behind the organization’s back. That’s Paragraph 3, in any case, and it applies to suppliers of information. Although the prosecution made much of Humphrey being a supplier of personal information (to his clients), it seems quite a stretch to apply Paragraph 3 to him. The organization of which he was a staff member was his own company; he can’t be said to have misappropriated information from China Whys.
What about Paragraph 4? Note that while Paragraph 4 applies to receivers of information, it is still limited to the type of information referred to in Paragraph 3: information obtained by some organization in the course of performing its functions. Thus, it does not apply to all cases in which someone illegally obtains personal information. For example, if I break into your house and steal your address book, that could well be deemed obtaining personal information about citizens through illegal means, but it’s not “the aforesaid information”.
It is possible that Humphrey obtained some personal information through illegal means, but the transcript shows no effort by the prosecution to show that it was in the category of information “obtained during the organ’s or entity’s performance of duties or provision of services”.
In 2013, the Supreme People’s Court, the Supreme People’s Procuracy, and the Ministry of Public Security issued a joint notice about this particular crime, but it doesn’t change the above analysis. If anything, it underscores the point that the revised Art. 253 was about something quite different from what Humphrey was doing. It was about the problem of employees of various institutions that hold a lot of personal information selling that information on a massive scale to middlemen, who would then resell it to “illegal” investigative companies for purposes such as “illegal” debt collection. (I don’t know where the line between legal and illegal is in the above cases.)
Duan Wanjin, a lawyer for Humphrey, in fact argued that the source of the information did not meet the requirements of the law; I don’t think the prosecution addressed this.
4. The defendants argued that in many cases, the acts in question were carried out not by them but by independent third parties they had hired, and that they did not know, nor have reason to know, what methods those third parties may have used. In fact, they argued, at least in some cases they had reason to believe the methods were lawful. The prosecution did not really address this argument.
5. The most disturbing aspect of the proceedings is the almost complete lack of attention paid to a critical element of the crime with which Humphrey was charged: the element of illegality in the collection of information. Basically, there was very little disagreement about the facts in this case, so it’s disappointing that so much of the trial—well over half—was devoted to establishing things that weren’t really in question. The critical question is what the legal effect of those facts should be.
For example, the prosecution devoted some time to establishing that China Whys’ projects had code names. What this has to do with the charges was not made clear. The prosecution also apparently thought the following facts needed to be established and were important:
- The defendants or their agents had hired people to watch a target. (Note that as far as the evidence showed, the watching involved someone sitting outside the target’s office for three hours.)
- The defendants had “monitored” (监控) people. (No evidence was introduced on this point; the defense’s response was that the prosecution got this idea from a misunderstanding of the term “monitoring” used in China Whys’ reports, where it simply meant things like tracking news about a company or individual.)
- The defendants had hired a non-mainland (境外) company to engage in following and monitoring targets. (This was part of the prosecution’s legal argument and was not supported by any evidence introduced in the factual part of the trial.)
- The defendants or their agents had bought and sold information.
- The defendants or their agents had pretended to be relatives or clients of various people when seeking information.
- The defendants had an illegal purpose in collecting the information. (The prosecution didn’t say what that purpose was; the defense argued out that their purpose was to conduct their business and was not illegal.)
The prosecution did not, however, make any argument or cite any authority in support of its assertion that these methods were illegal. Nevertheless, the court seems to have taken it for granted that these methods are indeed illegal. This is of tremendous significance. If buying and selling cell phone numbers is illegal, for example, then millions of individuals and companies in China are criminals. A friend of mine regularly receives calls from Baidu trying to sell her higher placement in search results; they presumably got her number, and that of millions of other citizens, from a seller of cell phone numbers. Is Baidu going to be next in the dock?
6. The response of the defense to this issue of illegality of methods seemed ambivalent. In some places in the transcript, it argued that what the defendants did was to pay for investigative services, which is not prohibited by law. Thus, the requirement of illegality of method was not met.
Elsewhere, though, the defense made what to me seem to be astonishing concessions. Zhai Jian states, “The acts of the defendants in this case are unlawful, because neither individuals nor commercial entities have the right to obtain citizens’ personal information about their families, their entering and leaving the country, and their mobile phone communications via the method of paying for it.” He goes on to say that in pre-trial conferences with the defendants, he has ascertained that in their own countries, information on entering and leaving the country as well as mobile phone communications are considered strictly private, and “therefore the defendants’ collecting of such information is unlawful.”
This argument seems questionable in a number of respects. First and most obviously, what other countries do cannot determine Chinese law, although obviously it bears on whether the defendants thought they were doing something wrong. Second, this statement conflates the issue of what counts as personal/private information with the issue of whether collecting it is unlawful. Art. 253 criminalizes only the unlawful collection of citizens’ personal information, so deciding that something should be considered personal information does not end the inquiry into criminal liability.
Third, and most important, Zhai is as silent as the prosecution on the source for his statement about the applicable law. It is sometimes said in jest that in China, everything not specifically permitted is forbidden, but this really is nothing more than a jest. No legal system could possibly function this way. Chinese law does not specifically permit any of the million actions we take every day, from brushing our teeth to watching Korean soap operas; this does not make us criminals. A statement that it is unlawful to do something needs support. Again, if Zhai and the prosecution are right about this, China is awash in criminals whose offenses are far worse than those of Peter Humphrey.
7. Even if all the factual predicates for the crime are present, it’s not clear that they rise to the level of criminality under the Criminal Law. This is because Chinese criminal law has a general rule (Art. 13) that an act is not a crime where “the circumstances are clearly minor and the harm is not great” (情节显著轻微危害不大). In addition, both Paragraph 3 and Paragraph 4 explicitly contain a requirement of serious circumstances. Humphrey’s lawyers argued that this requirement was not met; the prosecution argued that it was. The relevant facts apparently involve how many items of personal information were obtained, the purpose for which they were obtained, whether the defendants made a lot of money, and the general social danger of their activities.
Sometimes the Supreme People’s Court will come up with an interpretation of what constitutes “serious circumstances” in particular crimes. Unfortunately, there is no such interpretation or other official guidance available here. Thus, the issue of what facts count and how they count gets argued pretty much just by assertion. Here’s a rough breakdown of the arguments:
Amount of information obtained
As many as 256 items!
Only 256 items!
To make money
1. Of course to make money; we were a business.
2. Contribution to anti-corruption efforts. In about 90% of the cases we investigated, initial suspicions turned out to be accurate.
Amount of money made
“Huge” (citing gross revenues)
You can’t look at gross revenues; you have to deduct costs.
What kind of society would it be if people could be watched and followed 24 hours a day, with secret photos taken of them? (There’s an obvious snarky answer, but the defense wisely did not make it.)
There was actually very little personal information taken, that which was taken was not all passed on to clients in reports, and that which was passed on was not used for bad purposes. The defense also noted (as do I) that some of the prosecution’s claims had no foundation in any evidence they brought before the court. There was, for example, a single instance of following someone. Someone was stationed outside the target’s office for three hours. That’s it, at least as far as the prosecution’s evidence showed. No evidence of secret photo-taking of people was introduced.
One way of getting at the issue is to look at other cases, especially cases from the same jurisdiction, to see what kinds of facts resulted in prosecution and sentencing. Humphrey’s lead attorney, Zhai Jian, pointed out that he had previously handled a case involving the same charges; the defendant had appropriated several million items of personal information and yet got just a suspended sentence. Although the number of items of personal information taken is not and should not be the sole criterion for prosecution and sentencing, I thought it would still be useful to see what other Shanghai cases look like and asked an RA to look at the twenty most recent Shanghai cases on this issue in a Chinese legal database. (I have not yet personally looked at these cases because for various reasons I can’t access the full text of the database at the moment.)
The results – and I stress that these are preliminary and may tell only a partial story –suggest that a case of prosecution and sentencing for 256 items of personal information is, to put it mildly, an outlier. Here are the first seven instances:
# of items
Fine of 3,000 yuan
1 year in prison plus a fine of 10,000 yuan
18 months in prison plus a fine of 5,000 yuan
14 months in prison plus a fine of 4,000 yuan
8 months in prison plus a fine of 5,000 yuan
1 year in prison plus a fine of 5,000 yuan
18 months in prison plus a fine of 30,000 yuan
No doubt the facts of each case are different, but I think the general picture is clear. In all but one (see below) of the cases in my sample of 20, the number of items was at least 4 digits; in six of twenty, it was in 6 digits; in two cases, it was several million (the defendants in each case got a suspended sentence of a year and 18 months respectively, plus a small fine). At the very least, I think the burden is now on those who would assert that this case is not an outlier and possibly a case of selective prosecution. (The one exception is a puzzling case where only 6 items of information were involved; I haven’t yet seen the full text of the judgment, but would guess that the facts must be very unusual.)
8. Yu Yingzeng observed that given the way Chinese police operate, companies wanting to act against corrupt employees have no choice but to use services like theirs. Police will not investigate without evidence, so you have to get evidence before going to the police. But now evidence-gathering is being made illegal. Yu compared the situation to that of having to catch a thief yourself because the police won’t act without evidence, and then you get charged with violating the thief’s rights.
9. Conclusion: To wrap up, there are at least two disturbing aspects about this case. One is that at least on the basis of my very superficial review of recent cases in Shanghai, the facts in this case don’t seem to justify the prosecution and certainly not the sentence. (Of course, a closer look at this and other cases might upset this conclusion.) The second is that this case does nothing to clarify an absolutely critical issue for anyone that collects or uses business information: what counts as an illegal method of collection? The issue was never properly joined, and so there was no discussion of broader principles or policies, let alone specific statutes and regulations, that might help us figure out this question.
10. Let me just repeat that these are very preliminary observations. I haven’t even seen the text of the judgment yet, and I may have overlooked something in the transcript.
What with the government's crackdown on just about everyone (with the exception of Certain People's Relatives), the well-prepared citizen and visitor will certainly want to read Stanley Lubman's timely explanation of the various rubrics - legal, semi-legal,and illegal - under which various authorities in China can lock you up.
Friday, August 8, 2014
Here’s an interesting article about the problem (at least it’s so perceived) of Chinese citizens who take out foreign citizenship but don’t tell the Chinese authorities about it.
As the article correctly points out, under China’s Nationality Law, when you voluntarily take out citizenship in a foreign country, you automatically lose your Chinese citizenship. No need to apply; no need to receive permission. If you keep your Chinese passport and don’t tell the Chinese government about your foreign citizenship, that doesn’t mean you’re still a Chinese citizen.
I thought it worth a brief blog post because this subject often comes up, and is often misunderstood, when former PRC citizens who have become foreign citizens get into legal trouble in China. Chinese authorities consistently misrepresented Chinese nationality law, for example, when Huseyincan Celil, a former PRC citizen who had voluntarily taken out Canadian citizenship, was seized in Uzbekistan and extradited to China to face trial.
British corporate investigator Peter Humphrey and his wife and business partner Yu Yingzeng were sentenced on August 8th to 30 months and two years in prison respectively on charges of illegally obtaining personal information about Chinese citizens. I hope to have some commentary up shortly, but first I want to read the trial transcript, which was posted by the Shanghai No. 1 Intermediate People's Court on its Weibo site. I've collected all 31 entries (they are graphic files in jpg and png format) and put them in a zip file, available here.
Monday, August 4, 2014
The Sinica podcast is an interview show with different guests each time, conducted by long-time Beijing residents Kaiser Kuo, Jeremy Goldkorn, and David Moser. In the latest episode, the hosts and I discuss the rule of law in China. If you share my doubts about the usefulness of abstract discussions of the rule of law, don't be put off by the title - we actually just discuss a lot of recent law-related topics, such as the investigation of Zhou Yongkang. Here's the link: http://www.popupchinese.com/lessons/sinica/the-rule-of-law-in-china.
Tuesday, July 29, 2014
I was struck by the following passage in this NYT story:
"The victory of the aggressors was a humiliation for the Chinese nation,” Chu Yimin, a People’s Liberation Army general and political commissar, said in an interview published on Monday in Study Times, a party newspaper. “The wounds are increasingly healed over, but the scars remain, and what we need most of all nowadays is to awaken an intense sense of humiliation, so that we never forget the humiliation of our country and military, and turn knowledge of this into courage.
Really? This is what China needs more than anything else? Holy cow. It seems to me we have seen this movie before. The language is more bombastic, but the basic idea is the same.
What might have been done with the peace treaty of Versailles!
How could this instrument of boundless extortion and shameful abasement have become, in the hands of a willing government, a means of whipping up national passions to the boiling point! How, by means of the genial propagandistic utilization of these sadistic atrocities, could a people's indifference be raised to indignation, and indignation to the most blazing anger!
How every one of these points could have been burned into the brain and feeling of this nation until, finally, in the heads of sixty million men and women the same sense of shame and the same hate would have become a single fiery sea of flames, out of whose glow a steely will would have risen and a cry forced itself: We want arms once more!
Monday, July 28, 2014
Tuesday, July 15, 2014
Monday, July 14, 2014
Thursday, July 10, 2014
I was struck by this sentence in an editorial in China's redoubtable Global Times. Sounding for all the world like Spiro Agnew or Rush Limbaugh, it argued that "radical liberals" should be less critical, and warned, "It is a misunderstanding of law if one believes criticism only has to abide by law without adhering to the political bottom line." It then went on to say, "The problem is that these people must know where society's bottom line is. They need to restore respect to the rule of law. . . . No matter what their political beliefs are, they cannot cross the red line of laws."
What can it mean to imply, on the one hand, that excessive criticism "cross[es] the red line of laws", while apparently conceding on the other hand that such criticism might still be law-abiding, but that that's not enough?
It would be easy to dismiss this as just the Global Times's nonsensical and self-contradictory misunderstanding of what law is all about. But I think we get closer to understanding what law is all about in China if we start with the assumption that this set of statements makes sense, and then figure out what must be true if the statements make sense.
In fact, I think the Global Times is just reflecting a realistic understanding of the relationship between law and politics (by which I mean the preferences of the Chinese Communist Party) in China, which is that it doesn't make sense to draw a strict line between them. After all, this is a single-party dictatorship. Any principle that isn't actually law could in short order be law if the Party wanted it that way. It's just a question of time or of preference as to mode of policy implementation. Thus, it really is in a sense a kind of pedantic formalism to insist that I ought to be in the clear because my act did not violate the law if I clearly knew at the same time that it violated the preferences of the Party. To distinguish between the preferences of the state and the preferences of the group of people running the state makes sense only if there might be a different group running the state later on, and if policy preferences gain political legitimacy only after passing through a state legislative process. In China, policy preferences gain political legitimacy after passing through a Party process.
Sunday, July 6, 2014
Those who are interested in elder law might be interested in a debate now going on in China over some draft legislation proposed in Shandong. According to the legislation, those who have a duty to support the aged (i.e., the children) must maintain their parents' standard of living at a level at least equal to their own, and they are not allowed to seek property from their parents on the grounds of being unemployed, etc. (有独立生活能力的成年子女要求老年人经济资助的,老年人有权拒绝。成年子女或者其他亲属不得以无业或者其他理由索取老年人的财物。) Yes, the last bit is as vague as it sounds. Here's an article in the People's Court News in support of the law; here's Peking University law professor Shen Kui's critique, in which he says that the nanny state (保姆国家) must not go too far.
Last May, the writer Murong Xuecun (慕容雪村, real name Hao Qun 郝群) published an op-ed in the New York Times protesting the arrest of Pu Zhiqiang and others for "stirring up trouble and provoking disturbances" and announcing his intention to turn himself in upon his return from Australia. Today (or perhaps yesterday - the statement is undated) he made good on his word, issuing a Statement of Surrender. Here's the Chinese text, followed by my translation.
Statement of Surrender
Two months ago, Pu Zhiqiang, Xu Youyu, Hao Jian, Hu Shigen, and Liu Di were arrested on suspicion of “stirring up trouble and provoking disturbances.” This so-called “stirring up trouble and provoking disturbances” was in fact nothing more than people getting together at home: some ten-odd people met at Hao Jian’s home and discussed the Tiananmen Incident of 25 years earlier, and this became a crime. I was supposed to have been there, but on the day of the meeting I was to go to the University of Sydney to be a visiting scholar, so I made only a written declaration stating my own views of the Tiananmen Incident. I never imagined that in this so-called People’s Republic even this kind of trivial incident could become a crime. I made a declaration on the internet stating that I also participated in their stirring up trouble and provoking disturbances but was currently abroad, and asked the authorities to please wait for two months until I had finished by trip to the University of Sydney, when I would return to China and surrender.
I in no way accept the arrest of these people, but also don’t feel that I should get some special treatment. I did the same thing that they did and cannot stay outside of the matter. I have already returned to Beijing and await arrest at any moment. For the next 24 hours after issuing this statement of surrender, I will be waiting in my home in Haidian District, and request that those who come bring the appropriate documents. After 24 hours, please telephone in advance to arrange a time.
Hao Qun (Murong Xuecun)
Saturday, July 5, 2014
Here's a pair of articles from the Washington Post [first | second] on the Communist Party's Discipline Inspection Commissions and the practice of shuanggui ("double designation") detention. This remains a timely subject, since Xi Jinping keeps saying he wants to enhance the rule of law in China, but relies heavily on the utterly unlawful institution of shuanggui for his anti-corruption campaign. I say "unlawful" because both the Chinese Constitution and the Law on Legislation state clearly that any restriction of personal liberty - that is, detention of the body - must be authorized "by law", which means in this context a statute passed by the National People's Congress or its Standing Committee. No such statute exists authorizing detention under the Party disciplinary system.
Interestingly, defenders of the system do not generally argue that it is lawful. (I have heard a couple of foreign analysts argue that is is lawful on the grounds of a fictional deemed consent by Party members to be shuanggui'd; it is not, however, an argument that Chinese defenders of the system have generally tried to make in the research that I've done, and one prominent scholar who defends the system called it "牵强" (forced). ) Instead, they respond that it is necessary. This has never struck me as a convincing excuse for its unlawfulness; given that the Party controls the legislative process, it is hard to understand why after so many years it would be unable to have the appropriate authorizing statute enacted if it wanted. I can think of only two plausible reasons for not enacting an authorizing statute: (1) Party leaders are so used to doing what they want unrestrained by law that it has simply never occurred to them that legislative authority might be necessary; or (2) the Party leadership is deliberately sending a signal that the Party is and will remain above the law. The first reason actually doesn't seem very plausible after so many years of discussion of shuanggui and its inadequate legal basis, so my money is on the second.
Reuters reported a few days ago about the lawsuit brought by Qilu Bank against a local government financing vehicle (LGFV) in the same city (Jinan in Shandong Province) for unpaid debt. The lawsuit is unusual for two reasons: first, it is apparently the first openly disclosed default of a LGFV on a bank loan, although few doubt that there have been others that have been quietly dealt with, and second, not only is the debtor a shareholder in the creditor (albeit small: only 0.08%), but the debtor is controlled by the local government, which probably controls the creditor as well. In addition to the informal influence the Jinan city government undoubtedly enjoys, what appear to be entities directly under its control hold more than 20% of Qilu's equity. And of course the Jinan political authorities also have the power to ensure that no local court will issue a verdict displeasing to them.
LGFVs exist because in general, local governments in China don't have the power to borrow, but they still want to spend more than they have for things like infrastructure projects. They then set up wholly-owned corporations (LGFVs) to do the borrowing and undertake the construction. The problem is that local governments also lack the power to guarantee debt. Thus, LGFV debt as a legal matter is either unsecured or secured by something other than a government guarantee - for example, land-use rights that the local government has transferred to the LGFV.
As the Reuters article reports, many lenders consider (or at least at the time of lending considered) LGFV debt to be informally guaranteed by local governments. Now, apparently, they are having second thoughts. They should have more of these. I was struck by a paragraph in an earlier version of the Reuters report (apparently removed from the version now at the link):
A senior bond trader at a major Chinese state-owned bank in Shanghai noted that while investors still largely considered debt issued by provincial-level financing vehicles to be effectively guaranteed, that no longer held true for lower level entities.
Any non-central government guarantee of LGFV debt is invalid and legally worthless, full stop. And this is over and above the fact that even if the guarantees were legally valid, a creditor could not win a case and enforce a judgment against an unwilling guarantor government. What is remarkable is that creditors still continue to believe in these guarantees, and possibly quite improperly carry these loans on their books as if they were guaranteed. The worthlessness of the guarantee is evident in the sentence itself: it says that investors “no longer” consider lower-level LGFV debt to be effectively guaranteed. So they considered it guaranteed at time A, and at time B they do not consider it guaranteed, even though nothing of legal significance has happened. That’s not what “guarantee” means; it is a legal obligation that persists despite changing circumstances. If investors understand that a lower-level guarantee can evaporate, why do they think that a provincial-level guarantee can’t? It looks like the GITIC bankruptcy all over again.
- Reuters news story
- Qilu Bank 2013 annual report disclosing the existence of the bad debt and the lawsuit (excerpts) [English | Chinese]
- October 2013 IMF Working Paper explaining LGFVs
- Short article from Sept. 2013 International Business Times explaining LGFVs
Friday, July 4, 2014
Over the last few days, I've blogged about the silly charges brought against Pu Zhiqiang and others: a crime named "stirring up trouble and provoking disturbances," in which the offending act seems to be posting something like a press release online after having a private meeting of less than dozen people in someone's home. And last September the Supreme People's Court and the Supreme People's Procuracy issued a joint notice on internet speech crimes that attracted a lot of controversy (and jeering).
Apparently they were paying attention in Wisconsin, and not in a good way. Local authorities brought charges against someone who posted uncomplimentary remarks about the police department right on the department's Facebook page. The charges? "Disorderly conduct" (among others). And the defendant was convicted in a jury trial. Fortunately the appeals court had no trouble in recognizing that the First Amendment still applies (the prosecution had tried to assert a "fighting words" exception) and overturned the conviction - fittingly, the day before Independence Day.
To the extent this case is at all representative of anything, it's that China does not have a monopoly on the notion that people should be punished for sassing the authorities. The idea is alive and well in the United States, too. That's why independent institutions are critical.
Wednesday, July 2, 2014
Yesterday I blogged about a column my friend and colleague Stanley Lubman had written on the charges against Pu Zhiqiang. Stanley has asked that I post his response, and I'm happy to do so. Here it is:
I appreciate Don Clarke’s comment on my recent column on “picking quarrels and stirring up trouble. ” He correctly points out that there is no such crime in the relevant Article 293 of the Chinese Criminal Code. But where, then, is the criminality of “picking quarrels” defined?
The language of Article 293 uses the term as a class of acts that are punishable and states four categories: attacking people, “chasing, intercepting, berating or intimidating others” under “heinous circumstances,” or causing disorder in a public place. Clearly a private discussion in a private apartment does not fall within any of those categories, and, as I noted, Daum refers to the interpretation by the SPC and SPP as having ”significantly clarified when this charge can be supported, [but] it doesn’t seem to have slowed police.”
In the context of other efforts under way to suppress publicly expressed views deemed by police or other authorities to threaten “social stability,” application in Pu’s case of “a very vaguely defined crime of ‘picking quarrels and provoking troubles” is what is occurring. Clarke and I agree that, as he stated, that the law is wildly stretched to apply to Pu, but, as he said, “the authorities are using it anyway.”
In sum, Clarke and I also agree that here we have “a problem of institutions, not of legislative drafting.” I thought that by discussing arbitrary use of power by the police that that was clear, and I thank Don for making that crystal-clear.