Wednesday, October 29, 2014
The Fourth Plenum’s Decision is now available on the Law Genius site in annotatable form in both English (translation courtesy of Rogier Creemers and Jeremy Daum) and Chinese. I’ve already added annotations to the English text.
By way of explanation, genius.com is a site that crowd-sources knowledge by allowing texts of various kinds to be annotated. (It started as a site for annotating rap lyrics – go figure.) It has various sub-sites: Law Genius, Rap Genius, Poetry Genius, etc. – you get the idea. (Full disclosure: I know about it because my daughter runs the Law Genius site.)
I encourage anyone who might like to annotate the Decision to check out the site and add your wisdom. The annotating function is pretty intuitive: just highlight the text you want to annotate and then move your cursor over into the blank space on the right. An annotation box will appear. For tips on how to format your annotations (add italics, links, etc.), see this page.
The text of the decision passed by the Fourth Plenum on Oct. 23rd, entitled “Decision on Several Important Issues Regarding the All-Around Promotion of Ruling the State According to Law,” has finally been released [Chinese | English]. As expected, it offers more detail than did the Communiqué released earlier, but I don’t see anything here that would require a fundamental revision of the preliminary assessments that observers (including me) made after reading the Communiqué. Even though those assessments were varied, my sense is that whatever you thought the Communiqué indicated, your opinion will be reinforced, or at least not overturned, by your reading of the Decision.
The big-picture summary is that the Decision contemplates no fundamental reform in the relationship between the legal system and the Party. It is clear that institutionally speaking, the Party will remain above the law. At the same time, the Decision does contemplate some genuinely meaningful (and in my opinion positive) reforms. It also has a lot of stuff that might look meaningful but isn’t. I’ll explain below. Please note that I wrote this under a lot of time pressure, so it is not as well organized as it might be. Conclusions are tentative.
1. Party first, law second
My impression (which I have not taken the time to verify) is that whenever the Party and the law appear in the same sentence, the Party comes first. Certainly it comes first in some important places.
(a) Section 1 of the Decision lists several important principles that must be upheld in order to achieve the goal of ruling the state according to law. The first: leadership of the Party.
(b) Section 6 states that judges should be loyal to four things: the Party, the state, the people, and the law. Notice which comes last. Grammatically speaking, of course, there is no reason why this sentence could not be interpreted as giving all elements equal value; in any list, something has to come first. But we know that in a document like this, nothing – not even a comma – is accidental. The elements of this list come in the order they do for a reason.
(c ) The “Three Supremes” (三个至上) long associated with former Supreme People’s Court president Wang Shengjun (a man on whose CV not a single day of legal education appears), are resurrected in the same section. Legal system personnel should give highest priority to the cause of the Party, the interests of the people, and the constitution and laws – again, listed in that order. Lawyers must support the Party’s leadership and party cells in law firms should step up their activities.
In addition, obedience of officials to law is presented throughout as a kind of internal Party policy goal: this is something that Party members should do, and officials will even be scored on it (Section 7, Subsection 3). Those who have a “special privilege” mentality will be criticized and educated, and if necessary removed from office. But because the Decision contemplates no changes in the relationship between the legal system and the Party, the system in which powerful officials can override law if they wish to remains comfortably in place. The Decision just wants them to wish to override it less often.
2. Meaningful reforms: major
(a) The Decision calls for some significant reforms in the system for managing judges.
(i) First, it says that judicial tenure should be protected; judges should be removed from their posts only for legal reasons and in accordance with legal procedures. It’s hard to know exactly what this means; at present, as a formal matter, local people’s congresses have the right to appoint senior judges in a court, and there’s nothing in the law to suggest they can’t replace them as they please. In any case, no more detail is provided, so we’ll put this aside for now.
(ii) A very important reform in my view is the proposal (Section 6, Subsection 1) to establish essentially a career civil-service model for the judiciary. Junior judges should be selected by provincial-level courts and should start their careers in basic-level courts. They will then be promoted to higher-level courts based on their ability. The Decision does not actually specify who will do the promoting, although it would make sense for this power to be in the hands of the provincial-level courts as well. The same principle applies to procurators. This reform is significant precisely because such a model does not exist now. Courts are still making their way out of the work-unit (单位 danwei) model. The main (or at least, an important) way to become a senior judge at a high-level court is to start out as a junior judge at a high-level court – presumably by graduating with excellent grades from a famous law school. There is not now a good system for identifying promising judges at lower levels and promoting them to different courts at higher levels.
(b) The Decision also calls for some significant reforms in the court system, both apparently designed to address the problem of local protectionism. Because courts at a given administrative level are in practice answerable to local political authority at that level (which has power over appointments and finances), they tend to protect any party that local political authority wants to protect – for example, prominent local businesses. The Chinese legal community has long viewed this as a problem and proposed various ways of addressing it.
(i) The Supreme People’s Court is to establish “circuit tribunals” (巡回法庭 xunhui fating) each with jurisdiction over several provinces, to try cases involving more than one province. Note that this proposal does not involve setting up another layer of courts. The institutions in question are tribunals, meaning they are simply branches of the SPC. A decision of such a tribunal would be a decision of the SPC. A model for this currently exists in basic-level people’s courts, which can establish “people’s tribunals” (人民法庭 renmin fating) that exist in, or travel to, areas physically distant from the court’s location. The decisions of such tribunals are decisions of the court itself.
(ii) There is another, different proposal to establish another layer of courts that will cross jurisdictional boundaries, again to try cases that are in some sense cross-jurisdictional. Such a proposal would require legislative and possibly constitutional amendments. The Decision gives it only a sentence, so we know basically nothing about how this proposal might be carried out.
Note that in both cases, the institutions involved (whether tribunal or court) are intended to hear only a particular kind of case: cross-jurisdictional cases. They do not appear intended to solve in a general way the problem caused by the dependence of courts on political power at the same administrative level.
3. Meaningful reforms: minor
(a) The Decision calls for breaking the link between amounts received by a government agency in fines and confiscations and that agency’s (or, presumably, its officials’) interests. The reasons for (and merit of) this are obvious. In fact, it’s a reform that has already been carried out, at least to some degree, in a number of sectors. (I just wish the U.S. government would adopt the same principle in its civil forfeiture laws.)
(b) The Decision calls for control over personnel and finances of state auditing organs to be centralized up to the provincial level. This is presumably to provide auditing bodies with more independence from local officials, who might pressure them to look the other way during their investigations.
(c) The Decision calls for reforms in the case docketing (立案 li'an) system. Any court system needs a gate-keeping procedure to weed out non-meritorious suits before they get very far. The problem with China’s current system is that in practice, courts can avoid hearing troublesome cases (for example, cases where no matter what they do they’ll be criticized) by simply refusing to docket them (i.e., refusing to accept the case filing). While such a refusal can be appealed, courts can get around this by simply refusing to refuse; they don’t issue a decision rejecting the filing, but instead just do nothing. The Decision calls for reforming this by (it seems) removing the discretion of courts to refuse cases. Instead of a system where courts can review filings for docketability (and thus have the power to reject the filings), we will get a system of “case registration” (立案登记制 li’an dengji zhi). But if so, the system will still have to come up with some way of filtering out frivolous and otherwise utterly no-hope cases without having to do a proper hearing on the merits.
(d) The Decision has some welcome language on civil rights. It specifies the principle of the presumption of innocence (疑罪从无 yi zui cong wu: literally, something like “when there is doubt about the crime, err on the side of finding no crime”). It also endorses the principle of exclusion of unlawfully gathered evidence. I put both these items in the “meaningful but minor” category because I don’t want to say they’re meaningless, but at the same time we have heard this before and problems persist.
(e) The Decision endorses an Anglo-American type jury! At present, China has a system of so-called “people’s assessors” (人民陪审员 renmin peishenyuan): lay people who in certain cases sit alongside judges and have (in theory, although of course not in practice) exactly equivalent decision-making power over the case. It’s just a vote at the end. Thus, it’s not appropriate to call them a jury, even if they functioned exactly as they are supposed to in theory, instead of (as seems to be the case in practice) as decorative extras. But the Decision calls for the gradual implementation of a system whereby assessors will decide only issues of fact (did A actually call B a stinker?), not issues of law (assuming A called B a stinker, is B entitled to damages for hurt feelings?). This is exactly how the Anglo-American jury is supposed to function.
I group this with the minor reforms because although it would be major if actually implemented, I’m not confident that it will get very far. I should also say that it’s not unambiguously positive. Just because it resembles the Anglo-American jury doesn’t automatically mean it’s a great thing. I’m undecided on this one.
3. Meaningless feel-good language
The Decision gives a shout-out to innumerable Good Things, from constraining state power to increasing legal aid. Typically, it calls for strengthening or increasing something that is already there. Consider how often the following verbs appear:
No. of occurrences
jianquan (健全 strengthen)
wanshan (完善 perfect)
tigao (提高 raise or increase)
It would be otiose to go through them all. I would instead propose that the burden be on those who assert in any particular case that this language means something to point to the specific institutional reform that accompanies it. If there is none, then we can only wait and see. Talk is cheap. Something may come of the promise and something may not. Here are a few examples.
(a) The Decision calls for strengthening the system of constitutional review of legislation. There is such a system in place now, but it appears to be utterly non-functional. The Decision does not propose a fundamentally different way of ensuring that legislation and government actions conform to the constitution. It essentially calls for maintaining the current system of (potential) top-down review, but doing it better.
(b) The Decision makes a bow to the concept of limited government in several places, but typically only in general terms. The institutional changes that would actually accomplish this do not appear. An important principle is declared in Section 3, Subsection 1: administrative organs cannot act without specific legislatively delegated authority. This seems pretty good, and in general might be laudable, except that it is profoundly unrealistic. Emergencies happen. It might be better to establish the principle that administrative organs must act within certain bounds or according to certain principles (set forth, for example, in the constitution or a statute). Here as elsewhere, we see the idea that while the actions of state officials need to be controlled, that control should be internal to the system and not achieved through external constraints.
(c) The Decision denounces attempts by leading officials to interfere with court cases, and calls for the establishment of a system for keeping track of such attempts. But the same system of incentives that now makes judges responsive to such attempts is going to make them reluctant to record and report on them. Moreover, the same Decision elsewhere (Section 7, Subsection 1) stresses the importance of the Legal-Political Committee, a Party body that exists at various administrative levels, and calls for the Party organization in political-legal bodies (which includes courts) to report important matters to the local Party committee. Given what we know about how China operates now, I think it’s fair to ask for very, very strong evidence before believing that powerful officials will no longer be able to interfere in cases that interest them. Does anyone really believe that Bo Xilai’s case was decided solely by the judges who presided at the trial, or that Zhou Yongkang’s case will not be decided by the Standing Committee of the Politburo?
4. Dogs that didn’t bark
Curiously unmentioned in both the Communiqué and the Decision is an important reform mooted at last year’s Third Plenum: the centralization up to the provincial level of court finances and personnel appointments. This reform, designed to counter local protectionism, is apparently already being tried out on a pilot basis in Shanghai and perhaps other places. It’s odd not to see it mentioned here. [UPDATE, Oct. 29, 5:30 pm EDT: This reform is popular among legal academics but controversial among judges. There are at least two reasons for this. First, judges fear that a more hierarchical system of authority in general will increase the power of court leaders over them. Second, judges in prosperous areas fear that putting court finances under a higher adminstrative authority (i.e., the province) will mean a unified salary scale for all judges under that authority. Judges in poor areas might get more, but judges in rich areas will get less. Or so they fear. In any case, the absence of language about this may well be evidence that this reform has stalled.]
A welcome (to me) absence in the Decision is language downplaying legal professionalism and touting closeness to the masses, praising the Ma Xiwu adjudication style, etc. We have seen a lot of this language in recent years (for a thorough analysis, see Carl Minzner’s “China’s Turn Against Law” and Ben Liebman's "A Return to Populist Legality? Historical Legacies and Legal Reform"), so it’s a bit surprising not to see it here. There is a moderately troubling line endorsing the move of “qualified” military officials into the ranks of legal system personnel; it doesn’t exactly support the much-criticized practice of retired military officers simply donning judicial robes, but the drafters of the Decision cannot have been unaware of this background.
[UPDATE, Oct. 29, 3 p.m. EDT: It occurs to me that this fits well into a professionalization model, but not very well into the story of deprofessionalization, populism, and China-turns-against-law that we see in the work of Carl Minzner and Ben Liebman (a story that I generally agree with). In addition, it suggests a greater role for court decisions as sources of legal authority and not just one-off judgments as between two disputing parties. If a court decision is just a one-off judgment unrelated to anything else the legal system does, then it doesn't much matter if untrained lay people decide legal questions as well as factual ones. But if a court decision constitutes legal authority to any degree, then you want to control who's making that decision and how they make it. This reform, if carried out, makes it more possible for court decisions to have precedential value.]
5. Objectionable items
While I am disappointed (but not surprised) at the continued invocation of the need for the Party to control everything, many and perhaps most of the specific reforms endorsed in the Decision are positive. But not all. Take the problem of judges being too responsive to media pressure. This is a real problem: sometimes the media will take a particular view of a case, and the actual facts get completely lost in the dominant narrative. But why do judges feel pressure to satisfy the media? The media does not pay their salaries; the public doesn’t even know their names. The reason is institutional: they are getting phone calls from their political superiors, who are getting phone calls from their political superiors, and everyone is barking, “What the hell is going on down there in your jurisdiction? Make this fuss go away!” Chinese officials lose favor in the eyes of their superiors when there’s a commotion in their jurisdiction; the superiors don’t care about the merits. But instead of addressing this problem, the Decision takes the easy way out: let’s control media reporting (Section 4, Subsection 6).
This policy has to be seen in the context of recent rules severely restricting the ability of lawyers to comment on cases they are handling; it’s part and parcel of a general crackdown on information regarding court cases. Since getting your case into court was one of the few ways remaining for marginalized people to have a legitimate way of getting press coverage (the press can’t report on a demonstration, for example, but can report on a court case), the policy represents a further closing, not an opening.
Sunday, October 26, 2014
The International Society for Chinese Law & History has a feature on its (terrific) website called the Chinese Legal Documents Series. Here's what it's all about:
This special series invites researchers to introduce a document from their own collections, provide a translation, and discuss what these texts might be used to study. Our goal is to showcase the research of members, offer a small corpus of legal texts for the training of students, and give readers a wide view of what the study of Chinese legal history looks like.
An introduction to the series, as well as the first post in it, are here.
Friday, October 3, 2014
Budget Law revisions tighten, not loosen, central government's control over local government bond issues
Recent amendments to the Budget Law have been reported as liberalizing the regime for local government bond issuance, but it doesn’t look that way to me.
For a long time, local governments in China have generally not been allowed to issue bonds. In order to finance projects such as infrastructure construction, therefore, they have turned to what are called local government financing vehicles (LGFVs): companies established and wholly owned by local governments that raise money through bank loans and bond issues. These LGFVs have some serious debt problems, as has been noted in many places, and those debt problems are generally viewed as local government debt even though local governments are typically not on the hook as a legal matter.
Many have proposed that local governments should be allowed to issue bonds directly, and that letting them do so would somehow alleviate the problems of LGFV debt. It has never been clear to me exactly why this should be so—infrastructure projects that don’t pay off when financed through LGFVs are not going to be more profitable when financed through direct local government bond issues—but that’s tangential to the purpose of this post, which is to discuss recent relevant amendments to the Budget Law regarding local government bonds.
The 1994 Budget Law (Art. 28) stated clearly that local governments could not issue bonds unless there was a statute or State Council rule stating otherwise. No statute ever gave this permission. Only in 2011 did the State Council first provide the explicit permission required by law for four local governments (Shanghai, Zhejiang, Guangdong, and Shenzhen) to issue bonds directly, and in 2013 the provincial governments of Shandong and Jiangsu were granted permission to issue bonds.
The Budget Law was revised on Aug. 31, 2014, with the revisions to be effective on Jan. 1, 2015. The revisions relating to local government bonds (now in Article 35) have been reported as liberalizing the rules. For example, a Bloomberg report is headlined, “China to allow local governments to sell bonds directly.” The rating agency Fitch welcomed the amendments as “formalising long-running proposals to enable local governments to issue debt directly for the first time.”
But how much have things really changed?
Under the previous Budget Law, local governments at any level could not issue bonds unless explicitly authorized by statute or by the State Council. Under the revised Budget Law, that condition is still in place. Bonds may be issued only by local governments authorized by the State Council. In fact, the revisions tighten the conditions in two ways: first, only local governments at the provincial level may issue bonds. Second, bond issues may be used only to finance public utility projects and not to finance commercial projects; neither limitation was in the original Budget Law.
In short, the revisions don’t allow local governments to do something they could not do before. State Council permission is still required, and in fact the terms upon which the State Council may grant permission have been tightened, not loosened.
UPDATE, Oct. 4, 2014: It occurs to me that I should add a clarification here: tightened standards don't necessarily mean few or no local government bond issues. Very possibly the revisions and the publicity around them are a sign that the State Council intends to change its cautious approach and grant permission liberally. But it's still up to the State Council's discretion, as before, and indeed the State Council has lost the discretion it had before the revisions to allow cities (such as Shenzhen) to issue bonds.
Friday, August 8, 2014
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.
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
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
Tuesday, July 1, 2014
Stanley Lubman has a column today in the China Real Time section of the Wall Street Journal online edition that discusses the charges against Pu Zhiqiang. With the greatest respect for Lubman, I think that his discussion could give readers an inaccurate understanding of those charges and what they say about the Chinese legal system, so I want to add this modest clarification to his discussion.
Lubman states that Pu
now awaits trial for “picking quarrels and provoking troubles,” a crime with no clear definition.
His case dramatically illustrates the contradiction between attempts to increase legality in an authoritarian regime and that regime’s overwhelming anxiety about maintaining social stability. The vagueness of the “crime” of “picking quarrels” – authorities didn’t say who Pu allegedly picked a quarrel with, or about what — allows police unlimited discretion to detain and arrest offenders for almost any action.
This, I think, is misleading. There is in fact no general and vaguely defined crime of "picking quarrels and provoking troubles" (寻衅滋事), and there's no need for the police to identify the other party or the subject of any quarrel. The relevant article of the Criminal Law, Art. 293, states, "In the event of one of the following acts of picking quarrels and provoking troubles, ..." (emphasis added). It then lists four relatively specific acts -- or at least more specific than the vague "picking quarrels and provoking troubles." Things that could be called "picking quarrels and provoking troubles" but that do not fall within one of the four listed categories are not crimes. As a matter of written law, therefore, the police do not have unlimited discretion to detain offenders under this vague rubric. Moreover, as Jeremy Daum has pointed out in his excellent analysis of this crime, there is a further judicial interpretation of Art. 293 that narrow its scope even more. Lubman is aware of this and links to Daum's article, but the main message of the column seems still to be that there exists a very vaguely defined crime of "picking quarrels and provoking troubles."
The reason I think it's worth taking this issue up is that if the diagnosis is wrong, the cure is going to be wrong. If the diagnosis is that the law is vague, then it would seem to follow naturally that the solution is to make the law less vague. I want to stress here that in fact the law is not all that vague, and as applied to Pu's case has to be stretched beyond all recognition in order to apply. But the authorities are using it anyway. The problem lies in the lack of any independent body that could put boundaries around the ability of police to make words mean anything (or more to the point, not mean anything). In other words, it's a problem of institutions, not of legislative drafting.
I doubt Lubman would disagree with any of this, and possibly it's what he meant to say. I'm just not sure the column actually says this, so I want to add my two cents.
JULY 3, 2014 UPDATE: Here's a response from Stanley Lubman.
Wednesday, June 25, 2014
There has been quite a bit of attention in the Chinese press recently to proposed and perhaps in-process reforms to the Chinese judicial system. These reforms were authorized in broad strokes by the 3rd Plenum of the 18th Central Committee last fall, and at least some are now on the road to implementation. An important reform is that of partially centralizing (i.e., up to the provincial level) the power of appointments and funding for local courts (see para. 32 of the Third Plenum Decision).
Recently, the Central Leading Group for Comprehensively Deepening Reform, a Party body headed by Xi Jinping, issued three documents relevant to judicial reform: (1) Opinion on Deepening Reform in the Judicial System and Social System and Plan for Division of Labor in Implementation (关于深化司法体制和社会体制改革的意见及贯彻实施分工方案); Framework Opinion on Several Issues Relating to Experimental Points in Judicial Reform (关于司法体制改革试点若干问题的框架意见); and (3) Work Plan for the Shanghai Experimental Point in Judicial Reform (上海市司法改革试点工作方案). Unfortunately, none of these documents have been made public, but their content has been sketched in the official press. Here are two articles from the Chinese press [first | second] and very helpful English-language summary courtesy of Chinese Law Translate.
These documents (at least as explicated by a government spokesman) contain a number of worthy and important reforms. Financing of all local courts is to be handled at the provincial level, as are appointments. Apparently this reform is already in process in Shanghai. (Shanghai has the administrative status of a province.) What this means is that district (区) governments and People's Congresses will no longer have power over finances and personnel respectively in Basic-Level People's Courts in their district.
This is all very well, but what seems to have been overlooked in the zeal to reform the court system is the fact that you can't do it just by making some decisions within the Party. The system whereby local authorities (i.e., Party, government, and People's Congress) control courts at the same level (at least as to personnel appointments) is enshrined both in the Court Organization Law (Art. 34) and the Constitution (Art. 101). To be sure, as reported it is not crystal clear that the reforms formally take the power of appointment away from local authorities. But it is crystal clear that local authorities will not be making the decisions. The decision as to who will be a judge in a local court will be made at the provincial level, and then "the local People's Congresses will appoint or dismiss in accordance with legal procedures" (人大依照法律程序任免).
In other words, a project designed to improve the legal system is treating legal rules as at best meaningless formalities and at worst non-existent. It seems that the problem of weak legal institutions is being dealt with the same way Simon Leys (quoting Alexandre Vialatte) describes the fate of cannibals in a certain republic: "There are no more cannibals in that country since the local authorities ate the last ones."
Thursday, June 5, 2014
Saturday, April 5, 2014
"Minor property rights" (小产权) is the term used to describe the rights you get (or think you get) when you "buy" rural, collectively-owned land. I use quotation marks because you can't actually buy collectively-owned land. You can't even buy a long-term use right to it, the way you can buy a 70-year use right to land for residential use in urban China. But villages purport to sell these rights and urbanites purport to buy them, because they're cheaper than the fully lawful and relatively robust rights you get when you buy urban land. And the developments on minor property rights land can be pretty substantial (see the photo below); we're not talking about tarpaper shacks here.
Now the media is reporting that minor property rights land is being occupied not just by the living, but by the dead - and for the same reasons. It's getting too expensive to die in China, so people have to find cheaper options. Here are some reports:
Sunday, March 30, 2014
Prof. SHEN Wei of Shanghai Jiaotong University Law School will give a talk at GW Law School this Thursday evening. The topic is "Understanding China's Local Government Debt Crisis: Causes and Solutions (or No Way Out?)". Click here for a flyer and a bio of Prof. Shen. The talk will be recorded and webcast live; here's the link for the webcast.
Date: April 3
Time: 6 p.m.
Place: Room 402, Lerner Hall, 2000 H St. NW, Washington, DC (Lerner Hall is where you are when you enter the law school at the 2000 H St. entrance).
Monday, March 10, 2014
You have to be impressed with Pershing Square's PR operation. Those who don't read the business section might still have heard of William Ackman and his hedge fund Pershing Square's campaign against Herbalife, as it was the top story on the front page of today's New York Times. Ackman has a huge short position in Herbalife and is trying to talk down its stock by saying it's a pyramid operation. (I report this simply as a fact and express no opinion on whether Ackman's allegations are true.)
Today I received an email from someone at the Global Strategy Group, a PR firm, alerting me to a webcast Pershing Square is putting on tomorrow. The webcast will charge that Herbalife's operations in China violate Chinese law, presumably because of their alleged pyramidal nature. (My recollection is that China passed a law prohibiting pyramid sales structures after some early bad experiences in the 1980s or 90s, but I don't have the details at my fingertips.) I don't plan on watching the webcast and (since I don't have an opinion on the merits) it's not really my job to provide publicity for one side in this dispute, so I'm not going to provide the link here. But at a time when China is cracking down disproportionately on foreign firms, it will be interesting to see if Pershing Square manages to stir up some official action in China against Herbalife.
Here's the full text of the report on the China Law Translate site, where it's in the process of being translated. Click on the "Select Language" button on the right of the screen to ensure you're getting the version you want (i.e., Chinese or in-process English translation).
Friday, February 14, 2014
Monday, February 10, 2014
Professor Zhang Qianfan of Peking University Faculty of Law will speak at George Washington University Faculty of Law on Feb. 12th. His subject will be "A Constitution Without Constitutionalism? Paths of Constitutional Development in China." Details here.The talk will be webcast live; please check back to this blog for the URL, which I will post before the talk.
For those who don't know him, Prof. Zhang is an impressive guy. In addition to a Ph.D. in government from the University of Texas at Austin, he also has a Ph.D. in physics/biophysics from Carnegie-Mellon. He recently published a book in English on the Chinese constitution.
Wednesday, February 5, 2014
I blogged the other day about Teng Biao's talk at GW Law School today (Feb. 5th). Two updates:
1. Location has been changed to Burns 505 (Faculty Conference Center).
2. The talk will be live streamed on the web. Here's the URL:
Tuesday, January 28, 2014
I was surprised, but pleasantly so, to see that China passed amendments to the Company Law last month that, among other things, completely abolish the minimum capitalization requirement for both limited liability companies (LLCs) (有限责任公司) and companies limited by shares (CLSs) (股份有限公司).
In the original 1993 Company Law, the minimum capitalization for LLCs was from 100,000 to 500,000 yuan, depending on the type of business; this was changed to 30,000 yuan in the 2004 revision. The minimum capitalization for CLSs was a world-beating 10 million yuan in 1993, reduced to 5 million in 204, presumably as a compromise between those who thought it should stay at 10 and those who thought it should be nothing. I say "world-beating" because this number is an extreme outlier globally; the legally required minimum capitalization for a US company of that type incorporated in Delaware is zero, and in Europe tends to range from about 50,000 to 100,000 euros (the EU mandates a minimum of 25,000). (My information on Europe may be outdated; remember that this is just a blog post.)
To go from 5 million to zero in one fell swoop is pretty impressive, especially considering that going to zero represents not just a modification of policy but a complete change in thinking about minimum capitalization. China has long been a slave to the myth that minimum capitalization requirements protect creditors; this doctrine is a staple of company law textbooks. In fact, such requirements simply pointlessly impede corporate formation while doing nothing to protect creditors Anyone contemplating lending to a company wants to know about current assets and liabilities and future earning prospects; the historical number represented by the initial capitalization is irrelevant. (For a thorough takedown of this myth, see Macey & Enriques, Creditors Versus Capital Formation: The Case Against the European Legal Capital Rules.) Initial capitalization is not some kind of savings stashed away in the corporate mattress; it is just a number on the books and may well not represent real cash or other assets in hand. This is the American approach and it doesn't seem to have crippled creditors of American corporations or otherwise stifled economic growth. The European approach is not much different in substance - 50,000 or 100,000 euros is probably not that big an obstacle to corporate formation in most cases - but it's quite different in principle, and it's surprising to see China, which self-identifies as a civil law jurisdiction, utterly abandon this European principle and embrace the American one so whole-heartedly and so suddenly.
One thing policymakers need to think about, though, is what does protect creditors if minimum capital requirements don't. The answer is: the institutions that make it easier for creditors to evaluate the creditworthiness of borrowers before the loan is made, and those that give borrowers an incentive to repay the loan after it is made. The latter institutions aren't just legal; they could include mechanisms for making reputational sanctions meaningful. Thus, the needed complementary reforms include opening up information flows and not (as the government is currently doing) vigorously stanching them, and strengthening the ability of courts to find hidden assets and enforce judgments.
Other revisions to the Company Law passed at the same time are essentially complementary and involve the dismantling of the whole regime that fetishized registered capital. There's a nice memo on the revisions by the firm of Davis Wright Tremaine here.
Sunday, January 26, 2014
I recently came across a very short notice from the Supreme People’s Court instructing lower courts how to handle certain arbitration disputes. I think it’s worth writing about because in a few short sentences, it encapsulates a key feature of the Chinese legal system—that is, its essentially bureaucratic nature—that I think make it fundamentally different from systems that are essentially adjudicatory. One can have a view as to whether that difference is a virtue or a vice in general or in particular cases, but it’s not my purpose here to take a stand on that issue; I just want to argue that the system is indeed different.
First, some background. China has rules about the recognition and enforcement of arbitration awards by courts; there are two relevant ones here.
(1) A valid arbitration agreement must clearly stipulate the forum. This is a general rule of contract law and not unique to China—if we can’t find a meeting of the minds on where to arbitrate, there’s no agreement to enforce—although Chinese courts have tended to be overly demanding about what constitutes “clearly”.
(2) Domestic arbitration can be carried out only by state-approved arbitration bodies; ad hoc arbitration (i.e., arbitration by persons or institutions not recognized by the state even if agreed upon by the parties) is not recognized by courts.
One of China’s major officially recognized arbitration bodies is the China International Economic and Trade Arbitration Commission (CIETAC). In 2012, when the problem I am about to describe arose, CIETAC had offices (sub-commissions) in Beijing and other Chinese cities, including Shanghai (Shanghai CIETAC) and Shenzhen (South China CIETAC). Thus, if the agreement said, “Arbitration at Shanghai CIETAC” or “Arbitration at CIETAC in Shenzhen”, it would have met the requirements of both of the above rules and been valid; everyone knows which arbitration forum is meant and it’s an officially recognized one.
In 2012, CIETAC issued new arbitration rules that came into effect in May of that year. Shanghai CIETAC and South China CIETAC didn’t like the rules and essentially declared independence. South China CIETAC changed its name to “South China International Economic and Trade Arbitration Commission” or “Shenzhen Court of International Arbitration”, and both the Shenzhen municipal government and the Guangdong provincial government have recognized it as a qualified arbitration organization. In April 2013, Shanghai CIETAC changed its name to Shanghai International Arbitration Center, and I believe has also been officially recognized by the Shanghai government.
In response, CIETAC issued an announcement on Dec. 31, 2012 stating that it was terminating the authorization of Shanghai CIETAC and South China CIETAC to accept and administer arbitration cases and forbidding them to conduct any further arbitration in the name of Shanghai CIETAC and South China CIETAC. CIETAC has also opened a new sub-commission in Shanghai (I’m not sure about Shenzhen) and sent its arbitrators there. In its Dec. 2012 announcement, CIETAC stated that when parties had designated Shanghai CIETAC or South China CIETAC in their arbitration agreements, they should submit their requests for arbitration to CIETAC (in Beijing), which would then take care of it. (For a good backgrounder on the dispute, see this memo from Winston & Strawn.)
Obviously, we have here a recipe for great confusion. Try to apply Rule 1: when an arbitration agreement says, “CIETAC Shanghai,” for example, which arbitration body does it mean? And what about Rule 2: do the new local arbitration bodies count as officially recognized? Who has the authority to recognize them? The Arbitration Law doesn’t say. Until this confusion is cleared up, parties have no way of knowing whether their arbitration agreement will be upheld. Courts in Ningbo and Suzhou refused to uphold arbitration awards of the newly independent Shanghai CIETAC, but were overturned on appeal.
Clearly it’s time for somebody—anybody—to step in and make a definitive ruling on these issues. The Supreme People’s Court is the obvious candidate. In September 2013, it did so. Here’s the full text of a Notice (tongzhi 通知) it issued to lower courts at that time:
Supreme People’s Court Notice on Problems Related to the Correct Adjudication of Cases Involving Judicial Review of Arbitration
To the Higher-Level People’s Court of each province, autonomous region, and separately administered city; the military courts of the People’s Liberation Army; and the Production and Construction Corps branch courts of the Higher-Level People’s Court of the Xinjiang Uighur Autonomous Region:
Recently, the China International Economic and Trade Arbitration Commission’s (“CIETAC”) May 1, 2012 implementation of its revised rules of arbitration, together with the name changes and implementation of new arbitration rules on the part of the CIETAC Shanghai Subcommission (“Shanghai CIETAC”) and the CIETAC South China Subcommission (“South China CIETAC”), have led to disputes among parties related to issues such as the application of rules of arbitration and the jurisdiction of the above-mentioned arbitration organizations. The people’s courts of all areas have accepted case after case of arbitration review resulting from such disputes. In order to unify the standard for judgments and ensure that people’s courts correctly adjudicate cases, we now notify you as follows regarding relevant issues:
With respect to cases in which the above-mentioned disputes result in parties applying for a confirmation of the validity of the arbitration agreement, as well as cases in which the above-mentioned disputes result in parties applying for a cancellation or ruling of non-implentation of awards rendered by CIETAC, Shanghai CIETAC, or South China CIETAC, the people’s court must, before making a ruling, submit the matter for discussion by its Adjudication Committee and then report up level by level to the Supreme People’s Court. Only after the Supreme People’s Court has made its reply may the ruling be made.
Supreme People’s Court
Sept. 4, 2013
There are two things worth noting about this document. First, it was not publicly issued. It’s an internal instruction to courts immediately below it, and they are to pass it on to courts below them. Second, and most importantly, it does not solve the problem. It does not purport to state any rule or even vague principle that courts should use in addressing problematic cases; it does not state how the SPC intends to handle them. Yet the SPC certainly does intend to handle them, and it will produce a result. If the result is the same in cases where the relevant facts are identical, then that’s a rule of law that it would be helpful to let parties know about; if the result is not the same, then apparently there are more relevant facts than we thought.
The key point here is that the SPC is not acting as adjudicator-in-chief in a system that applies laws. It’s acting as decider-in-chief in a system that maximizes administrative discretion to the point where even here, where it would be simple to come up with a rule to resolve any ambiguity, it is unwilling to do so and reserves the right to reach different results in cases that, as far as statutorily relevant facts are concerned, are identical.