China Business Law Blog

Closely following the news in and outside China on the Sichuan earthquake, I elected to avoid blogging about it as I thought any writing from me will be, largely, irrelevant to the suffering of the victims and China in general. In addition, other China law bloggers, such as the CLB and China Esquire, have provided information on how to donate for the disaster relief in China. However, after my arrival in China on May 16, 2008, I have experienced first hand the blanketing media coverage of the events and stories unfolding constantly in the worst hit areas in Southwestern China. With the information that I have been exposed to and gathered, I feel that I could offer some of my observations and impressions without trivializing the gravity of the tragedy.

Since May 12, 2008, earthquakes have sent shock waves of destruction, grief, honor, hope and courage across China and around the world. Both Chinese and international media have intensely covered the disaster relief work, and if any of my impressions mirror what readers have already heard or read, please accept my apologies.

1. People’s Response is unprecedented. China is prone to disasters, natural and man-made. In the past, disaster relief was a matter of governmental concern, so the common man usually stayed on the sidelines, watching how the government took care of business. This quake changed that. Everyone seems genuinely impacted and concerned, and they have turned that concern into real action. The first comment I got at the Shanghai Pudong Int’l Airport was—“Be sure to donate for the quake victims.” My father, with whom I have not talked inside China for about eight years, posed his first question to me upon my arrival—“Have you donated?”

Along side corporate and international donors, the average Chinese people at least in the cities are contributing as well. This is, in my opinion, a healthy and monumental development. After all, in a country with so many present and potential issues, a growing sense of civil/social responsibility and personal engagement could play a very positive role in solving problems that the government could not easily do alone.

2. The Chinese media coverage is less monotonous and a bit more colorful. In the past and usually, media coverage of disaster relief in China characteristically focused on which leader/official went where, said what, and brought whatever assistance…This time around, expectantly, there is still lot of that. But, I am often quite moved by stories of the average relief workers and amazing survivors. Reportedly, a mother died with her body firmly arched over her baby, who survived unscathed with a parting text message from the mother saying something to the effect of –“Dear baby, if you survive this, please forever remember that I love you.” In addition, stories about courage and sacrifice of students and teachers abound. Many victims gave up critical moments of survival so that others could escape collapsing buildings. Undoubtedly, officials and leaders sacrificed as well in a disaster of such magnitude, but, it is the tales of raw courage, love, and hope demonstrated by the common man/woman that lift people up in a difficult time such as this.

3. Tax Relief. The Chinese treasury and Central taxation authority have jointly issued guidance on tax breaks for recipients and donors of disaster-relief funds. Victims will not be taxed on their gift/relief income and donors will receive, in return, tax deductions. This quick, policy-driven response reflects the government’s flexibility, which will hopefully sustain the generous flow of donations.

4. Housing Challenges. With millions of people rendered homeless by the earthquake, the enormous problem of housing these displaced and homeless people looms. In a few months, the media coverage will soon turn its attention to the Beijing Olympic Games and other news-worthy events, but the quake victims will still be living in their tents. Similarly, businesses have also been hit or destroyed. Without a stable income, the victims must live at the mercy of the government and donors, and they must face the daunting task of rebuilding their homes and lives. How can that be done? Will the government subsidize the entire reconstruction of all the disaster areas? Even if the government does, how can corruption be avoided in allotting funds and rebuilt apartments? These are indeed challenging issues for the victims, local governments and Beijing.

5. Existing Mortgages of Destroyed Housing. What will happen to them? Assuming that most homeowners (quake victims) did not purchase mortgage insurance, which is likely to be the case given the relatively less developed economy of these areas, will they still be obligated to pay off their mortgage absent some kind of administrative exemption? Creditors, especially secured ones, want their debts paid, but victims of this quake have neither a home nor stable income. Therefore, I don’t see them having the ability nor the willingness to pay.

6. Liability for Shoddy Buildings (Schools, especially). I see a lot of tort claims arising from the shattering of the school buildings. Policy-wise, how will the courts/government (looking from a common law tort law perspective) analyze the foreseeability and causation issues? As we all know, current technology is not sophisticated enough yet to provide advanced warning of earthquakes, so the tort feasors would argue that such events are unforeseeable, thus escaping liability. But, victims could argue on the theory of negligence per se since they might be able to prove construction code violations with some expert testimonies. In addition, it is not entirely impossible for the Chinese tort law to adopt a strict liability stance on the building of school houses, in light of the disproportionately large number of schools demolished by the quake. So, I think that this powerful earthquake could potentially have a long-lasting impact on liability law in China, and that is not necessarily a bad thing.

The 2008 WTO’s Trade Policy Review on China is available in English.

The following is a summary provided by the WTO website:

The report highlights details about structural reforms, including in the financial and other sectors that have introduced more market-oriented measures aimed at achieving a more efficient allocation of resources. The report also notes that China has continued to be one of the largest recipients of inward FDI and has become a large provider of outward FDI, reflecting its increasing integration into the global economy.

However, the report identifies imbalances in the sources of growth in the economy, which is mainly driven by exports and investment rather than by consumption, a widening gap between savings and investment reflected in China’s growing current account surplus, and rising income inequality despite high GDP growth.

During the next six weeks, I will be blogging from Shanghai, China.   So, I would like to meet regular readers in the area.  Drop me a note if you could.

2008 has been a pretty good year for the China law blogosphere.  We, as far as I am aware of,  saw the launching of the following blogs on China law:

1.   Experience Not Logic, by Will Lewis, a fellow law student and friend at the University of San Diego School of Law.

2.  China Esquire, by Thomas Chow, a practicing lawyer in San Francisco.

3.  China Environmental Law Blog, by international environmental lawyer Charlie McElwee based in Shanghai.  This blog is a must read for all who cares about the developments in environmental law in China.

Recently, two more notable China law blogs popped up, which I shall mention here:

4.  China Law Practice Blog, by the International Section of Grandall Legal Group, of which Steven Lou is a core member since he consistently posts for the blog.

5.  Hydwin China Blawg, by Sampsung Xiaoxiang Shi, a Ph. D. Candadidate based in Australia.  It looks like a very ambitious blog, collecting various case law, law and regulations, and blog posts.

It’s always encouraging to see new ones out there because each enriches the discussion of China law on the internet.

The State Council of the PRC made public on May 8, 2008 the much anticipated Implementation Regulations (Draft) (in Chinese ) of the new Labor Contract Law.

Ever since its promulgation, the new Labor Contract Law has attracted world wide attention because of the potential impact on labor relations and investors’ bottom line in China.  China Law Blog has consistently blogged about this new law, so if you have not been following the developments related to this law, please do visit CLB’s comprehensive posts.

As far as the new draft Implementation Regulations are concerned, here is what I dug up on-line:

China’s Legislative Affairs Office of the State Council on Thursday made public the draft of implementation regulations for the labor contract law to solicit public opinions.

The draft mainly addresses the term of labor contract and economic compensation after labor contract termination and the dispatch of laborers.

The Labor Contract Law, which took effect on January 1, 2008, entitles employees of at least 10 years’ standing to sign labor contracts with no fixed termination dates.

The term caused some confusion on the general public and employers. Some people said it would weaken enterprise vitality.

Law experts, however, said the term aims to promote a sense of stability among employees and a harmonious relationship between employees and employers. Meanwhile, a labor contract with no fixed termination dates did not amount to a lifetime contract. Termination of such contract is possible if there are legitimate causes.

The draft, stipulates that under circumstances including employee’s incompetence to live up to job requirements during the trial use period, serious violation of regulations and duty dereliction, the employers could terminate labor contract with no fixed termination dates.

Bankruptcy would also justify the termination of the contract, according to the draft.

The draft stipulates that the employers should double the amount of compensation if they terminate the contract at their own will.

After the implementation of the Labor Contract Law in January, a string of staff-sacking scandals in many companies followed. The most renowned of them is the “voluntary resignation” scheme by the Guangdong-based Huawei Technologies Co Ltd, China’s telecom network equipment giant.

Huawei asked its staff who had worked for eight consecutive years to hand in “voluntary resignations”. Staff would have to compete for their posts, and sign new labor contracts with the firm once they were re-employed.

After a brief scan of the Draft Implementation Regulations, here is what I found out:

1.     They are not extremely comprehensive as they encompass five (5) chapters and forty five (45) articles.

2.     By far the issues addressed in the Draft concentrate on the formation, implementation, and termination of labor contracts.

3.     This is only a draft, and it is in the public-comment phase.  To submit your comments, you may e-mail them to ldht@chinalaw.gov.cn.

4.     Of course, the Draft is in Chinese, and I have not been able to find an English version and I really don’t have the time to translate this document at this time.  If you read Chinese, here is the document.

Due to the “onslaught” of final exams, China Business Law Blog will continue to be without new posts for a few more days. Please excuse the silence.

Some stories rattle you so much that you cannot stop thinking about’em for a long time, and the story of Mr. Chen Si did just that to me.

Chen Si, as reported by the LA Times in its story titled On His Weekends, Chinese Samaritan Saves Lives, is a manager of a shipping company in the city of Nanjing. On weekends, he patrols the Nanjing Changjiang Bridge, known as the “bridge of death.” For almost four years, he has appointed himself as the “guarding angel” of people in despair because many individuals come to this spectacular bridge to end their misery and lives. Usually, he tries to spot people bent on committing suicide, and runs over to rescue them from the brink of despair and death. To date, he has saved one hundred forty four (144) lives. That is an amazing number, considering that he has been pretty much on his own, without government or civilian assistance. He wants to continue saving lives and families.

At a first glance, Chen’s story warms your heart because it is good to know that there are people like him who care and act to prevent tragedies from happening. It is good to know that there are people out there in China who do not worship money. And it surely is good to know that those saved by him might have a second chance at life no matter how tough it is to live on.

Yet, this story is sad at the same time. Chen is a lone “ranger,” trying to save an ever increasing number of despaired and hopeless people in China. Chen can only patrol the Nanjing Bridge. Chen can only patrol the Nanjing Bridge on weekends. What about the Wuhan bridges, the Jiujiang Bridge, the numerous bridges and cliffs around the country? What about those people who commit suicide by taking poison pills? Chen saved 144 lives in four years, and “by official estimates, as many as 288,000 Chinese commit suicide each year…” The exact number of suicide in China is probably greater, and what Chen can do is so limited. What the Chens, Lis, and Wangs can do is also limited because of the size and extent of the problem.

What exactly is causing the rising suicide rate? I’m not a sociologist, nor a psychologist. And I don’t claim to know the exact answer to this question. However, I do think that people’s inability to pay their debt has something to do with it. At least some people who could not pay their debt would probably end up killing themselves, just to be over with the shame, frustration, and debt. If you read Chen’s story, you might find that a lot of people that he saved wanted to commit suicide due to their “hopeless” financial situation.

Taking this presumption that inability to pay debt, in part, contributes to the rising suicide rate, I would argue that China should seriously consider making bankruptcy available to individuals, thus creating an institutional structure to abate the massive problem that Chen could never accomplish by himself in his life time.

Bankruptcy is about giving the debtor a second chance, a fresh start. It gives those individuals in financial trouble another chance(s) to reorganize or restart by discharging certain creditors’ claims. At the same time, bankruptcy also has to balance the interest of the debtor with those of the creditors. After all, all creditors want their money back at a minimum. Therefore, reaching the right balance between creditors and the debtor in bankruptcy has always been a huge issue, and continues to be an intriguing phenomenon in the states of the U.S. For example, some states are extremely pro-creditor, like New York, Delaware; while others, like Texas and Florida are very pro-debtor. Hence goes the popular saying: “Debtors either go to Texas or die.” Despite the inconsistencies and differences among the states in America, personal bankruptcies do accomplish a great deal by giving people in financial trouble a fresh start. Of course, bankruptcy abuses have occurred. Nonetheless, Congress has addressed that issue by amending the Bankruptcy Code to make Chapter 7 liquidation less accessible while pushing more individual bankrupt debtors to Chapter 13 proceedings.

Could personal bankruptcy work in China?

Currently, individuals are not eligible for bankruptcy under China’s new Enterprise Bankruptcy Law effective since June 1, 2007. One of the reasons cited for foreclosing individuals from bankruptcy is that China does not have a credit system like other developed countries. Of course, there is the argument that China should not transplant all Western legal concepts into Chinese law.

I would give credit to both arguments, but would also argue that personal bankruptcy should be made available as soon as possible. A credit system is an important element in that it allows creditors to reasonably assess the level of risks in handing out credits. It is a simple, quick and cost-effective way to do business, and it lowers the transaction cost of moving capital from place to place. But, is it an absolute prerequisite to making bankruptcy available to individuals? Are there alternative ways to reduce creditors risks yet keep the transaction cost down? A credit system in the U.S. played an important rule in making personal bankruptcy a reality, but Americans were, are and will probably for a long time be more mobile than the Chinese. With less mobility, tracking down or discovering a person’s credit history is arguably easier, thus the transaction cost can indeed be kept low. In contrast to Americans, the Chinese are more community oriented, living in close-knit social units; therefore, the social structure also makes it a lot easier to track a person’s credit history. On account of the stated differences, the necessity of a credit system as a prerequisite for personal bankruptcy is doubtful.

With respect to the second argument, I agree that China should not at any time blindly transplant legal concepts. Nonetheless, that does not mean China cannot borrow and remodel certain concepts like personal bankruptcy. The fear of introducing individual bankruptcy, I assume, is that it would encourage irresponsible spending, promote consumerism. First of all, consumerism is already there, so forget about keeping it out. Second, the Chinese believes in saving, practices saving, and loves saving. In fact, China probably has very high saving rates among its citizens, if not the highest. The introduction of a foreign legal concept is unlikely to reverse virtues passed down from thousands of years ago. And the conservative thinking that “the son shall pay the father’s debts” is still pretty prevalent,” which could help keeping abuses down.

So, individual bankruptcy could work in China. Traditional views about paying debts will act as a filter against irresponsible spending and bankruptcy abuse. Even if that fails, the NPC and/or the State Council can always step in and stem abuses by creating higher legal barriers (as it was done in the U.S.). A credit system, crucial to establishing individual bankruptcy, might be not so crucial to China because the social, geographical and cultural conditions are very different from those in the U.S. Third, allowing fictional persons, corporations, to avail themselves of the benefits of bankruptcy (a second chance) is a great move, but keeping real people, with emotions, despair, families, from have a fresh start via bankruptcy simply does not contribute to social harmony. In short, China should allow individual bankruptcies as soon as possible.

Until then, Chen Si will continue to be a lone hero and savior, patrolling the Nanjing Bridge.

Big news arrived for Taiwanese lawyers and law students from Mainland China—Taiwanese can now sit for the Chinese bar. This has been reported here and here, blogged about here.

Of course, this is good news for those Taiwanese who want to practice law in China. After the political barrier is cleared, the only thing in the way is the treacherous bar exam.

Permitting Taiwanese to sit for the Chinese bar is good, according to some, because:

The move would help promote cross-strait exchanges and provide better legal services for “compatriots” living in both areas, Ding [director of China’s National Judicial Examination Center] said.

The news will be of particular interest to Taiwanese lawyers, who have complained about a lack of access to the Chinese legal system.

Examination Yuan President Yao Chia-wen [of Taiwan] yesterday expressed approval at the news. He said Taiwan’s judiciary is far more advanced than China’s, in terms of both structure and concepts.

But Taiwan is not ready to reciprocate, as

[…] Yao opposed a reciprocal measure, citing differences in legal concepts between China and Taiwan.

The market for legal professionals in Taiwan has reached capacity and cannot absorb applicants from across the strait, he added.

Whether or not Taiwan decides to reciprocate does not interest me. What really intrigues me is the removal of “wall” dividing people across the Strait. And I smell good news for residents of Hong Kong and Macau as well.

Removing unnecessary impediments to practicing law in China is laudable because:

a. It allows lawyers from both sides to learn from each other.

b. It allows the Mainland to benefit from Taiwan’s legal system. Taiwan does have a lot to offer in the realm because its legal system is more established, and it is not as different from the Mainland as is Hong Kong. Therefore, the inherent similarities rooted in the civil law system shared by Taiwan and the Mainland might spark some very far-reaching changes.

c. It formulates a concrete example for an even more inclusive Chinese bar. If the inclusion of Taiwanese lawyers works out great, maybe China will, in time, be more willing to allow lawyers from some other jurisdictions to sit for the Chinese bar. Right now, it seems a bit too remote, but “stranger things have happened in China.”

Removing artificial and yet arbitrary barrier to practicing law in other jurisdictions has certainly happened elsewhere. For example, in the past, New Hampshire disallowed residents of other states to be admitted to its bar, even residents of its neighboring State Vermont. Hard to imagine in the United States, right?

Nope, in the actual case of Piper v. Supreme Court of New Hampshire, 470 U.S. 274 (1985), Kathryn Piper lived right across from the border of NH in Vermont; she went to law school in NH and intended to practice law in NH. But the NH state bar admission authority denied her admission because she was not a NH citizen/resident. Piper sued the Supreme Court of New Hampshire, citing that it violated her constitutional right under the Privilege & Immunity Clause (the 14^th Amendment of the U. S. Constitution).

New Hampshire gave seemingly legitimate reasons to discriminate against non-residents, in that it wanted its lawyers a) to know local rules; b) to do pro bono work in the State; c) to be available for hearing and other judicial duties.

But, the U.S. Supreme Court did not buy that, and thought that there were other less restrictive means available, other than denying bar admission based on the status of a person’s residence.

Hence, came down the barrier. As a result of Piper v. Supreme Court of New Hampshire, gaining bar admission has be come a lot easier, notwithstanding the bar exams. In fact, you do not even need to be a U.S. citizen or have U.S. law degree to sit for some state’s bar exam, for example, New York and California (correct me if I am wrong). Because of the unrestrictive nature of bar admission policies in the U.S. states, I think, the bar, in general benefits by admitting from other places and regions.

Tearing down barriers is a very good thing for lawyers on both sides of the Strait, and is a smart political move too.

On March 18, 2008, three Chinese governmental entities jointly issued the China’s Action Plan on IPR Protection 2008.  It is not dissimilar to its predecessors, and the following is the introduction to the full document:

Tasked by the National Working Group for IPR Protection, the Working Group office joins the member agencies of the Working Group in presenting this Action Plan on IPR Protection 2008, which deploys 280 detailed measures in 10 areas.

On the legislative side, 24 laws, regulations, rules and administrative measures on trademark, copyright, patent, IPR foreign trade and customs protection will be updated or formulated in addition to the drafting of 5 judicial interpretations.

[O]n the enforcement side, 16 dedicated campaigns targeting key linkage points of print and duplication, Internet and publications will be carried out, reinforced by 11 standing crackdown measures to deter and penalize piracy and counterfeiting and Internet-based infringements.

[W]ith regard to trails [sic] (trials), 7 measures will be put in place to address top-agenda issues and further empower judicial protection.

[W]ith regard to institutional building, 36 measures will follow to advance inter-agency coordination and inter-regional interaction, rationalize mechanisms for IPR infringement alert, right defense and oversight, build on the enforcement supervisory system, pursue a consolidated IPR judicial system and enhance the role and service offerings of the IPR Service Centers.

[O]n the publicity front, 62 measures will be taken, ranging from large-scale publicity campaigns, TV programming, press conferences and forums, to create an IPR-friendly social ambience.

[O]n training and outreach, 27 measures including educational programming, developing training tutorials, organizing training courses and workshops will target grass-root enforcement agents, corporate and non-corporate organizations, legal professionals as well as middle and primary school students.

[I]n terms of international exchange and partnership programs, 27 measures such as study visits, joint training, dialogues and seminars will materialize to further expand existing cooperation.

[W]ith regard to advancing IPR protection at the business level, 17 measures will be introduced to direct businesses in structuring their IPR regimes and boost their competency for competing on the merit of such regimes.

[A]s for services for right-holders, 25 measures will be implemented to perfect the IPR information and service network.

[L]ast but certainly not the least, 23 IPR hot topics have been identified for thematic study in the context of IPR law application, protection and management.

As usual, these are grand plans.  But many people and businesses want to see them implemented and come into fruition.

The full text of the 2008 IPR Protection Action Plan is here.

Having been working on summary judgment motions at work for three consecutive weeks, I kept thinking whether China has something similar to summary judgment in its civil trials. With limited knowledge on Chinese procedural laws, I disclaim that what I write here is really subject to future corrections from readers.

In the United States, summary judgments are available in federal and state courts. The purpose of summary judgments is to “eliminate patently unmeritorious claims and untenable defenses, not to deny a party its right to a full hearing on the merits of any real issue of fact.” Ramirez v. The Pecan Deluxe Candy Co., 839 S.W.2d 101, 105 (Tex. App.-Dallas 1992, writ denied). As to federal rules, the Federal Rules of Civil Procedure, Rule 56, governs. In the State of Texas, parties can file a conventional motion for summary judgment under Tex. R. Civ. P. 166a or a no-evidence motion for summary judgment under Tex. R. Civ. P. 166a(i).

In a traditional summary judgment motion, in order to prevail, the movant must present enough evidence to show that there are no issues of material fact, and that no reasonable jury would find for the non-movant. The key is that the movant must present evidence showing that the other party could not possibly win. On the other hand, in a no-evidence motion for summary judgment under 166 a(i), the movant does not need to submit summary judgment evidence; instead it only needs to raise specifically the issues for which the non-movant lacks supporting evidence, and argue that no reasonable jury would find for the non-movant.

In response to a traditional motion for summary judgment, the non-movant does not have the burden of proof. It only needs to present evidence contradicting the movant’s evidence, showing that issues of material fact exist.

Responding to a no-evidence motion for summary judgment, the non-movant, however, has the burden of proof; as such, it must present summary judgment evidence on each issue raised by the movant. If the non-movant in its response, presents more than a scintilla of evidence on the elements challenged by the movant, the court should deny the movant’s motion and the nonmovant is entitled to a trial on merits.

Summary judgment practice is a routine in many courts. As far as I know, it is very much alive in Dallas County. Due to shifting political winds, the landscape of summary judgment changes with election results. Pro-plaintiff judges will probably not grant a summary judgment for anything; however, pro-defendant judges will do it more frequently. So, summary judgment is both technical and politically volatile (in Texas, at least).

After consulting a Chinese lawyer, here is what I got from an e-mail response on summary judgment, or the lack there of in China:

The concept in Chinese legal system most similar to summary judgment in the common law system is called “Summary Procedure” in Chinese civil procedural law. I attach the bilingual law for your information, as well as the excerpt below:

Chapter 13 Summary Procedure

Article 142 When adjudicating simple civil cases in which facts are clear, the relations of rights and obligations are definite, and disputes are minor, the basic people’s courts or their dispatched tribunals may apply the summary procedure stipulated in this Chapter.

Article 143 For simple civil cases, their plaintiffs may file their complaints orally.
Both parties may appear at the same time in a basic people’s court or its dispatched tribunal for a solution of their dispute. The basic people’s court or its dispatched tribunal may adjudicate the case immediately or set a date for the trial.

Article 144 When adjudicating a simple civil case, the basic people’s court or its dispatched tribunal may, at any time, use simplified methods to summon the parties and witnesses.

Article 145 A simple civil case shall be tried by one judge alone and the trial of such cases shall not be restricted by the provisions of Articles 123, 125, and 128 of this Law.

Article 146 The people’s court shall complete the adjudication of a case to which the summary procedure is applied within three months after the case is accepted.

Without real trial experience in China, I can only say that “summary Procedure” practice seems very different from summary judgment in the United States. Summary judgment, as a pre-trial practice, is a pretty evolved creature, with features like voluminous motions, persuasive affidavits, piles of records sometimes, and a hearing in a court room. I wonder how a summary procedure is played out in China.