So you want to do business in China, but you keep hearing about the fact that there is no “rule of law,” or that it’s “unsafe.” Well, last night I sat down with a lawyer friend of mine, and listened as she told me the biggest potholes in the road of China Opportunity.
At one point, my stomach full of Korean food and my brain stuffed with terms like “judicial review” and “normative law” I asked her to stop. “I don’t get it,” I said. “This doesn’t make any sense. Can you explain it again?”
She smiles and says, “No, if you don’t get it, that actually means you get it.”
So what is fishy about the Chinese legal system? I don’t know law from a chicken leg, but here are three things I’d be careful about:
(1) No judicial review process. So even if you know nothing about US law, like me, you have a sense that US judges can interpret laws, that cases that were ruled in other courts can inform judgments on new similar cases that pop up (the “case law” system), and all laws have to be constitutional. Now, if a law is unconstitutional, you go ahead and appeal a verdict up until you hit a level where a judge can rule, “Yep, that wasn’t a good law, so that law needs to be redone.” That process is called judicial review.
So even if you know nothing about US law, like me, you have a sense that US judges can interpret laws, that cases that were ruled in other courts can inform judgments on new similar cases that pop up (the “case law” system), and all laws have to be constitutional. Now, if a law is unconstitutional, you go ahead and appeal a verdict up until you hit a level where a judge can rule, “Yep, that wasn’t a good law, so that law needs to be redone.” That process is called judicial review.Problem in China’s legal system, as I understand it, is that there’s no judicial review. The cornerstone example is the Seed Law case back in 2003. (Great layman’s summary is available here.) In China, there are also two parallel law-writing systems, one run by administrative branches (like the Ministry of Commerce) and the other by the National People’s Congress. In this case, one side at the national level stipulated that the defendant get X yuan in compensation while the other side’s local law said the defendant should get Y. Clearly conflicting laws. The judge ruled in favor of the national law’s amount. Had she just done that and gone home to brew some green tea, there would’ve been no problem.
But then the judge wrote an opinion explaining the verdict (silly her!), saying the local law was “spontaneously invalid because the local regulation is lower than the national law in the legal hierarchy.” Makes sense no? But she totally overstepped her bounds, and got in trouble. As the article explains, the Henan People’s Congress Standing Committee issued a notice claiming the judge’s ruling was an “illegal review of the local regulation in nature and encroachment on the functions of the legislative body.”
To change a law, you need to tap the guys that wrote it on the shoulder and say, “Hey, think this law is illegal. Mind fixing it when you have a chance?” Apparently, that process can take as long as “turning over a sesame cake.” Yes, indeed.
Now this may be changing and China sounds like it’s moving towards a judicial review system…. ish. Not sure though that you’ll have your sesame seed cake in time to eat it though.
(2) Secret laws. I hear that some administrations can draft Internal Laws that are not released to the public. This power was originally granted for ruling on internal bureau things, like who buys the coffee each week. But these rules could be applied to anyone in China. I asked my friend, “So if I set up a business against the principles of one of these undisclosed laws, could the government then later shut down my business saying, ‘It wasn’t in accordance with this law on the books,’ even if there was no way for me to have known that?” That’s her understanding, but again, that makes no sense…. can someone clarify?
I hear that some administrations can draft Internal Laws that are not released to the public. This power was originally granted for ruling on internal bureau things, like who buys the coffee each week. But these rules could be applied to anyone in China. I asked my friend, “So if I set up a business against the principles of one of these undisclosed laws, could the government then later shut down my business saying, ‘It wasn’t in accordance with this law on the books,’ even if there was no way for me to have known that?” That’s her understanding, but again, that makes no sense…. can someone clarify? (3) No predictability about which law will be enforced. Just say that there are two laws, one that says all buildings in Shanghai must be no more than 200 feet, and another which says that buildings in Shanghai can be up to 10 times taller than they are wide. (I am making that up btw.) If you have a building 25 feet wide, can the maximum height be 250 feet (25 x 10)? or 200? Different judges might rule differently. Better make sure you buy that top shelf bai jiu…
Just say that there are two laws, one that says all buildings in Shanghai must be no more than 200 feet, and another which says that buildings in Shanghai can be up to 10 times taller than they are wide. (I am making that up btw.) If you have a building 25 feet wide, can the maximum height be 250 feet (25 x 10)? or 200? Different judges might rule differently. Better make sure you buy that top shelf bai jiu…Okay, that’s enough of that for now.
I am still in Beijing, still learning about renewable energy, still meeting people and taking people around this amazing city (as you can see) about all things China. I’ll be here for a while I suppose, but how long a while is, hm, yeah…. Come visit!!!
Cheers,
Liz
Disclaimer: I am a lay person not a law person. This ain’t no legal advice. Don’t drown me in a river if you listen to it and get burned. Especially not in a Chinese river.
: I am a lay person not a law person. This ain’t no legal advice. Don’t drown me in a river if you listen to it and get burned. Especially not in a Chinese river.
From a lawyer I know: “in the USA federal law can trump state law where there is a conflict. For example, where a state law requires a minimum wage of $5.00/hour and the federal law requires $6.00, the federal law trumps. Where there is no federal law on a specific matter, the state laws control. Only when the federal congress decides to write a law on a matter of national import, does the federal law override the state laws. However, eveybody knows this and the laws are all published.”
From a lawyer who first went to China a long time ago: “Plus ca change ….As I recall the situation, you could add a fourth factor: the judges are not independent. Here, federal judges are appointed for life and they are the third branch of government. There’s really little or no risk for them in making an unpopular decision. In China, judges are appointed government employees and they OWE. Has this changed?”
As I understand, this situation hasn’t changed. Judges still get their salaries determined by their bosses, so their opinions aren’t independent. Plus you can only appeal one level up, so if the boss of your court’s lawyer doesn’t want you to win, there’s nothing you can do.
One Chinese lawyer told me that he argued a case and the lawyer told him confidentially that she wanted to rule in favor of him, but couldn’t due to pressure from her superiors. So they agreed: she’d rule against him, but in her decision statement, she emphasized the strength of his argument. He used this decision in his appeal, and was able to win the case.
From a non-lawyer I know: “i sense an opportunity here for a smart investor to open a legal arbitrage firm.
e.g., you represent the developer who wants to build the 250-ft tall bldg in shanghai and wants the law interpreted in their favor, in return for a payment when they get the ruling they want. Simultaneously you represent the “Sustainable Development in SHanghai” not-for-profit that doesn’t want any bldgs taller than 200 feet (or since such organizations are probably in short supply in China, let’s say instead you represent the owners of the 100-foot building behind the vacant lot, who would prefer a shorter building so theirs isn’t completely overshadowed), in return for a payment when they get the ruling they want.
Then you and the judge sit down, drink some bai jiu, and collect your profits either way.”