China’s Legal System and the Fourth Plenum

The Chinese Communist Party (CCP) Central Committee’s Fourth Plenum, held in October 2014, was its first meeting specifically devoted to the legal system, and as such attracted much from those interested in Chinese law. But the official Decision of the Fourth Plenum does not represent a conversion to the ideology of rule of law. Even if the leadership were to desire the system of accountability and institutionalized restraint on government that is generally understood by the term “rule of law,” it could not be accomplished any time soon and would require changes in entrenched features of the current political and administrative system. In any case, the Decision contemplates no fundamental reform in the relationship between the legal system and the CCP. It is clear that, institutionally speaking, the party will remain above the law. But what about rule by law—a system of largely predictable and rule-governed behavior by lower-level government administrators, even if those giving the orders are not ultimately accountable or constrained? This essay argues that the Fourth Plenum Decision does contemplate some genuinely meaningful (and in my opinion positive) reforms, and thus represents modest progress toward that goal. It concludes with a discussion of an important reform that was not made: a reform in the system under which local officials administer rules but do not make them. This system inevitably results in the highly discretionary application of rules, and makes it difficult—perhaps impossible—to develop truly rule-based government

Review of Shucheng Wang, Law as an Instrument: Sources of Chinese Law for Authoritarian Legality (Cambridge University Press 2022)

This brief note reviews Shucheng Wang’s Law as an Instrument: Sources of Chinese Law for Authoritarian Legality. It finds that the author provides a well-informed, in-depth exploration of the sources of Chinese law and offers rich food for thought on these and other questions in the world of Chinese legal studies. The author brings a good sense of the political realities of the Chinese legal system to his study

Judging China: The Chinese Legal System in U.S. Courts

How should American courts understand China’s legal system? How do they understand it, and are they doing a good job? These questions have become important as economic and social ties between China and the United States have mushroomed since China’s days of Maoist isolation. The answers have implications not just for China-related cases, but for way U.S. courts treat authoritarian and illiberal legal systems more generally.This Article presents the first attempt to answer these questions empirically through an intensive study of all cases in which parties either sought dismissal to China on forum non conveniens grounds or sought enforcement of a Chinese judgment. Both types of cases require courts to assess China’s legal system. Because it attempts both to collect all relevant cases and to read all the relevant underlying party filings and interlocutory as well as final judgments, this Article presents the most complete picture to date of what U.S. courts and litigation parties are actually doing—certainly in China-related cases, and likely to some degree in other transnational cases.The Article finds that by and large courts do not get good information and often reach questionable conclusions. It finds that the adversarial system is not functioning well, with the strength of party arguments bearing no correlation to outcomes. Moreover, the bad results tend to get baked into the system through their citation in subsequent cases. This has serious implications for the delivery of justice. The Article concludes by offering some paths to a solution.A shorter version of this Article is forthcoming in the University of Pennsylvania Journal of International Law

Empirical Research Into the Chinese Judicial System

The last few years have seen a proliferation of programs by Western states and international agencies designed, in broad terms, to promote reforms in the Chinese judicial system. What is not clear, however, is whether there has been systematic thinking about the precise goals to be sought in these and other projects, whether these goals are appropriate, and indeed whether their achievement can even be ascertained in some measurable way. This paper is an attempt to think about what we know, what we might want to know, and what we can know about China\u27s judicial system, broadly defined. A key finding of this paper is that information about China\u27s judicial system, even in the form of reliable and representative statistics, is not always what it seems to be. In other words, without a deeper understanding of the actual functioning of China\u27s courts and other legal institutions, it is very easy to look for the wrong type of information and to misinterpret the information we have. Like the drunk in the joke who looked for his lost car keys under the streetlamp because the light was better there, we can be tempted to overvalue the importance of features of China\u27s judicial system that can be measured by easily obtainable data. Thus, a priority in an empirical research agenda at this stage of our understanding should be further research into the actual functioning of China\u27s various legal institutions so that we can have a better idea of what questions to ask

The Bonding Effect in Cross-Listed Chinese Companies: Is it Real?

A common explanation offered for PRC companies’ listing overseas is that they receive a price premium because listing overseas demonstrates a willingness to submit to the more shareholder-protective regulatory regime of the foreign jurisdiction and stock market. This explanation is commonly known as the bonding hypothesis. There is some empirical support for the proposition that listing overseas does indeed bring a price premium, although issues of causality are difficult to sort out. If it is true that investors view an overseas listing of a Chinese firm as something worth paying a premium for, the question remains, however, as to whether that view is well founded. Investors in overseas markets may find themselves left out in the cold when things go wrong, and indeed the Risk Factors section of PRC firms’ IPO prospectuses routinely caution investors that successfully suing the company or its management will be difficult or impossible. This paper will examine the degree to which Chinese listed companies and their management do in fact, in a practical and realistic way, bind themselves to overseas state and market norms when such companies list abroad. It will argue that the actual binding effect of an overseas listing is small and that investors are mistaken to pay a premium for it. This conclusion, if correct, has at least two important implications beyond China. First, it casts into doubt the semi-strong form of the efficient capital markets hypothesis, because it means that there is publicly available information that does not seem to be adequately incorporated into stock prices. Second, it suggests that the bonding hypothesis needs to be examined on an empirical, country-by-country basis to see whether the bonding is in fact anything more than an illusion

The Law of China\u27s Local Government Debt Crisis: Local Government Financing Vehicles and Their Bonds

Local government financing vehicles (“LGFVs”)—companies capitalized and owned by local government and established for the purpose of raising funds for municipal infrastructure construction—emerged in China in the 1980s as a response to the severe constraints on indebtedness by local governments themselves. The mushrooming of their number and indebtedness has sparked fears about their ability to repay the debt and the consequences of a default. In addition to taking on bank debt, a number of LGFVs have also issued bonds. While observers have questioned the value of collateral typically offered as security for the bonds, we know of no extensive analysis to date of the legal quality of the collateral: what exactly are the bondholders being promised, and what is the status of those promises in the Chinese legal system? This article is an attempt to answer that question, using data from two hand-collected samples of LGFV bond prospectuses from different regions in China in two different time periods. We find that current collateralization practices vary a great deal across bond issues and have changed over time, and discuss the legal and other problems attendant upon each type of backup. Remarkably, we find that unlike our initial sample of bond issues, recent bond issues virtually all state explicitly in the prospectus that they carry no security. Thus, the popular image of local governments wildly overpromising with guarantees they are not legally empowered to give seems, at least as far as recent bond issues are concerned, to be wholly wrong. This in turn calls into question the figures commonly provided for local government debt, since they often include LGFV debt that local government is neither legally nor morally obligated to pay. To be sure, they may wish to pay creditors voluntarily, but it is misleading to label as “debt” soft obligations of this nature. Creditors who have tried to force local governments to make good on their guarantees have uniformly failed, at most receiving half of what they sought. The argument that local governments have some politically enforceable obligation to pay on their guarantees does not seem supported by the evidence

China\u27s Legal System and the WTO: Prospects for Compliance

The impact of WTO membership both on China and its trading partners, both for good and for ill, has been greatly overstated. WTO treaty obligations and Dispute Settlement Body rulings will not become part of Chinese domestic unless specifically incorporated by Chinese legislation. Moreover, the WTO does not require a perfect legal system of its members; instead, it requires a degree of transparency and fairness in certain limited areas. Although some of China\u27s WTO commitments will be difficult for it to fulfill, even non-fulfillment will not result in the predicted flood of WTO dispute settlement proceedings, since such proceedings can be brought only by member governments with their own particular set of priorities, diplomatic considerations, and limited resources

Setting the Record Straight: Three Concepts of the Independent Director

Despite the surprisingly shaky support in empirical research for the value of independent directors, their desirability seems to be taken for granted in policy-making circles. Yet important elements of the concept of and rationale for independent directors remain curiously obscure and unexamined. As a result, the empirical findings we do have may be misapplied, and judicial gap-filling may be harder than imagined when legislative intent cannot be divined or is contradictory. This article attempts to unpack the concept broadly understood by the term independent director and to distinguish among its various concrete manifestations. In particular, I discuss the critical differences between independent, outside, and disinterested directors, arguing that these manifestations serve different purposes and should not be confused one with the other. This discussion is illustrated with examples from U.S. state and federal law as well as stock exchange regulations, and supplemented with comparative reference to the United Kingdom, Germany, and Japan, with a brief mention of Chinese practice as well. I also argue that the whole purpose of having independent directors is surprisingly undertheorized, leading to inconsistent rules, in particular regarding the effect of director shareholding, both across countries and within the United States

Puzzling Observations in Chinese Law: When Is a Riddle Just a Mistake?

Understanding the Chinese legal system is not simple because it is (probably) very different from a Western one. The understanding of the Chinese legal system that results from any study will depend crucially on the selection of a paradigm with which to define what counts as an observation and against which to measure and assess the observations, either descriptively or normatively. This is not to say that the selection of a paradigm will make the difference between understanding and not understanding. It will, however, make a difference between understanding in one way and understanding in another way. Whether one of those ways is better than another depends on how still more methodological issues are settled: the purpose that is to be served by the understanding that is sought, and whether that purpose is itself a valuable one. This paper explores the ways in which the Chinese legal system can be understood through the use, conscious or not, of different models, and in particular the phenomenon of what appear to be mistakes and aberrations in the system when we apply those models. I offer a particular way of modeling the Chinese legal system, and show how this way of modeling produces observations that can be explained only as errors or aberrations. I will then show how other ways of modeling would explain these observations as normal and expected phenomena. Finally, I will discuss the challenge these multiple ways of modeling pose to the analyst. A model that explains an observation as normal is not necessarily superior to a model that can only explain it as an error or an aberration: mistakes and aberrations do happen. Yet surely it is also intellectually satisfying to have a model of a set of phenomena that provides a plausible account of almost all of them