The Legal Reform

¡¡¡¡£ £ Ô­ÔØChina Review£¬Issue 1995

¡¡¡¡Edward J.Epstein and Chong Tin Cho

¡¡¡¡1.Introduction

¡¡¡¡
¡¡¡¡Since our last review of legal developments in China,negotiations intensified to make it possible for China to rejoin the General Agreement on Tariffs and Trade (GATT).With almost all of its trade conducted with members of the GATT,China expects a number of concrete benefits from membership.It is also a matter of national pride that China should become a founding member of the World Trade Organization (WTO).Therefore,although they failed,the tireless GATT negotiations from 1993to 1994were accompanied by new economic laws and legal developments which purport to commit China irrevocably to the post-Mao market reforms and prepare her for full participation in the WTO's system of international trading obligations.

¡¡¡¡Watching these developments,students of modern Chinese legal history will feel a sense of d¨¦j¨¤vu.At the turn of the century,the Qing's response to the West was to reform and meet the West on its own terms.This resulted in systematic transplants of Western law which continued throughout the Republican period.Today,China is not humiliated by extraterritoriality but the object of much legal reform is unchanged,that is,to appease the West with laws which look familiar,to comfort investors with a legal system that disguises the real sources of legitimate power and so ultimately to be able to take full advantage of the international trading system established and run according to Western rules.At the same time,there have been a number of developments in public law which are directed at some of the problems not addressed in economic laws,such as tense labour relations within enterprises,the widespread practice of corruption and the ineffective and disorganized government bureaucracy.Administrative law refocusses on the professionalism and integrity of cadres and the rights of individuals aggrieved by the wilful or negligent conduct of cadres.

¡¡¡¡2.Law in the Market Place

¡¡¡¡Fair Competition and Consumer Protection

¡¡¡¡Since the early 1980s,China has attempted to regulate many types of unfair and fraudulent trading activities with piecemeal legislation,including prohibitions on corrupt payments and kickbacks from monopolistic transactions,and sanctions against hoarding and speculation.There are also consumer protection statutes on foodstuffs and public health,pharmaceuticals,advertising and product quality.There have also been some measures aimed directly at particular monopolistic practices,such as ¡°sealing off¡±areas from competing goods and services by the levy of discriminatory charges and fees.

¡¡¡¡China's Anti-Improper Competition Law (Competition Law),Consumer Protection Law and Product Quality Law have four principal objectives:

¡¡¡¡¡ªelimination of corruption;

¡¡¡¡¡ªprotection of consumers from defective or substandard products;

¡¡¡¡¡ªprotection of business reputation and trade secrets;

¡¡¡¡¡ªprohibition of coercive and monopolistic trade practices.

¡¡¡¡In the Competition Law,bribery is a proscribed improper trade practice and is defined as the use of goods or other means to induce the sale or purchase of goods or services.Bribery includes secret commissions but discounts and wholesaler commissions that are given openly and are properly entered into business accounts are excepted.Bribery is punishable by an administrative fine of up to RMB200,000(US$25,000)and the bribe itself may be confiscated.The parties may also be investigated for criminal liability according to the circumstances.

¡¡¡¡Like its regional predecessors,the Competition Law addresses unfair trade practices which directly affect consumers.The consumer protection provisions are divided into two parts.First,there are four prohibited types of deceptive practice:

¡¡¡¡¡ªforgery of trademarks;

¡¡¡¡¡ªpassing off goods or services or otherwise imitating product names,packaging or design;

¡¡¡¡¡ªmisusing another's name so as to mislead consumers as to the identity of the product's maker;

¡¡¡¡¡ªmislabelling goods so as to mislead consumers regarding quality.

¡¡¡¡Second,there are comprehensive provisions against fraudulent advertising which prohibit false and misleading advertising as to quality,composition,function,use,maker,durability and place of production.Liability for fraudulent advertising extends jointly to the advertiser as well as those who produce,design,market advertisements or act as agents of the advertiser.

¡¡¡¡Similar protection is given by the Consumer Protection Law and Product Quality Law.Historically,product quality in the People's Republic of China was primarily a question of administrative regulation.That is,administrative authorities were responsible for setting quality standards,overseeing quality control and penalizing breaches of quality standards.However,in the early 1980s the authorities began to lose control over quality due to the enormous increase in industrial output which led to the production of shoddy and often dangerous goods in large quantities.Sometimes,even good products were damaged during transportation or bailment but were still sold to the unsuspecting public who were keen to buy all kinds of consumer goods.When the goods did not work or caused loss to property or person,nobody wanted to take responsibility.

¡¡¡¡Therefore,in 1986the first legislation was introduced to create ¡°product quality liability.¡±Product liability in the West means civil liability for loss caused to property and person by defective products.However,the concept of Chinese product quality liability is much wider and includes administrative,civil and criminal liability for products which do not satisfy administrative standards on a wide variety of manufacturing issues,including safety,labelling,instructions and warnings.

¡¡¡¡The Product Quality Law applies to all goods circulated in China whether they are made in China or not.The law places duties on both manufacturers and retailers.Manufacturers are required to ensure that their products:

¡¡¡¡¡ªcomply with applicable administrative or trade standards;

¡¡¡¡¡ªare free from ¡°unreasonable danger¡±to persons or property;

¡¡¡¡¡ªhave the properties that should be possessed by the products except for defects clearly brought to the consumer's attention;

¡¡¡¡¡ªconform with samples or packaging and labelling descriptions.

¡¡¡¡¡°Defect¡±is defined as ¡°an unreasonable danger existing in the product that poses a threat to the safety of person or property or products which do not comply with applicable administrative or trade standards.¡±This represents an important departure from earlier law under which the criterion for product liability was that the product was substandard in an administrative sense.

¡¡¡¡Several defences are available to manufacturers.Manufacturers are not liable if:

¡¡¡¡¡ªthey did not put the product into circulation;

¡¡¡¡¡ªthe defect did not exist at the time the product was put into circulation (i.e.the defect was caused by a third party by improper handling etc.);

¡¡¡¡¡ªthe defect in the product could not have been discovered at the time the product was put into circulation due to limited scientific or technological knowledge.

¡¡¡¡Although manufacturers bear primary responsibility for defective products,to prevent sellers from abdicating responsibility the Product Quality Law places them under basically the same liability as manufacturers.However,the Consumer Protection Law provides that sellers have a right to seek indemnity from the manufacturer where it is responsible for the defective product.Sellers also have a duty to:

¡¡¡¡¡ªexamine the goods to verify the genuineness of product quality certificates and marks;

¡¡¡¡¡ªmaintain the quality of the products and not sell products after their expire date;

¡¡¡¡¡ªensure the product labelling conforms to labelling legislation.

¡¡¡¡In addition to a right to compensation for personal injury or damage to property,consumers have the right to require the seller and/or manufacturer to repair,replace or refund the price of a product which is defective.The Consumer Protection Law establishes a system for the resolution of consumer disputes through consumer associations,which have been growing in China since the late 1980s,administrative mediation,arbitration,if agreed by the parties,and the courts.

¡¡¡¡China has developed a formidable array of legislation protecting intellectual property but the general law has limited ability to protect trade secrets which do not fall into the categories of patents,trademarks and copyright.The Competition Law protects trade secrets which are broadly defined as any technological or trade information that is not in the public domain and that is kept secret by its proprietor who has an economic interest.

¡¡¡¡Trade secrets may not be acquired by theft,inducement,force,industrial espionage or other improper means and may not be leaked or used,or permitted to be used,in breach of any confidentiality agreement with the proprietor or by a third party who knows or ought to know that the information was obtained unlawfully.The enforceability of these provisions may,however,depend more on how important a foreign investor is to China than the inherent value placed by China's legal system on the rights and interests protected.Thus,Coca-Cola has seen its products successfully manufactured in China for many years without legislation protecting its secret formulas but other investors may find it impossible to enforce the law against even the most flagrant violators of intellectual property.

¡¡¡¡Although it is possible that China may in the future establish a specialist authority to supervise improper trade practices,for the present the Competition Law will be enforced by the already overworked State Administration for Industry and Commerce (SAIC)which is China's central regulatory authority for domestic and foreign trade.Like other administrative authorities in China,the SAIC does not rely on the criminal process to enforce the law.Instead,the SAIC will investigate and penalize breaches of the Competition Law of its own motion.Only in exceptional circumstances will it refer the matter to judicial authorities for criminal proceedings to be initiated.

¡¡¡¡There are three types of penalties the SAIC can impose.First,there are administrative fines ranging from RMB100,000to 200,000(about US$12,500to $25,000).Sometimes the fine may be calculated according to the income derived from the unlawful activity.Second,in addition to levying a fine,the SAIC can confiscate illegal gains,such as secret commissions and profits from illegal use of trade secrets.Third,the SAIC may also order the unlawful activity to cease,to suspend trading in goods or services under investigation and can impose fines if this order is disobeyed.

¡¡¡¡The imposition of a penalty by the SAIC is not final and can first be reviewed within the SAIC and if the aggrieved party is not satisfied with the outcome of review he may bring an action for judicial review under the Administrative Litigation Law.

¡¡¡¡In addition to penalties,the Competition Law confers a right on parties to sue for compensation to recover losses incurred as a result of improper competition.Where it is difficult to calculate the loss,compensation may be based on profits made by the violator during the period it was engaged in improper competition with the claimant.The creation of civil liability is becoming increasingly common in Chinese laws which protect private economic actors.Civil liability may also prove a more effective deterrent than administrative sanctions and gives the courts a more creative role in upholding market forces.

¡¡¡¡The final version of the Competition Law reveals a faltering will to address the underlying causes of China's unlevel playing field.As a result,the only attempts to deal with coercive trade are to prohibit the misuse of prizes to stimulate sales and ¡°tied¡±or conditional sales,that is the sale of highly marketable goods tied to the sale of some useless or undesirable goods.Similarly,the regulation of market manipulation and monopolies has been reduced to three provisions on disparate matters:dumping (i.e.selling at below cost to drive out competitors),collusive or exclusionary bidding practices,and impeding the purchase by third parties of goods produced under an exclusivity arrangement with a state-owned enterprise.

¡¡¡¡Finally,the question of regional protectionist trade practices has been side-stepped.In post-Mao China,the devolution of economic decision-making power and rapid economic growth in a competitive environment has frequently led to intense trade rivalry and,in the absence of a level playing-field,has caused many localities to set up trade barriers to outsiders.Previous legislation against protectionism has not been successful.This is most probably due to the difficulty of enforcing anti-protectionist measures against local authorities.Perhaps for this reason,the anti-protectionist provisions in early drafts of the Competition Law were dropped from the final version.

¡¡¡¡Whereas earlier drafts of the Competition Law came closer to regulating monopolistic and restrictive practices in the manner of anti-trust legislation,the final version is primarily concerned with consumer protection or unfair competition.The new law is therefore disappointing in its failure to address underlying causes of China's unlevel playing field.

¡¡¡¡Real Property Transactions

¡¡¡¡Land in China is owned either by the State or by rural collectives.Enterprises and individuals may only acquire rights to use land but not ownership of land.However,buildings may be privately owned whether they are constructed on state or collectively-owned land.Registration of both land use rights and ownership of buildings will soon become mandatory but it may take time for registers to be set up.Most land in urban areas is owned by the State and,as with all publicly-owned assets in post-Mao China,there is a policy to put land into the hands of developers who will realize its potential more efficiently than the government.The result of this policy in recent years has been an explosion of real estate development in China's major cities.

¡¡¡¡To facilitate real estate development every legal system must have some basic rules to define rights in land and buildings and to create a reasonably safe system for freely transferring and mortgaging these rights.To cope with the real property boom many localities in China,particularly in Guangdong,made their own regulations.But at a national level,relatively little was done to regulate real estate development.

¡¡¡¡Developers,banks and consumers should therefore all feel more secure once China's new Urban Real Property Administration Law (Real Property Law)comes into effect on 1January 1995.The law does little more than to codify basic principles which can already be found in local legislation but these principles will now apply uniformly throughout China.They should also ensure that their existing property interests conform with the new law or they may be headed for problems in the future.

¡¡¡¡In China,there are two systems for acquiring land use rights from the state:either by direct allocation for free or at cost;or by purchase for value at auction and by tender or agreement with the local land administration authority.The rules for allocation of land use are set out in Part 2of the Real Property Law.Although both systems of acquiring land are regulated by a land supply plan,direct allocation of land is heavily subsidized and therefore limited to low-cost housing or infrastructure development.There are many provisions in the new law to prevent and punish the exploitation of subsidised land for commercial development.Where land use rights are granted,the price is determined by negotiation but may not be less than the price fixed by the state.

¡¡¡¡From their inception,joint ventures between foreign and Chinese investors often involved the Chinese side providing a site as its contribution to the capital of the joint venture.The new law has made it clearer what rights come with that site.If the site has been acquired by the Chinese party (or the joint venture)by way of a grant and is transferred to the joint venture enterprise,it will have full land use rights to the site for the duration of the grant.That is,the joint venture will be able to sell,assign and mortgage the land use rights and as part of the assets of the joint venture the land use rights can be liquidated.If the site is acquired by way of allocation,however,the joint venture will be able to use the site but not otherwise deal with it,e.g.mortgage it.As Article 47only permits the mortgage of buildings along with the land which they occupy,as a matter of general principle it will be impossible for the joint venture even to mortgage premises occupying allocated land.However,in Shanghai a compromise has been made to allow buildings on allocated land to be mortgaged providing that the mortgagee pays the premium which would have been paid to acquire granted land use rights at the time building property is liquidated.

¡¡¡¡Part 3deals with who can develop land and the conditions for development.There is a provision for incentives to housing development,including preferential tax treatment.If construction does not commence within one year of acquiring the land,a 20%penalty may be imposed and if the delay lasts two years the land may be resumed without compensation.

¡¡¡¡From a transactional point of view,Part 4of the Real Property Law is the most interesting.It is also the longest,containing 27articles describing real property transactions (i.e.transferring ownership in buildings and the user rights to the land they occupy from one party to another),setting out the manner of the transfer,the conditions,basic rules for mortgages and leases of buildings or apartments.The price of real property is not exactly determined by the market but set according to an appraisal system based on market indicators as well as replacement cost.It may come as a surprise to foreign developers that there is no mention that developments sold on the overseas market (including Hong Kong)are exempt from these rules.It remains to be seen how the appraisal system will work in practice and there has been more than one Chinese delegation to Hong Kong to study the territory's property market.

¡¡¡¡The Real Property Law includes provisions for the pre-sale of uncompleted flats.Like existing regulations in south China these rules attempt to bring some order into the excessive enthusiasm to develop property for the Hong Kong market and protect consumers.They have been supplemented by the more detailed Measures for the Administration of the Pre-Sale of Urban Commodity Housing which were introduced late in 1994.Many Hong Kong purchasers of uncompleted flats on the mainland have found that the construction of their new homes has been delayed or has never commenced because their deposits have been the only source of financing construction (or have just disappeared).The Measures therefore introduce more control over pre-sales,including systems for the issue of pre-sale development permits,which should ensure developers have paid for the right to use the land in full and have complied with other legal requirements,and for the registration of pre-sale agreements.The Measures also require developers to have committed 25%or more of the total investment in the development but this does not seem to reduce the developer's reliance on pre-sale deposits.

¡¡¡¡The rules on mortgaging real property and leasing buildings in the Real Property Law are scanty but confirm existing practices and local rules.Banks will be relieved that China has finally enacted even scanty rules on mortgages although it should be noted that a mortgage in China does not give the lending bank an ownership interest in the mortgaged property.By registering the mortgage all the bank gets is a priority in time to recover the loan from the proceeds of sale.However,except for insolvency proceedings (which do not apply to individuals),there are still no procedural rules on how to realize such a priority in the case of default.Registration of a mortgage is mandatory under the new law as well as local regulations and failure to register it may be fatal for the lender even if the borrower does not become insolvent.

¡¡¡¡Finally,there are penalties for both officials and developers who carry out land development in contravention of the law.Apart from fines,discipline and possibly prison for criminal offenders,the main penalty,developers should note,is the confiscation of all profits thereby earned.

¡¡¡¡The new Urban Real Property Administration Law has not attracted much attention since it was published in August 1994.This is probably because it only reflects the existing law and practice in localities which have already experienced a property boom such as in much of eastern Guangdong.But it should be considered a welcome development to regularise property development throughout China and a step toward a more market-orientated system in general.

¡¡¡¡Companies Law

¡¡¡¡After ten years on the drawing board,China's new Companies Law took effect on 1July 1994.It has been received amidst some fanfare abroad but disappointment awaits anyone who thinks that China now has a unified and accessible set of rules governing the conduct of more than a million existing domestic companies.On the contrary,in the short term the Companies Law will simply add to the existing complexity which bedevils Chinese entrepreneurs and foreign investors alike.But the new law promises ultimately to simplify the web of legislation which now governs six different types of enterprises.

¡¡¡¡The real importance of the Companies Law is its commitment to securitising enterprises,including state-owned enterprises,which was the cornerstone of reformist economic policy thwarted after 4June 1989and revived only after Deng's ¡°Trip to the South¡±in 1992.Owing to the failure of the factory manager responsibility system,licensing,contract management and other less radical policies for reforming China's enterprise system the Companies Law now promises gradually to allow all types of enterprises to convert to limited liability companies,in effect to privatize,and to allow larger companies to issue shares.

¡¡¡¡Unlike the system in most Western countries whereby promoters can register any company which satisfies the legal conditions,China's Companies Law requires administrative approval to create a company.Once the company has been established,however,there is no provision for interference by the state in the company's management or winding up,except where the company is a wholly state-owned company.Therefore,the new law's commitment to entrepreneurship and ultimately to privatization seems irrevocable.

¡¡¡¡Under China's existing economic system the ownership of enterprises is the key regulatory factor.There are thus six different types of enter-prises:state-owned,collectively-owned,privately-owned,wholly foreign-owned and partly foreign-owned,that is equity and cooperative joint venture enterprises,and each is governed by separate laws and regulations.To complicate matters further,some of these enterprises have already been legally converted into companies under special legislation,such as has existed since 1988for foreign-owned enterprises in Guangdong's Special Economic Zones or under the 1992Opinions of the State Commission for Reform of the Economic Structure for the Standardization of Limited Liability and Joint Stock Companies.Still other companies have been created by administrative action,although their status is uncertain,and ¡°briefcase companies¡±for mainly fraudulent transactions have become prevalent.

¡¡¡¡The Companies Law will allow existing enterprises to convert to companies regardless of their system of ownership.In the long term it is hoped that the new law will thus ultimately unify China's corporate system as well as regularize the status of existing companies,legal and illegal.In the short-term,however,it will mean that the complex enterprise system will coexist with the company system and thereby create a formidable maze of corporate structures.

¡¡¡¡The two possible new corporate forms are the ¡°limited company¡±and a ¡°company limited by shares.¡±Both are companies with limited liability and the key differences are how they are established,held and governed.The limited company is like a private company:it is established by application of the prospective shareholders and its membership may not exceed fifty persons.For the time being,state,collective and even foreign investment enterprises which convert to limited liability companies will remain closely held although technically the directors are responsible to the shareholders in general meeting.The company limited by shares is more like a public company.It shall be promoted by at least five persons except for state enterprises converting to companies,half of whom are resident in China,who may either hold all the shares or hold part of the shares and offer the rest for public subscription.Although the share-holders in general meeting are also the organ of authority of a company limited by shares,the activities of the directors are monitored by a supervisory board which includes shareholder and employee representatives.The supervisory board idea was borrowed from European public companies and has long been favoured in China because it will allow the state to retain a supervisory function over the activities of state enterprises which ¡°go public.¡±

¡¡¡¡The Companies Law has no immediate effect on wholly or partly foreign-owned investment enterprises.Although they have long been recognised to be limited liability companies,their establishment and corporate governance is regulated by separate legislation,for example,the Equity Joint Venture Law and its Implementing Regulations which date back well over a decade.At this stage,there can be little advantage in foreign-owned enterprises applying for registration as limited companies but there is no doubt that larger enterprises or enterprise groups will now contemplate conversion to joint stock companies so as to be able to issue shares on Chinese and foreign securities markets.

¡¡¡¡The new provisions on the registration of foreign companies in China will be of interest to foreign investors and Chinese entrepreneurs alike.Once implementing rules are passed,they will allow companies incorporated abroad to operate branches within China which do not bear independent liability.Although registration is not automatic and is subject to the Chinese branches having sufficient operational funds,it will be possible for both Chinese and foreign business people to have a corporate presence in China without establishing a Chinese company.This presence appears more substantial than a representative office but what real benefits accrue from registration in China will depend on whether the authorities and institutions such as banks treat Chinese registered foreign companies any differently from representative offices.

¡¡¡¡There is no doubt that the ability to establish a company limited by shares,by issuing shares,will prove to be the most important aspect of the new law.There are two reasons for this.First,public issues will allow economically sound enterprises to recapitalize without resort to China's tightly controlled banking system.Secondly,allowing state-owned enterprises to issue shares to the public will irrevocably change the socialist system of ownership which has traditionally been big,public and pure.Of course,it will be the securities law,expected later this year,which will decide just how far and how fast capitalisation and ownership reform will really go but the Companies Law is a necessary foundation and points optimistically forward.

¡¡¡¡Whereas the assets of state enterprises are owned legally and politically by the state,the Companies Law has separated the ownership of company property in a legal sense from the state's political interest.The organization of companies,however,has not yet rid itself from the vestiges of state (and party)bureaucratic intervention.Where large state enterprises become companies they will remain subject to a Board of Supervision which will be dominated by the major shareholder,the State.However,by abandoning the factory manager system in favour of a board of directors and general manager (managing director),the Companies Law has removed external interference by one stage.Ultimately,as the state divests or dilutes its shareholdings in companies,the capacity of remnant state economic bureaucracy to interfere in a company's business affairs will diminish.The final draft of Companies Law ominously restored the status of the Communist Party's grassroots in company affairs but this role is not defined and this provision may merely have been a sop to party ideologues.

¡¡¡¡With 230articles,the Companies Law is one of China's most detailed laws but it still lacks some important features of modern company law,such as details about debt administration and security for loans.The ten articles on insolvency and winding up are also disappointing because they add little to existing piecemeal provisions.If China is going to have a successful company system it must be understood that adequate legislation for the eventuality of corporate failure is just as important as laws for the successful establishment and management of a company.The Companies Law requires the State Council to produce further detailed regulations on almost every important topic.Reports in May 1994indicated that the State Council had commenced drafting regulations on the administration of Chinese branches of foreign companies and several regulations on share issues by companies limited by shares,including overseas listings,issue of shares at a premium,preferential shares,employee shares and special RMB shares.It can only be hoped that these regulations will be issued without delay.

¡¡¡¡Amendments to the Economic Contract Law

¡¡¡¡When it was first enacted in 1981the Economic Contract Law introduced some post-Mao innovations which reflected the increasing autonomy of enterprises and the decreasing role of mandatory state plans but it was nevertheless a codification of contract principles and practice based on central economic planning.Contracts and contract law continued to move away from economic planning with the introduction,in 1985,of the Foreign Economic Contracts Law and,in 1988,of the Technology Contracts Law.By the end of the 1980s,changing economic policy had made the Economic Contract Law partly outmoded and in 1993China's official commitment ¡°to a socialist market economy¡±was accompanied by amendments to the law.These changes purport to make the law suitable for a market-based economic system and compatible with the expectations of foreign investors who are increasingly subject to China's domestic contract regulation.

¡¡¡¡Thirteen references to state economic planning have been deleted from the Economic Contract Law.The purpose of the law is no longer to ¡°guarantee fulfilment of state plans¡±but rather ¡°to ensure the healthy development of the socialist market economy.¡±(Article 1)Reference to the bank settlements system,whereby the banks supervised contract performance by controlling the transfer of payments between contracting parties,has been deleted.So too has the reference to the economic management bureaucracy monitoring the economic performance of enterprises by regulating their contract behaviour.The ¡°arbitration plus litigation¡±system for the resolution of contract disputes has been replaced by an ¡°arbitration or litigation¡±system like that available to the parties of foreign economic contracts and technology contracts.This allows parties to an economic contract to exclude the courts and choose arbitration as the only and final means of settling a contract dispute.

¡¡¡¡Although these changes are obviously more than cosmetic,appearances are still apt to mislead.The amended Economic Contract Law is preparing for the further decline in central economic planning and management in China but economic planning has not ended by a mere stroke of the pen.On the contrary,many references to making and performing contracts according to economic plans in the old Economic Contract Law have merely been replaced by references to administrative regulations.It is quite likely that for the time being these regulations will reproduce policies once formulated as economic plans.The fact that they now appear in the form of legislation may increase their transparency but could also make them more rigid and more rigorously enforced.Moreover,references to mandatory planning have not disappeared altogether.For example,whilst commodity prices have been rapidly deregulated in recent years,Article 17(3)still refers to contracts which must adhere to prices fixed by the state.¡°Contract administration,¡±that is the process by which state regulatory authorities supervise the making and performance of contracts as well as assist in the mediation of disputes,has been circumscribed but not completely abandoned.

¡¡¡¡The fact the Economic Contract Law remains wedded to state economic planning reveals a contradiction underlying many of China's legal reforms when trying to adapt a law originally conceived as a ¡°tool of state planning¡±to facilitate market reforms.Outwardly,the law appears to be a radical departure from the central planning model and this is no doubt an impression China hopes to convey to the outside world.In fact,even where parts of the planning system are dead they continue to rule the law from the grave.To be legally committed to the market system China needs to abandon the concept of economic contracts altogether and unify its contract legislation with reference to civil law.A unified national contract law is now being drafted and this may help to resolve many of the outstanding problems.

¡¡¡¡Arbitration Law

¡¡¡¡Disputes are an inevitable part of doing business and an effective system for settling disputes is as important for preventing disputes as it is for resolving them.China has been conscious of this for a long time but whilst building apparently respectable legal structures and institutions for resolving disputes,China has not been able to ensure that they work effectively.A credibility gap has therefore been growing between the theory and practice of settling disputes in China and nowhere has this become more apparent than in arbitration.

¡¡¡¡Arbitration is effectively the only choice for settling commercial disputes in China.Litigation in foreign courts would usually be a futile exercise because foreign judgements cannot be enforced in China and most Chinese parties have few if any assets abroad.Litigation in China will be equally futile because outside major Chinese cities most Chinese judges are not equipped to understand let alone judge complex commercial transactions.Even arbitration outside of China may be futile if the Chinese courts will not enforce the foreign award.

¡¡¡¡In recent years,China has therefore attempted to improve its system of commercial arbitration.In 1994,China enacted its first Arbitration Law.The new law governs both domestic and foreign-related arbitration and is a missed opportunity to standardise the arbitral process in China.In fact,the terms of the new law are very vague and it is up to individual arbitral bodies to regulate their procedures in detail.In 1994,new,more comprehensive rules were made to govern arbitration by the China International and Economic Arbitration Commission (CIETAC).CIETAC enjoys a monopoly on arbitrating international and foreign related trade disputes in China.In 1994,CIETAC received a record 829cases,even more than the Paris-based International Council on Commercial Arbitration.However,CIETAC has earned a mixed reputation in the foreign business community.Grumbles against CIETAC include lack of legal and technical sophistication,bias in favour of the Chinese party,failure to observe basic procedural fairness and the difficulty of enforcing awards.Unfortunately,these are all symptoms of underlying institutional problems which cannot be dealt with by the stroke of a pen and there are therefore many examples of how the new Arbitration Law and Arbitration Rules fail to appease the grumblings.

¡¡¡¡In arbitration the problem of enforceability looms large.China acceded to the New York Convention for the Recognition and Enforcement of Arbitral Awards in 1987and since then foreign courts,especially in Hong Kong,are regularly enforcing CIETAC awards.However,China's own courts are reluctant to enforce CIETAC awards.In recent years,the situation has become so embarrassing that statistics and discussion of enforcement are conspicuously absent from CIETAC's yearbooks and other publications.The difficulty of enforcing awards is part of a larger and much older problem of regional protectionism in China's courts.Although the Supreme People's Court has recognized the problem for some time,it appears impotent to correct it.China's court system is locally funded and judges,who frequently have roots in the local community,have a low status and poorly paid job without security of tenure.Not surprisingly,the courts in one locality are loath to enforce a judgement or an award which is in favour of another locality (let alone a foreigner)but is contrary to local interests.

¡¡¡¡Another vexing problem is the choice of CIETAC as a forum for arbitration.Although Article 2of the Arbitration Rules has expanded CIETAC's jurisdiction from ¡°international¡±disputes to ¡°international or foreign-related¡±disputes,the important question of CIETAC's jurisdiction over cases between a foreign investment enterprise and a domestic enterprise still has not been resolved.In a 1992case,the Beijing Intermediate People's Court refused to enforce a CIETAC award on the grounds that CIETAC had no jurisdiction to determine a dispute between a Sino-foreign equity joint venture and a domestic enterprise because both were Chinese legal persons and their dispute was therefore not ¡°international.¡±CIETAC officials maintain that since the Rules were changed in 1994,CIETAC has jurisdiction because such a dispute would be ¡°foreign-related.¡±However,it is difficult to imagine that a Chinese court will conclude that a dispute between a joint venture and a locally owned enterprise becomes ¡°foreign-related¡±simply because a foreign investor owns a share (possibly as little as 25%)of the joint venture enterprise.

¡¡¡¡Foreign investors are concerned that they are being forced to arbitrate in China's even more unsophisticated domestic arbitration system and that such arbitrations further lack sophistication and enforceability.This particular issue is only part of the underlying problem China created in the 1980s by developing two parallel legal systems,domestic economic law for domestic transactions and foreign economic law for foreign-related transactions.The rationale for this distinction was that rapidly making foreign economic law would help to create an hospitable environment for foreign trade and investment and act as a temporary interface between the international market system and China's planned economy.Over time,China's whole legal framework has become more sophisticated,state economic planning has declined and the two systems of law are slowly converging.However,the two systems of arbitration have been kept separate.

¡¡¡¡Finally,neither the Arbitration Law nor the new CIETAC Rules resolves the old problem about the timely filing of the defence in preparation for the hearing.Although the Arbitration Rules provide that the respondent shall file a defence within 45days of receipt of the arbitration claim,in practice the tribunal will allow the respondent to present his defence at any time up to and including the day of the hearing.This is very unfair to the claimant who has no chance to prepare a reply to the defence in advance of the hearing and it is contrary to common practice around the world.However,it has become an acceptable practice in China because,it is argued,a defence is a right not an obligation.In fact,it is a good example of the Chinese attitude that procedural niceties should not be permitted to get in the way of the substantive issues,especially where that would affect the Chinese party to the arbitration who is usually the respondent.

¡¡¡¡There is some good news.At the same time the new CIETAC Arbitration Rules came into effect a new list of CIETAC arbitrators was published which includes 86foreign arbitrators,increased from a mere 13foreign arbitrators first placed on the panel in 1989,but still a small minority among a total of 289arbitrators.Also,article 40was added to give the parties an opportunity to examine and give their opinions on expert reports commissioned by the arbitral tribunal.This is certainly in response to the Hong Kong High Court's refusal to enforce a CIETAC award,the only such case thusfar,on the grounds that it was procedurally unfair for the tribunal not to give both sides the opportunity to refute adverse evidence contained in such a report.It is a good sign that CIETAC responds to criticisms from outside China and it is more the pity the Hong Kong High Court has not been stricter about the enforcement of CIETAC awards tainted by procedural irregularities.

¡¡¡¡Legal Change and the World Trade Organization

¡¡¡¡It has been eight years since China formally applied to re-join the GATT.China's failure to do so before the GATT became the World Trade Organization was ignominous and mostly due to US opposition.However,since recently settling its intellectual property disputes with China,the US has promised to support China's entry to the WTO as a founding member.China has had observer status in the GATT since 1971and 85%of her trade is conducted with GATT members.The Chinese government therefore expects a number of benefits from full participation in the WTO.However,these benefits will come at a price because China's trading partners,particularly the European Unions (EU)and the US,have their own expectations of China.

¡¡¡¡Apart from the obvious issues of reducing tariffs and increasing market access,Western countries expect China to continue building a system of law and government which is market-based and more transparent.China has responded with a number of new laws and revisions of old ones.A number of these have already been discussed above.In addition,in 1994China passed the Foreign Trade Law as well as introducing a number of taxation and foreign exchange reforms based on legal regulations rather than mere administrative fiat.This is designed to bring China's system of economic regulation into line with international expectations and is consistent with the direction established in recent years to move away from central economic planning.

¡¡¡¡The most desperate attempt to appease Western trading partners in 1994was China's adoption of the Foreign Trade Law which came into effect on 1July 1994.According to China's Foreign Trade Minister Wu Yi,the new law represents a fair and free trade policy which commits China to the international trading system but judging by their quiet response,Western trading partners remain unconvinced.The Foreign Trade Law purports to establish a liberal trade regime where the import and export of goods and technology is ¡°free¡±(Article 15)and the ¡°gradual development of international service trade is promoted¡±(Article 22).In fact,the law does nothing to reduce the trade restrictions currently imposed by China's trading system.Like the amended Economic Contract Law,it refers repeatedly to ¡°relevant laws and administrative regulations¡±which shall regulate trade and prescribe the restrictions on trade freedom.Contrary to China's official press,this does not bid farewell to the old system of government managed trade.All it means is that some restrictive administrative policies will be transformed into legal regulations.Assuming the administrative regulations are thus adequately published (and there is no provision in the new law requiring their promulgation)this may enhance the transparency of restrictive trade policies but will not diminish their restrictive impact on trade.

¡¡¡¡Article 4says that China implements a ¡°unified system of foreign trade.¡±Of course,this has never been true and probably never will be true.China's post-Mao trading policies have always been based on uneven development between different parts of China,especially between coastal and inland regions.Law making and regulatory powers have been devolved to localities and the competition between China's rapidly developing regions has created local protectionism.This has been most clearly illustrated by the inability of the central government to overcome local resistance to crackdowns on intellectual property piracy in south China.As we have already seen,it is also evident in the protectionism practised by the courts when enforcing judgments and arbitral awards.We have also seen that the central government failed to address local protectionism in the Anti-Improper Competition Law,probably because it realized it was powerless to control protectionist practices.The WTO,like much contemporary public international law,is based on the ideal of the Western nation state which has a strong central government capable of complying with international obligations.In fact,as the long standing intellectual property dispute between China and the US shows,this ideal is not applicable to China and the West is naive to expect a comparable degree of compliance.

¡¡¡¡Two new direct tax laws came into effect in 1994.The Chinese Enterprise Income Tax Law unifies direct taxation of the many types of Chinese business entities which were formerly taxed on the basis of whether they were owned by the state,collectives or by private companies or individuals.Although the new law does not apply to foreign investment enterprises,it unifies the standard tax rate for Chinese and foreign investment enterprises at 33%and thus signals a move toward a level playing field.Similarly,the new Individual Income Tax Law is clearly aimed at bringing more Chinese taxpayers into the net.Four new indirect taxes were also introduced.The old system of Consolidated Industrial and Commercial Tax (CICT),essentially a turnover tax which had existed in China since the 1950s,has been abolished.CICT has been replaced by three indirect taxes:a Value-added Tax (VAT)with a standard rate of 17%which is comparable to EC countries,a Consumption Tax at a rate between 3%and 45%for ¡°luxury¡±items such as cars,liquor and tobacco,and a Business Tax on services at a rate of between 3%and 20%.A controversial capital gains tax on the sale of land use rights and buildings was also introduced to reduce speculation in China's booming property sector.However,the outcry against the new tax,especially from the many Hong Kong property developers with projects in China,delayed its enforcement until implementing regulations were published early in 1995.

¡¡¡¡Reforms in China's tax system were mirrored in the system of foreign exchange control.Again the predominant theme is to create a level playing field by equalising access to foreign exchange and thus prepare China's currency for free convertibility without losing control over foreign exchange expenditure.The foreign exchange retention system,whereby every foreign currency earner was allowed to retain all or a portion of earnings in a designated account for future expenditure,is being replaced by a foreign exchange settlements system.Under the new system,all foreign exchange income must be sold to authorised banks at the quoted rate.At the same time,foreign exchange is conditionally available for Renminbi at the quoted rate.The approval procedures are being simplified to allow foreign exchange to be purchased with Renminbi on the basis of supporting documents,such as a contract for the sale of goods.This reform was accompanied by a devaluation of the Renminbi to the rate prevailing in the swap markets.It is intended that the official rate will be maintained by an national unified inter-bank foreign exchange market.

¡¡¡¡Article 10of the GATT provides that parties shall promptly publish legal and administrative provisions relating to almost any kind of trading interests.In recent years,China has,sometimes willingly and sometimes not,opened up its legal system.More collections of laws,regulations and cases have been published in the last five years than in thirty years previously.Yet China's highly centralised political system militates against disclosure.If a powerful person does not give approval for publication,the information remains a state secret.This principle applies to information about economic and trade policies as well as the law.Whilst major laws are published,many rules,decisions and directives which tell us about practice under these laws remain neibu or ¡°internal only.¡±Even a fact as important but harmless as the investment project approval limits on various authorities will not be found in a published document.Of course,economically sensitive information such as the import plan and,in some areas,rates for land-use fees are state secrets.

¡¡¡¡
¡¡¡¡3.Developments in Public Law

¡¡¡¡Whilst China has achieved a great deal in accelerating market-based economic reform and has enacted numerous economic laws,regulations and rules both at the national and local levels,the government is encountering problems in the public economy,such as low productivity in state-owned enterprises,tense labour relations within enterprises,wide-spread practice of corruption and ineffective and disorganized government bureaucracy.The government understands that unless these serious problems are also dealt with,the economy cannot continue to prosper.

¡¡¡¡Reform in the public law sphere has been put on the agenda but only modest progress has been made thusfar.Civil service reform has been discussed for at least a decade and the first legal step was taken in 1994with the enactment of the first Civil Service Regulations which are designed to establish a well organised and ethical civil service system.It has also enacted the first national Labour Law covering almost every aspect of labour affairs.The role of the courts is also being enhanced,in particular,the trial of administrative and economic cases.In 1994,the Standing Committee of the National People's Congress (NPC)also enacted the State Compensation Law to provide redress to victims of maladministration.

¡¡¡¡Building a Legal Framework for Labour in the ¡°Socialist Market¡±Economy

¡¡¡¡Before the open-door policy and economic reform,China did not officially recognize unemployment and firing was never heard of because individuals were somehow to be employed and fed by the state.The public economy offered almost all workers cradle-to-grave welfare.This is known as the so-called ¡°iron rice bowl¡±system.On the other hand,there was little or no incentive to increase productivity and the advancement of employees was based mainly on their loyalty to the Communist Party.With the introduction of economic reform,other types of enterprises were introduced to supplement the state-owned enterprise system.Diversity in the enterprise system has brought with it new complexities in labour affairs and new problems in labour relations.Managers and owners of private enterprises are primarily concerned with how to extract the highest profits.At the same time,the rights and welfare of workers have not been given adequate legal protection.Excessive overtime,workers locked in factories and even physical abuse have thus become commonplace.Inadequate protection of workers has also resulted in some disastrous industrial accidents,affecting social stability and economic development.

¡¡¡¡In 1993,the PRC Constitution was amended for the second time to recognise the official ideology of establishing a ¡°socialist market eco-nomy.¡±Thereupon,a new,comprehensive national labour law was needed to replace the obsolete methods of regulating labour affairs.The national Labour Law (Laodongfa)was promulgated on 5July 1994and came to effect on 1January 1995.The Law is designed to solve new labour problems and facilitate the development of the so-called socialist market system.

¡¡¡¡The Labour Law is also a codification of existing regulations,rules and guidelines.Its 107articles deal with a range of issues including promotion of labour contracts and collective contracts,wages and salaries,protection of female staff and underage workers,labour disputes and legal liability.According to Article 2,the law applies to workers (laodongzhe)with whom a labour relationship is created and applies to enterprises,including foreign investment enterprises,and individual economic organisations (employing unit,yongren danwei)inside the PRC,which means,it applies to all the staff working in all the enterprises in PRC.The law also applies to state authorities,institutions,social organisations if they have a contractual labour relationship with the workers.In effect,it applies to most employers and workers throughout China.

¡¡¡¡The Labour Law reflects China's socialist ideology.Protection of rights of workers is the basic aim of the Labour Law and is given a prominent place.Article 3stipulates several fundamental rights of workers,most of them reiterate the existing rights guaranteed by the Constitution and other laws.The rights include the right to choose an occupation,the right to rest and take vacations,the right to wages,the right to vocational training,the right to social insurance and welfare,the right to strike and so on.

¡¡¡¡Chapter 3of the Law stipulates the principles governing labour contracts (laodong hetong).A labour contract can be for a fixed term,an open term contract or a term determined on a job-to-job basis (Articles 16and 20).Phasing out the iron rice bowl system has proven a heavy burden for economic development and the government responded by introducing the labour contract system in state-owned enterprises in 1986.By 1994,35million persons or some one-third of the workers in state-owned enterprises were employed under the labour contract system.Enterprise workers now have more freedom to choose their occupation under the Labour Law since the iron rice bowl has been broken because the state no longer guarantees employment.However,because a social security system has not been fully established and workers with longer employment history with the state-owned enterprises are resistant to the labour contract system,Article 106allows provincial governments to determine the implementation of the labour contract system in accordance with the actual situation in their own regions.This is designed to allow for gradual change in the state-owned sector and mitigate the effects of unemployment and social instability.

¡¡¡¡The Labour Law also specifies the provisions of collective contracts,rules relating to enterprises discharging their employees and the right of workers to resign.Approval of the labour contract by the government is no longer required.However,the failure of employers to comply with the requirements of the Labour Law will make them liable to pay compensation to the employee.

¡¡¡¡The controversial issue of minimum wages is not fully explored in the Labour Law.Article 48simply states that the state shall implement a system of guaranteed minimum wages,specific standards for minimum wages shall be formulated by the provincial governments and submitted to the State Council for the record.The provincial governments must refer to the following factors when deciding and adjusting the minimum wage:

¡¡¡¡a.the minimum cost of living of workers themselves and of the average number of dependants of such workers;

¡¡¡¡b.the average wage and salary level in society;

¡¡¡¡c.labour productivity;

¡¡¡¡d.the overall employment situation;and

¡¡¡¡e.differences in the level of economic development between regions.

¡¡¡¡Since the situation in each province varies greatly,it is reasonable that the standards for minimum wages should be determined by the provincial government.However,it is highly likely that provincial governments will set their minimum wage as low as possible so as to compete with other provinces.Further,as standards for minimum wages and salaries do not require its approval,the State Council may not control the minimum wages according to the provisions of the Labour Law.

¡¡¡¡The right of enterprises to hire and fire workers is also expressly provided for.Where an employing unit genuinely needs to reduce the number of its staff during statutory restructuring on the verge of bankruptcy or when major production or operation problems arise,it should explain the situation to the trade union or staff 30days in advance,listen to the opinions of the trade union or the staff,and may reduce the number of its staff after submitting a report to the labour administration department.Thus,redundancies are now clearly provided for.This provision has the potential to increase enterprise productivity and the survival of the state enterprise system but will,no doubt,prove unpopular with workers accustomed to a high degree of job security.

¡¡¡¡The Labour Law also sets out the powers of labour administration at all levels.Chapters 11and 12contain the powers and duties of the labour administration which include carrying out inspections and enforcing the labour law,the power to give warnings,to order offending units to correct malpractices,to impose fines,to order the employing units to pay the workers'remuneration or to pay compensation for economic losses.In the light of the serious industrial accidents which have occurred in recent years,the Labour Law grants extensive powers to the labour administration to enforce conditions for worker safety and health.Article 92provides that where an employing unit's safety facilities or health conditions do not comply with state regulations the labour administration or the relevant authorities should order remedial measures to be taken and may impose a fine.Where the circumstances are serious,the department can apply to a people's government,at or above the county level,for a decision to order suspension of production pending remedial measures.Where workers suffer loss of life or property due to a major accident resulting from the employing unit's failure to adopt measures against a latent danger,the persons responsible should be held criminally liable.Criminal liability should also be imposed on the persons responsible where serious consequences arise due to a major accident involving death or injury as a result of workers being forced to engage in dangerous activities which violate rules and regulations.Workers are also allowed to terminate their labour contracts at will where the employing units have coerced them into employment by means of violence,threats or illegal restriction of personal freedom.

¡¡¡¡Where an employing unit illegally recruits minors who have not reached the sixteenth year of age,the labour administration department has the power to impose a fine.Where the circumstances are serious,the Administration for Industry and Commerce shall revoke the employing unit's business licence.Penalties are clearly provided throughout the law but it remains to be seen to what extent they will be imposed by the government officials in practice.Further eleven sets of labour regulations are being drafted.

¡¡¡¡

¡¡¡¡Establishing a ¡°Clean and Efficient¡±Civil Service System

¡¡¡¡The NPC,its Standing Committee and the State Council have enacted more than 20laws and regulations providing for penalties against embezzlement,bribery and corruption.Nevertheless,in practice,these laws and regulations have not been strictly implemented and enforced.Corrupt government officials with support from high levels are still out of the reach of the law.It is generally believed that only junior government officials will be punished by law.There were 27,463cases of economic crime in 1993out of which 22,106persons were convicted.Out of the 22,106convicted,however,only 69were government officials at the grade of county heads or division heads (xianchu de ganbu)and only 7were at the grade of department heads under a ministry or bureau heads (siju de ganbu).Apart from well known corrupt practices,the government is also faced with overstaffing of officials and overlapping of the structure of government departments.

¡¡¡¡In 1987,the civil service reform (gongwu gaige)was launched to fight against corruption and building up of an efficient and clean government.

¡¡¡¡With six years experience in a few central and provincial departments,the government understands that a comprehensive reform should be carried out not only to alleviate symptoms of corruption but also to work out a permanent cure.It also realizes that legislation should be intensified and application of laws should be strict.

¡¡¡¡There are hundreds of regulations,rules,notices and departmental guidelines regulating the activities and working procedures of the civil servants.They cover most aspects,including government structure,training,documentation,and even the use of government vehicles.Almost a hundred of them dating back to the 1950s are still in force.For more than forty years,the enormous civil service system has been governed by these musty documents which lack a unified and detailed legal structure for civil servants to follow.

¡¡¡¡After around 10years'drafting with twenty-one drafts,the Provisional Regulations of the State Civil Servants came into effect on 1October 1993.With 18chapters containing 88articles,the Regulations lay down the general guidelines for almost every aspect of the civil service from recruitment and selection,performance appraisal,training,rules on the avoidance of conflict of interest,service grades and discipline.

¡¡¡¡It is remarkable that in Chapter 2it is provided that civil servants are allowed to criticize and give suggestions to government departments and their senior officials.They are also allowed to express their grievances and make complaints.It is well known in China that if one criticizes or complains about senior officials in government departments,one will have a difficult time and it seems doubtful that this express provision can protect outspoken civil servants in the current cadre culture.

¡¡¡¡The civil service system is divided into leading staff (lingdao zhiwu)and non-leading staff (feilingdao zhiwu).Leading staff are those who carry out managerial duties,such as minister and department head;non-leading staff are specialists,such as researchers or economists.It is hoped that this division can streamline civil servants so that there will be fewer leading officials in the system and help to develop professional grades in the government.Civil servants are further divided into 15grades,ranging from the premier of the State Council to clerical staff.Article 11sets out the criteria in assigning the grades,including their ability and moral standard,actual performance and work experience.In light of the fact that the ¡°Four Cardinal Principles¡±are laid down in Article 2of the Regulations,it seems inevitable that moral standard should include political correctness and loyalty to the CCP and the socialist system.

¡¡¡¡Article 31expressly lists 14types of proscribed behaviour.Not surprisingly,¡°spreading ideas damaging the reputation of the government,organising and joining illegal organisations,and attending anti-government meetings,demonstrations and strikes¡±is on the top of the list.One may recall during the 1989Democracy Movement,thousands of civil servants bearing the names of their departments on banners joined in the student demonstrations.It is also not surprising that the meaning of ¡°anti-government¡±is not defined in the Regulations.Despite some attempts to separate Party and government it does not require much imagination to stretch the meaning of ¡°anti-government¡±to opposition to the party.

¡¡¡¡In addition,corrupt practices,embezzlement,suppression and revenge (daji baofu),waste of public resources and disobeying orders are also on the list.Moreover,¡°doing business,establishing enterprises and joining other business¡±is not allowed.This is part of the existing attempt to separate the government from enterprises thus clearly distinguishing political activities from economic activities.It is also part of the existing,largely unsuccessful attempt to prevent official powers being used to achieve economic ends.In practice,a web of economic relations have been established between parts of government and economic enterprises.Existing prohibitions make it rare nowadays for an official to hold office in an enterprise but officials formally leaving the civil service are informally continuing to serve in a government sponsored enterprise.Every department that can be involved in this activity is involved,including powerful parts of the state apparatus such as the police,army and organs for the administration of justice.Therefore,it seems doubtful that this provision can be enforced against the existing system of abuse.

¡¡¡¡Article 33stipulates five administrative penalties for misbehaviour by civil servants,namely,warning,demerit,serious demerit,demotion,discharge from leading duties and dismissal.Since relevant regulations for reward and punishment have not yet been promulgated,the 1957Temporary Rules for Reward and Punishment and 1988Tentative Measures for Investigating and Hearing Administrative Discipline Cases by the Supervisory Organs are still applicable.

¡¡¡¡Chapter 12lays down the rules of avoidance of conflict of interests in the civil service system.There are three rules.The first one is civil servants with close family relationships are not allowed to have a leading relationship (lingdao guanxi)or be in a supervisory,auditing,personnel and financial role in the same organ.Secondly,where a civil servant is executing his duties,and he or she realizes that his job is related to his own interest or interest of his close family members,he or she should withdraw to avoid conflict of interest.Finally,civil servants who assume leading posts under the level of county people's government are not allowed to be posted to their home locality.However,the last rule is not applicable to autonomous regions as Article 114of the Constitution expressly permits otherwise.The purpose of these rules is to circumscribe favouritism in the civil service system but their implementation will definitely be an arduous task and will encounter strong resistance from existing civil servants who benefit from the old practices.

¡¡¡¡Apart from corrupt practices at all levels,the government is also faced with enormous waste of state resources at all levels.It was reported that government officials have used more than RMB100billion in public revenues for entertainment and business trips in 1992.To reduce the waste of government resources and to perfect the government's auditing system,the former Auditing Regulations were replaced by the more detailed Auditing Law.The latter was promulgated on 31August 1994and come into effect on 1January 1995.This law states the establishment of national and regional auditing authorities and implementation of an auditing supervision system by the State Council.It also stipulates the limits of power of auditing authorities and their responsibilities,auditing procedures and penalties for violation.The Auditing Law applies to all the state organisations and all state-owned financial institutions,enterprises and institutional organisations.

¡¡¡¡The ¡°iron rice bowl¡±system is also broken in relation to the civil service.Civil servants may be dismissed if they breach Article 31,as discussed above,or if their performance is unsatisfactory or they refuse to accept another job assignment (Article 74).By dismissing deadwood in the government,it is believed that the civil service system will be more efficient and manageable.On the other hand,where a civil servant is allowed to resign,the approving authority should approve within 30days after submission of the written application.Nevertheless,there are two provisos in relation to resignation.First,a government department may set down the minimum years of service (3¨C5years)and a government department may refuse a resignation application if the civil servant has not yet completed the minimum years of service.Secondly,civil servants occupying posts connected to national security and confidential information are not allowed to resign.

¡¡¡¡From the contents of the Regulations,it can be seen that the government is cautious about reforming the civil service system as the stability and continuity of the system are top priorities.Further,the nature of the civil service system which emphasises principles of merit,neutrality and promotion according to examinations,are incompatible with the party's fundamental right of control.The government knows that a competent and honest civil service is crucial to economic development but there is no plan or indication at least in the Regulations to build up political neutrality within the system.As these regulations are temporary it is still too early to speculate their effect and how the government will amend them.Since the Regulations only set out the guidelines,further detailed rules (peitaofagui)in relation to every aspect of the civil service are needed to complete the whole picture.

¡¡¡¡Strengthening the Role of the Court in Administrative Cases and Economic Crimes

¡¡¡¡With an increasingly prosperous market economy in China,the focus of the criminal courts has shifted to fighting economic crime.Speculation and profiteering (touji daoba)which were the main targets in the planned economic system are no longer relevant.Most decided cases now involve crimes of selling imitation,fake and inferior products,which differ markedly from previous economic crimes such as reselling controlled price items at a profit.In 1993,314people were convicted of crimes of selling imitation,false and inferior products.

¡¡¡¡With increasing popular pressure to combat corrupt practices,embezzlement and bribery have become the current focus.Nevertheless,it is increasingly a challenge to define current economic crimes in a market economy due to the increasing complexity and variety of economic behaviour.In the past few years,conflicts have often occurred between the courts,procuracies and government departments on how to enforce the law.At a national working conference on the handling of economic crimes cases,eight criteria were advanced for defining economic crimes in relation to business activities of enterprises and technical staff.These criteria require a distinction to be made between corruption and business practices which are improper or even normal and do not constitute crimes.

¡¡¡¡After the conference,the people's courts acquitted a group of technical staff for alleged economic crimes in light of the last two certeria discussed in the conference.The change of attitude of the people's courts with more clear guidelines in implementation of law has played an important role in the promotion of a market economy and of technology development.This change is important as far as the stability of the laws is concerned.

¡¡¡¡In the China Review 1992we explored the lingering traditional vision of authoritarian justice in China and the introduction of the Administrative Litigation Law which allows the individual to seek redress in the courts against unlawful state interference with his personal freedom and property.Currently,China's administrative cases involve most administrative fields including land,industrial and commercial administration,environmental protection and taxation.In the 1990s,the number of administrative cases has increased dramatically but even the central court leadership understands that the lower courts have difficulty in trying such cases without interference from the executive.In 1987,the courts accepted 5,240administrative cases.The figure increased to 8,573in 1988and 27,911in 1993.Of the administrative cases heard and judged in 1993,23.56%of the government's decisions were affirmed,20.39%of the government's decisions were amended or discharged,41.31%of the cases were withdrawn by the applicants.The withdrawal rate is very high indeed.One may speculate that the low success rate and the high withdrawal rate are due to the influence and suppression of the government.Ren Jianxin,the president of the Supreme People's Court in his 1994Supreme People's Court Working Report admitted that some judges were afraid of affecting the relationship with the government and thus did not hear the administrative cases properly.Ren further said that one of the objectives of the court is to promote the Administrative Litigation Law and help more people understand their rights.

¡¡¡¡Ren in his speech known as ¡°The relations between the court and government of the PRC¡±at the conference marking the 200th anniversary of Australian Law said,

¡¡¡¡The people's court and people's government are two parallel systems of State organs that carry out different functions under the unified supervision of the people's congress and its standing committee.

¡¡¡¡It was the first time Ren as the president of the Supreme People's Court tried even cautiously to express in an open forum his idea of the courts being independent from the government.Apart from mapping out the relationship with the government,Ren also expressed his intention to raise the status of the judges.

¡¡¡¡From 1995,the people's courts have another law to enforce and further protect the rights and interests of the applicants in administrative cases.The State Compensation Law came into effect on 1January 1995.The law is enacted to supplement the existing laws as the existing laws only allow an aggrieved person to claim civil liability against the wrongful government official.Article 7states that the state should take up the liability of the wrongful government official and assume the responsibility of compensation,known as state's tortious liability (guojia qinquan zeren).

¡¡¡¡Apart from supplementing the existing law,the legislative purpose of the State Compensation is to solve two existing problems.First,an aggrieved person can directly receive compensation from the wrongful government department instead of the wrongful official who may not be capable of paying compensation.Secondly,it is hoped that the government officials can perform their duties more freely without the fear of being sued for compensation.

¡¡¡¡The law divides state compensation into two types,namely administrative compensation (xingzheng peichang)and criminal compensation (xingshi peichang).Administrative Compensation means that where the administrative departments and their officials,when exercising their powers,have infringed the rights and interests of the people,legal persons and other institutions,the aggrieved persons have the right to claim compensation.The aggrieved person or his successor can directly apply to the wrongful government for compensation (Articles 6and 18).Or,he or she can start administrative proceedings in the court claiming compensation from the wrongful government departments at the same time.Criminal compensation is catering for the tortious liability of the public security organisation,court,procuratorate.In order to settle the disputes of criminal compensation,the intermediate people's court or above should set up a Compensation Committee to hear the cases.The decision of the committee is final and can be enforced immediately.If the court can make full use of its powers under the law,it surely can strengthen its role and powers in protecting the people from maladministration and abuse of the powers of the government.

¡¡¡¡4.Conclusion

¡¡¡¡Recent legal developments are clearly linked to China's desire to participate in the world trading system and to remain attractive to foreign investors.The new legislation which gives effect to China's so-called ¡°socialist market economy¡±must therefore be understood as a response to the West.It should not be taken at face value because obviously the law cannot by itself create a market,even a ¡°socialist market,¡±without accompanying changes to the economic and political systems.As the legislation on competition,contracts and companies demonstrates,however,China's policy-makers have only been willing (or able)to go a certain distance toward economic deregulation and even these ¡°progressive¡±laws harbour vestiges of the planned economy.

¡¡¡¡Meanwhile,developments in public law have been directed at some of the problems not addressed in economic laws,such as tense labour relations within enterprises,the widespread practice of corruption and the ineffective and disorganized government bureaucracy and individual grievances against the state arising from the wilful or negligent conduct of state cadres.By embracing the contract system,the Labour Law also affirms the market but at the same time attempts to create a fair system of labour relations.The government understands that unless these serious problems are also dealt with,the economy cannot continue to prosper.

±¸×¢£ºÓйرí¸ñºÍ×¢ÊÍÊ¡ÂÔ¡£

ת×ÔÏã¸ÛÖÐÎÄ´óѧ·þÎñÖÐÐÄÍøÕ¾×ÊÁÏ¿â