Foreword: The Rocky Road Toward the Rule of Law in China: 1979-2000
Foreword: The Rocky Road Toward the Rule of Law in China: 1979-2000
James Hugo Friend 0
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The Rocky Road Toward the Rule of
Law in China: 1979-2000
James Hugo Friend*
Just over twenty years ago, in the spring of 1979, the Inaugural Issue of
the Northwestern Journal of International Law & Business appeared.'
JILB, as the publication has come to be called by the law school
community, became the third legal publication at the School of Law 2 amid great
expectations. The conceptualization and realization of JILB was an arduous
two-year process. Fresh from a first-year summer internship at a law firm
in Paris, I was enthusiastic about the ways that the rapidly evolving world
was changing modes of international law and commerce. Thus, I set out to
write a detailed proposal to create an international law journal at the School
of Law. Unlike most of the international legal publications of the day,
* B.A. Stanford University, 1975; J.D., Northwestern University School of Law, 1979.
Founding Editor-in-Chief, NorthwesternJournalofinternationalLaw & Business.
21ISneeadgdeintieornaltloy 1thNewJ.oJu.rINnaTl'LofLI.n&teBrnuast.io(1n9a7l9L)a.w and Business, the other legal
publications at the School of Law are the Northwestern UniversityLaw Review and the Journalof
Cri3mSieneaglLeanweraanlldyCMreimmoinraonlodugmy. from James H. Friend to Dean David S. Ruder (The
memorandum, entitled The Establishmentof the Northwestern InternationalLaw Journal,offered
which addressed public international law, the publication I envisioned
iwnoteurlndathioanvael aledgiafflepreronbtlseumbsstaasnttihveeyfaofcfuesc,t "ptrhiveaatenaelnytsiitsieos.f' Atransnational and
After months of relentlessly lobbying a supportive Dean David S.
Ruder5 and sympathetic key members of the law school faculty, JILB was
finally granted approval at a meeting on April 18, 1978.6 As the founder
and first editor-in-chief of JILB, I had to produce results. I had no editors
or staff and not a single article had been solicited. We did not even have an
office. Indeed, JILB was a virtual legal publication long before the term
The challenge was formidable and there was no time to lose. A flurry
of meetings occurred, editors and a staff were selected and we set about our
task. Dozens of letters soliciting articles and "Perspectives"8 for
publication were sent out, in several languages, to top international legal scholars,
diplomats, businesspersons and other luminaries from around the world. We
savored acceptances and endured rejections. In several key instances, we
even managed to convince important recalcitrant authors to reconsider their
The Inaugural Issue was a hefty 348 pages and had 17 impressive
entries. It included important articles by noted professors of international law
and legal practitioners. We also published a number of Perspectives by
authors including Senator Frank Church, the Chairman of the Committee on
Foreign Relations of the United States Senate; David Lord Hacking, an
eminent member of the House of Lords of the British Parliament; and
Baron Edmond de Rothschild9 , whose storied family name has conjured
images of international business intrigue for centuries.
a detailed proposal for an international law journal at Northwestern) (Oct. 10, 1977) (on file
with4 Jaaumtheosr)H. ugo Friend, Forward,I Nw. J. INT'L L. &Bus. i, iii (1979).
5The author would like to acknowledge the support of former Dean David S. Ruder,
whose open mind, encouragement and faith in the law school student body helped to bring to
fruition the JournalofInternationalLaw &Business.
6See Letter from David S. Ruder, former Dean ofthe Northwestern University School of
Law, to students of the Law School, (announcing that the faculty voted to approve the
creation of an international law journal with James H. Friend as its Editor-in-Chief) (Apr. 19,
1978) (on file with author).
7We eventually got one, a 15' by 15' room with a typewriter and a file cabinet.
8In addition to the traditional law review-style articles written by international legal
scholars and practitioners, our goal was to have an interdisciplinary analysis of the
international commercial, legal and economic affairs of the day from a wide range of contributors
including legal scholars and practitioners. We wanted to bring in the perspectives of
experienced business persons, diplomats, legislators, politicians, economists and clergymen. As a
result, the editors created a new category of submissions called a "Perspective," which was
designed to be shorter and less in-depth than a law review article but which would permit us
to bring to our readers the important insights of other actors on the international stage.
9See 1Nw. J. INT'L L. &Bus. 1-45 (1979).
The Inaugural Issue also had a timely and prescient symposium on
China entitled "Questions of Law Arising From the Recognition of the
People's Republic." The symposium had articles by three top scholars of
Chinese law and U.S.-China relations, Jerome Alan Cohen, the Director of East
Asian Legal Studies at Harvard Law School; Victor Li, Shelton Professor of
International Legal Studies at Stanford Law School; and Stanley Lubman, a
prominent practicing attorney widely recognized as an expert on law in the
People's Republic of China ("PRC").'0 The China Symposium was
inspired by the United States' recognition, just a few months earlier, of the
PRC as the sole legal representative of the nearly one billion people living
in China and by Deng Xiaoping's "Open Door" policy, which promised to
open Chinese society and its immense markets to the world. In retrospect,
the year 1979 was a watershed in the history of Chinese commercial
relations and the development of the rule of law in China.
This Twentieth Anniversary Issue of JILB again has a symposium on
law in China entitled China Revisited: Examining the Rule of Law After
Twenty Years." The impetus for the 2000 China Symposium is the
unprecedented integration of China into the world economic community,
evidenced by China's imminent entry into the World Trade Organization
("WTO"). 2 The road to China's integration into the WTO was paved by
the U. S. Senate's recent vote, "the most significant advance in U.S.-China
relations since President Nixon's 1972 visit,' 13 which grants
nent normalized trade relations without annual CongressioCnahlinraevpieerwm.a'-4
Although the Senate approval was expected, the overwhelming margin of
'0 Jerome Alan Cohen, China'sChangingConstitution, I Nw. J. INT'L L. & Bus. 57-121
(1979); Stanley B. Lubman, New Developments in Law in the People'sRepublic of China, I
Nw. J. INT'L L. & Bus. 122-133 (1979); Victor H. Li, The Law ofNon-Recognition: The
Case of Taiwan, 1Nw.J. INT'L L. & Bus. 134-162 (1979).
" We are indeed fortunate to have a timely and insightful article in this issue on Chinese
law reform from Stanley B. Lubman, a contributor to the Inaugural Issue's China
Symposium in 1979. Professor Lubman is a Consulting Professor of Law at Stanford Law School
and a recognized authority on law and legal institutions in the P.R.C. Professor Lubman's
article Bird in a Cage: ChineseLaw Reform After Twenty Years begins on page 383.
121t once appeared that China would be admitted to the WTO in the year 2000. See
Helene Cooper and David Rogers, Senate PassesBill to Normalize U.S. Trade Relations
with China, WALL ST. J., Sept. 20, 2000, at A2. However, it now appears that the range
and complexity of the issues related to China's admission, including China's granting
sufficient access to its markets and making the necessary judicial reforms, are too great to
overcome this year. See WTO Talks End in Disagreement, S. China Morning Post Internet
Edition, Sept. 29, 2000 (visited Oct. 6, 2000) <http://special.scmp.com/Template/PrintArticl
e.as1p3>S.ee Cooper and Rogers, supranote 12.
14See Eric Schmitt, Senate Votes to Lift Curbs on U. S.Trade with Beiing; Strong
BipartisanSupport, N.Y. TIMES, Sept. 20, 2000, at Al; David E. Sanger, Opening to China:
News Analysis; New Realism Wins the Day, N.Y. TIMES, Sept. 20, 2000, at Al; see also
Cooper and Rogers, supra note 12; Helene Cooper and David Rogers, China Passes Final
Test: Senate, WALL ST. J., Sept. 20, 2000, at A2.
83 to 15 was not, highlighting the fact that a strong majority of legislators
and Americans support normal and mutually productive commercial
relations with the PRC. With China still at the forefront of vital issues relating
to international law and commerce, no topic is more pressing and
appropriate to mark JILB's twenty years of publication than a second symposium
addressing the evolution of the rule of law in China and its impact on
commercial transactions with China.
A traveler to China in 1979 found a very different country than the
China of the year 2000. On my first visit to China that year, most men and
women in the street wore the ubiquitous Mao suits and travel to most parts
of China and even within the major cities was severely restricted. The
Chinese students and other citizens whom I met were wary of expressing
themselves in the wake of the Cultural Revolution and the notorious Gang of
Four excesses. 15 Hanging over the Tiananmen Gate, which leads to the
Forbidden City, was a larger-than-life picture of Chairman Mao, who most
Chinese still revered like a modern day emperor or father figure.1 6 In 1979,
trade and business with China were nearly unheard of and few Chinese ever
imagined that they would be permitted to engage in capitalist endeavors.
Visitors to the major cities of China today see young people dressed in
colorful and individualistic outfits, much like their contemporaries in Japan,
Europe, and the U. S. Women wear make-up and sport modern hairstyles,
short skirts, and high heels. Men wear neckties and western suits, t-shirts
with the names of American sports teams, Nike sneakers, and baseball caps.
Chinese Children in Beijing eat Happy Meals at McDonalds and read about
the adventures of Harry Potter. Adolescent Chinese girls swoon over
Chinese-American tennis player Michael Chang and young Chinese boys want
to be like Michael Jordan. Western films are popular and widely accessible.
Tens of millions of Chinese people receive entertainment and information
via radio and television. The picture of Mao Zedong remains, but his
legacy and deified status have been severely reduced. Capitalism and making
money, once scorned, have become acts of patriotism. Today, graduating
Chinese students at top technical universities take lucrative jobs with
multinational companies like Intel, Microsoft, IBM, Oracle, Hewlett Packard and
Compaq. Every day Chinese businessmen and women send millions of
emails and faxes to their counterparts around the world. Cell phones
abound throughout China. In an era of electronic commerce,
micro15The wariness was well founded. See JONATHAN D. SPENCE, THE GATE OF HEAVENLY
PEACE 408-413 (1981) (the case of democracy activist Wei Jingsheng). Regarding the
Cultural Revolution and The Gang of Four, see generally JOHN KING FAIRBANK AND MERLE
GOLDMAN, CHINA: A NEW HISTORY 383-405 (enlarged ed., 1998) and JONATHAN D. SPENCE,
THE6SEARCH FOR MODERN CHINA 565-586 (1999).
1 By 1979, Mao's veneer was beginning to crack and criticism of him and his
introspective and provincial policies and outlook was commonplace. See Spence, supra note 15, at
359-363; see also Fairbank and Goldman, supra note 15, at 406.
technology and the Internet, information flows quite freely and the Chinese
leadership seems to have accepted the fact, however grudgingly, that the
genie is out of the bottle and cannot be put back.
Although a considerable volume of legislation was promulgated during
the Mao period, the legislation was actually Chinese Communist Party
("CCP") policy masquerading as law. A discussion offazhi, or the rule of
law, in modem China really begins in 1979, the year that Deng Xiaoping
initiated his Open Door policy. The policy opened China's doors to foreign
trade, technology and investment.17 The economic changes that occurred in
the ensuing 20 years constitute the greatest economic transformation of a
nation in history, during which China "was transformed from an isolated,
poor, rural, and politically turbulent country into a relatively open, stable,
urbanizing, and modernizing country." 18 For Deng, the implementation of a
program of economic reforms was among the highest priorities of the CCP.
He and the Chinese leadership knew that China could not attract large
amounts of foreign capital from abroad without at least creating the
impression that China had endeavored to establish a predictable legal framework
to accompany its economic reforms. Although much progress has been
made, the dramatically different notions of the role of law in society
between China and the West have made that goal far more elusive than some
might have expected.
The concept of law in China is quite different from the West and raises
fundamental questions of whether China can establish a legal system based
on the independent and autonomous rule of law.1 9 In Western societies, law
is an end in itself, above and separate from government. The law protects
the rights of citizens and permits those citizens to shape their conduct in the
knowledge that the law will be applied fairly, consistently and predictably.
However, in China law is considered a tool of the omniscient CCP to
achieve its goals, such as economic reform. In China, law follows policy
rather than having an independent status. In fact, one scholar notes that the
notion of a law that is supreme, even over those who exercise power,
"would be inconsistent with the hegemony and charismatic prestige on
which the legitimacy of the Chinese Communist Party leadership is
17See Fairbank and Goldman, supranote 15, at 413; JOHN KING FAIRBANK, THE GREAT
CHIN18EFSaEirRbEaVnOkLaUnTdIOGNo3ld4m2-a3n6,0su(1p9r8a6n).ote 15, at 406. See generally James Fewsmith,
Reaction, Resurgence, and Succession: Chinese Politics since Tiananmen, in THE POLITICS OF
CHINA: THE ERAS OF MAO AND DENG 472, 529-530 (Roderick MacFarquhar, editor, 2d ed.,
1998), for more discussion on this point.
1 Robert C. Berring discusses the history and future of law in China in his article
Chinese Law, Tradeand the New Century,beginning on page 425.
2aSee Yuanyuan Shen, Conceptionsand ReceptionsofLegality, Understandingthe
Complexity of Law Reform in Modern China,in THE LIMrrs OF THE RULE OF LAW INCHINA 20, 30
(Karen Turner, James V. Feinerman, and R. Kent Guy eds., 2000)
At the same time, the totalitarian regime that Mao created, which was a
significant obstacle to the rule of law, has steadily declined. 21 An equally
important development has been the decline in the power and role of the
central government in the creation, implementation and enforcement of law
and policy. Whereas during the Mao era all authority was vested in the
central government and provincial or local governments had little
decisionmaking authority, today a much more decentralized decision making
process exists. Due to China's immense size and economic diversity, the central
government no longer has a stranglehold on the provinces. For example,
the inhabitants of Shenzhen identify far more with Hong Kong than they do
with Beijing, and the CCP has chosen to cede significant local authority to
the provinces in order to effectuate its economic reform goals. In the
1990's, and particularly since Deng's death in 1997, the absence of a leader
with the authority and prestige of a Mao Zedong or a Deng Xiaoping has
hastened these developments. The new leadership, faced with the option of
a return to the politics of fear and repression or the continuation of the
policies of economic reform that have produced unprecedented economic well
being in China, fortunately has chosen the latter.22 Whether this
development will lead to a stronger, more predictable legal system is unclear, but
the reality of a decentralized Chinese political and legal model is
Although law in China today continues to have little independent
reality outside of the political directives of the CCP, important changes have
occurred in the period since 1979. The large volume of legislation that was
passed was necessary to allow the economy to evolve from a planned
economy to a marketizing economy. Since China passed its first law governing
foreign investment and foreign joint ventures in 1979,23 the range and
breadth of new civil and commercial legislation has been quite remarkable,
including major substantive legislation governing companies, 24 contracts,
tax, bankruptcy, banking, labor, and intellectual property.
To be sure, the volume of legislation passed in China in recent years
does not in and of itself mean that the courts and the legal system are any
stronger or that the rule of law has taken hold. During the Cultural
Revolution, the Chinese court system was decimated and became effectively
nonfunctional. Although the courts were reconstituted under Deng, the judicial
21See STANLEY B. LUBMAN, BiRD IN A CAGE: LEGAL REFORM IN CHINA AFTER MAO 2
(1999); see also ANDREW J. NATHAN, CHINA's TRANSrrION 231-245 (1997).
22See JOANNA WALEY-COHEN, THE SEXTANTS OF BEuNG 279 (1999).
2 See Access China, Law of the People'sRepublic of China:Sino-ForeignJoint Venture
Law24(AAnpyriula4n, Y19u9a0n) d(visicsiutsesdesSethpits. 3is,s1u9e9i9n) d<ehpttthp:/i/nwhwiswa.arcticcelessFchoirneai.gconmD/isrineocetIqn.vhetmst>m.ents in
China-PracticalProblemsof Complying with China's Company Law and Laws for
Foreign25-ISneveesgteendeEranltleyrLpuribsmesa,nb,egsiunpnriangnootne p2a1g,eon47th5i.s point.
system continues to have serious flaws. Judges frequently use "ideological
discretion" to achieve a "correct" ideological result which is consistent with
CCP policy. This is not only legal in China but is actually mandated by the
1982 PRC Constitution.26 In addition, uniformity of result is uncommon
and does not seem to be a goal of Chinese judges. Indeed, Chinese courts
have become more "law-applying" institutions than "law-making"
institutions and "have been more concerned with substantive justice than with
ensuring uniformity of results or with developing general rules of application
with each adjudication. 27 While the number of lawyers and legal
personnel in China has increased dramatically, and the number of civil cases heard
by Chinese courts nearly tripled to six million between 1990 and 1997,28 the
quality of legal education for lawyers and especially judges 9 is severely
lacking. Moreover, the courts are overburdened, corruption remains
rampant, notions of legal and judicial 3e0thics are primitive and bribery to effect
judicial outcomes is commonplace.
Most observers agree that while progress has been made in the civil
law in China, the criminal law and the criminal justice system have been
least affected by the economic reforms3. I Notwithstanding the willingness
of the CCP to relinquish control in other areas, criminal law and procedure
continue to be highly politicized. This all stems from a paranoiac fear,
carried over from the Mao period, of any challenges to the political authority
of the CCP and the state. Whereas during the Mao era perceived political
enemies were labeled "counter-revolutionary," today the leadership has
invented a new, equally insidious vocabulary to vilify and ostracize feared
groups such as the Falung Gong religious sect. The corruption of the
Chinese criminal justice system extends far beyond political crime. Innocent
citizens often find themselves the victims of heinous criminal acts with no
legal recourse whatsoever. The harrowing account of a recent vicious
attack by local thugs on Wu Fang, a village woman from Fenghuo village in
northwestern Shaanxi province, and her unsuccessful attempts to seek
justice in a corrupt Chinese judicial and political world, is but one sad
example.32 The pervasive corruption throughout the Chinese criminal justice
system is a serious problem, with significant human rights implications.
Unfortunately, there seems to be little likelihood of improvement any time
The Internet age is changing China in profound ways, although exactly
how is hard to monitor or predict. Centralized authority and an ironclad
control over the flow of information have characterized China's modem
history. The current leadership is having a hard time coping with a world in
which economic reform and development are inextricably linked to the
Internet. There has been much speculation about how the Chinese
leadership--and indeed all totalitarian regimes-will deal with the nearly
impossible task of balancing economic reform, which requires the use of
information technology, with the desire to stifle political dissent. The
Chinese leadership knows well that the Internet has the potential to become a
kind of Democracy Wall in cyberspace. However, the leadership also
seems to understand the grievous economic consequences of restricting
Internet and e-commerce access. The schizophrenia of the leadership
regarding the flow of information and the Internet makes determining the
government's position on these issues confusing. For example, in August
of 2000, Chinese President Jiang Zemin, speaking at an international
conference in Beijing, strongly endorsed the Internet and its possibilities for
China's future, saying that e-mail, e-commerce, distance learning and
medicine would transform China. "Indeed, Jiang appeared to accept the
inevitability of free information flows," and made only passing references to
political concerns that have affected the Internet's development in China.33
But less than 60 days later, China issued strict, bureaucratic and draconian
rules holding Internet companies liable for any content that appears on their
sites that "damages the reputation of China" or discusses "cults. 3 4 The
enforcement of this edict in a modernizing China where only one percent of
the population has access to the Internet is daunting. Enforcement in an
ever more prosperous behemoth with a population approaching 1.5 billion
inhabitants, whose widespread use of the Internet seems inevitable, is hard
Enforcement of the laws is another serious problem in China. One
example is the well-publicized controversy over the widespread violation of
intellectual property laws in China. Despite government promises to police
the sale of pirated copies of DVD's, videos, and computer software, which
are sold openly throughout China with impunity, no meaningful progress
has been made.35 The extent of the problem took a comical turn recently
33See JiangEndorsesInternet, With Some Limitations,CHICAGO TRIBUNE, Oct. 22, 2000,
at 63.4See Matt Forney, Net Firms in China Wait ForImpact ofNew Rules, Regulations May
Affe3c5tSFeeorgeeignnerWaellbyIJnavneeslltemeBnrto, wASnI,ANCaWnAaLLPeStTi.tiJo.,nOScilte.n4c,e20C0h0,inaat'3s.MP3 Pirates?(visited
when pirated copies of an anti-corruption film called "Life-and-Death
Choice," which was made by the CCP to fight corruption, were shown
illegally in state-run cinemas in many provinces. 36 Toughs working for the
cinema owners beat up police officials sent to enforce the law. Another
timely example of the failure to enforce copyright law is the rush to market
by the publishers of the Harry Potter children's books to beat pirates who
were "making a killing. 37 These examples and hundreds of others raise
real and serious questions about the enforcement of intellectual property
law in China.38 If the Chinese government cannot enforce the law to protect
its own intellectual property, how will it ever do so for third parties?
Moreover, if China is admitted to the WTO, how will it be able to comply
with the comprehensive WTO standards that are required of WTO
Law, politics, and business are inextricably linked in China. Due to the
pervasive role of the State and the Party in economic affairs, doing business
in China entails, on some level, doing business with the Chinese State. This
interdependence of government and business has been a controlling factor
in doing business with the PRC since 1979 and continues to be so today.39
Through the People's Liberation Army ("PLA"), the People's Armed Police
("PAP"), and other governmental and quasi-governmental agencies, the
Chinese government owns thousands of commercial companies that
manufacture, distribute, and sell products ranging from toys, clothing, shoes,
textiles, and household electrical appliances to computers, image processing
equipment, and navigational devices. PLA subsidiaries own a civilian
airline and operate a sideline commercial shipping fleet.40 Although the
cussing music piracy in China); Jonah Greenberg, Linux in China: Not Ready for Prime
Time, Why Should the Masses Bother with FreeSoftware When Stealingfrom Microsoft is
PracticallyPatriotic? (visited Oct. 10, 2000) <http://www.salon.com/tech/feature/2000/08/
09/linuxChina/index.html> (discussing software piracy in China).
36See Craig S. Smith, Piracya Concern as the China Trade Opens Up: Ability to Protect
Cop37ySriegehPtsointtDeroDubistp,Nel.sYQ. uTaiMlmEsS,oOncPt.o5l,it2ic0a0l0C,aotrrWe1c.tness,S. China Morning Post Internet
Edition, Oct. 7 2000 (visited Oct. 7, 2000) <http://www.scmp.com/news/China/Article/
38Daniel C.K. Chow discusses this issue in depth in his article Enforcement Against
Counterfeitingin the People'sRepublic of China,beginning on page 447.
39The role of governments in commercial activities was an important theme at the time
ofthe publication of the Inaugural Issue. In my Forward to the Inaugural, Issue, I noted that:
Today, the interdependence of government and business is greater than at any time in history. Each
must coordinate its policies with the other because their decisions affect one another. So vital is the
economic, trade and business component in present day international affairs that many foreign states,
in the West as well as within the socialist bloc, are engaged actively in traditionally private and
commercial matters such as the production and marketing ofproducts.
4F0rSieened,KseuvpinraPnloattet, 4C, haitnieiis.e Army's "Private"Business, Christian Science Monitor, June
Communist Party announced in 1997 that state-owned industries were to be
privatized and massive amounts of assets were precipitously removed from
state control,4 1 the effort to place those assets into the hands of private
commercial entities has not been rapid, smooth or complete. The State
continues to play an outsized role in the commercial affairs of the country.
This widespread role of the Chinese State and the CCP in economic affairs
has strongly affected the rule of law in China.
Another important factor affecting economic and legal reform in China
is the role of overseas Chinese in the Post-Mao Chinese economy. For
centuries, large numbers of Chinese sojourners, or huaqiao as they came to
be called, had been leaving China's port cities to find a better life in Hong
Kong, Taiwan, countries throughout Southeast Asia and, more recently, in
Australia and North and South America. These overseas Chinese,
predominantly from the Guandong and Fujian provinces in southern China,
settled in diverse areas of the world, built businesses, and went into the
professions, establishing lives for themselves and their families.42 In some
cases, overseas Chinese businessmen made large fortunes.43 As China
opened itself to commerce with the West under Deng, many overseas
Chinese, due to their strong emotional and cultural ties to their ancestral
homeland, as well as to their linguistic and cultural familiarity with China,
desired to make investments in China. In the 1980's and 1990's, Deng
Xiaoping recognized the value of this educated, skilled, experienced and
well-capitalized Chinese Diaspora and encouraged them to invest in
China.4 With Deng's encouragement, many prominent and
not-soprominent overseas Chinese responded enthusiastically, investing literally
billions of dollars of capital in China and accounting for 80% of the
investments in post-Mao China.45 This savvy population, whose fortunes had
been made in places with sophisticated and predictable legal systems like
Hong Kong, Singapore, Taiwan, and the United States, had expectations not
Kathryn Culley, How China'sArmy Stocked American Shelves, Christian Science Monitor,
June 3, 1998 (visited Oct. 10, 2000) <http://www.csmonitor.com/durable/1 99 8/06/03/p 8 sl.h
tin>4.1See Fairbank and Goldman, supranote 15, at 415.
42 See generally WANG GUNGWU, THE CHINESE OVERSEAS, FROM EARTHBOUND CHINA TO
THE QUEST FOR AUTONOMY (2000) and FRANCIS L. K. Hsu & HENDRICK SERRIE, THE
OVERSEAS CHINESE: ETHNICITY IN NATIONAL CONTEXT (1998), for more discussion on
43The long list of successful multinational companies founded and owned by overseas
Chinese includes Acer Computers, Creative Technology, Shangri-La Hotels, Formosa
Plastics and Singapore Airlines. See GEORGE T. HALEY, CHIN TIONG TAN, & USHA C.V. HALEY,
NEW ASIAN EMPERORS: THE OVERSEAS CHINESE: THEIR STRATEGIES AND COMPETITIVE
ADVANTAGES 24 (1998).
44Mao had earlier rejected offers in the 1950's by prominent overseas Chinese to make
investments in the P.R.C. See Fairbank and Goldman, supra note 15, at 413.
45See Fairbank and Goldman, supranote 15, at 413-414.
only of profitability but also of legal protections for their significant
investments. The demands placed on the Chinese leadership by this powerful
population to improve the rule of law in China may be hard to quantify, but
no doubt has been an important factor in the ongoing evolution of the
Chinese legal system.
How do foreign investors and multinational corporations doing
business in China view the Chinese legal system and the general business
environment? Many multinational corporations, which have committed
significant capital and human resources to China, have had generally
positive experiences. An example is Coca-Cola, which has begun to realize
impressive profits after years of patience and perseverance.46 Scores of others,
however, have little or no profitability to show after years of effort and are
coming under increasing pressure from their home offices to produce
profits. 47 Their ability to do so relates directly to the viability of the capital
markets and the ability of the Chinese leadership to make good on promises
of economic and legal reform that will be mandated by the WTO.
Opinions are mixed among foreign investors about the potential of new
Chinese debt and equity issues. On the one hand, in the first nine months of
2000, China raised more than $9 billion in international equity issues4 8 and
foreign investment has averaged more than $40 billion a year for the past
five years.49 At the same time, however, many seasoned China market
watchers, who saw the high flying 1996 and 1997 "red chip" H-share issues
traded on Hong Kong exchanges plummet to 20% to 25% of their value,
question the wisdom of investing in Chinese companies seeking to raise
debt and equity capital in the international public markets. They cite poor
and inexperienced management and a failure to maximize profitability and
shareholder value as reasons for caution. "Why would you buy a piece of
paper from some country when the entity issuing it is not for profit, run by a
bunch of bureaucrats with no prior experience-no one you would
hirewith no rule of law, or representation on the board?" questions one
pessimistic hedge fund manager5. 0
Many foreign investors and multinational corporations share this
pessimistic viewpoint. After experiencing the Chinese judicial system
firsthand, they are appalled by the pervasive influence of guanxi, or local
relationships, the lack of fair treatment received by outside litigants, and the
arbitrariness and unpredictability of the system. There are numerous
exam46See Coca-Cola's Net Income Jumps 36%: Growth in China Helps Boost Revenue, Wall
St. J4.7,SOeect.Ia2n0,Jo2h0n0s0o(nv,isBiteedinOgcNt.e2e0d,s2t0o0C0)o<mwpwlewte.Pwrsoj.mcoimse>d.Reform Slate If Money Is To Be
Ma4d8eS,eWe AJoLeLLSeTah. yJ., aMndayR2ic5h,a2rd00M0,caGt rAe2g1o.r, Sinopec Joins List of Giant Chinese
Privatisation4s9:SLeaeuJnochhnsCoonm,essupArmaindotOep4ti7m. ism on Economy, FINANCIAL TIMES, Oct. 19, 2000, at 20.
50See Leahy and McGregor, supra note 48.
ples of parties that have fallen victim to a system that systematically favors
local, Chinese litigants over outsiders. These litigants not only find the
procedural process fundamentally unfair to foreign parties but also
complain that the substantive law is so unclear that a fair and predictable
interpretation of the law is nearly impossible. Moreover, if a foreign litigant
does achieve a judgment in its favor, the enforceability of that judgment by
a local Chinese court is extremely difficult, unnecessarily time consuming,
and often ultimately unsuccessful. l So widespread is this enforceability of
judgments issue that local courts often pursue a policy of mediation
between parties rather than litigation in order to increase the likelihood of
enforceability of judgments.5 2 Some multinationals, relying on high-priced
legal advice and naively believing that the Chinese legal system was far
better developed than it is, have suffered to their signifi5c3ant economic
detriment. Some have even pulled out of China altogether. Despite the huge
markets and enormous potential, if multinational corporations are not
making acceptable profits with a sufficient degree of legal protection for their
current and contemplated capital investments, they may reassess their
willingness to invest capital and human resources in China.
An important question is whether the evolving Chinese legal system
will benefit Chinese citizens and Chinese companies. To be sure, the
booming Chinese economy has not only benefited foreign investors and the
wealthy. From 1979 to 1999, per capita income in China quadrupled, albeit
from an extremely low base in 1978 of about 132 Yuan, or $66. 54 In the
1990's peasants were permitted for the first time since the Communist
Revolution to leave their villages in search of economic opportunity in
urban areas and the Special Economic Zones.55 Moreover, Deng's declaration
that "to get rich is glorious" validated capitalist endeavors and unleashed a
torrent of entrepreneurial enthusiasm. This created a flourishing private
sector at the local level that has changed the face of China. As these
burgeoning entrepreneurs grow their businesses and re-invest their equity
capital in the Chinese economy, they too will require a reliable legal
system, based increasingly on the rule of law, which addresses the commercial
rights and needs of this new mercantile class.
So what have we learned about Chinese legal institutions and the rule
of law in twenty years? Has the Open Door policy lived up to its promise?
51See Lubman, supranote I I.
Can the Chinese legal system keep pace with the growing Chinese economy
as China enters the 21st century and joins the WTO? Will Chinese citizens
benefit from the economic and legal reforms that are promised by the CCP?
Will multinational corporations come to regard the Chinese legal system as
one characterized by the rule of law or the rule of man? Will criminal
defendants ever receive justice free of arbitrary political intervention? Of
course, only time will tell. But pressure on the legal system to grow and
improve at all levels continues and the trend is encouraging. In fact, while
infrequent, a small number of cases have been decided in favor of private
litigants and against the state or the Party. 6 Although primitive by western
standards, "law has gained more importance than it has ever possessed in
Chinese history. 57 As Stanley Lubman observes in his article herein,
"when I wrote [in the Journal of International Law & Business] in 1979, it
was easy to summarize the state of Chinese legal institutions because they
were so sparse."58 In the intervening 20 years, the legal framework in
China has undergone an extraordinary degree of growth and the future
promises continued expansion. During the same period China has
transformed itself into a world economic power that cannot be ignored. And
many thoughtful observers believe that in the not too distant future China
will become a powerful military presence and possibly a menace to Western
interests. We can only hope that as China grows economically and
militarily, it will attain a genuine rule oflaw, separate from government influence,
and that the China Symposium in the 2020 edition of JILB will report many
56See William P. Alford, Law, Law, What Law? Why Western Scholars of China Have
Not HadMore to Say about its Law, in THE LIMrrs OF THE RULE OF LAW IN CHINA 45, 53
(Karen Turner, James V. Feinerman, and R. Kent Guy eds., 2000)
5587SSeeee LLuubbmmaann,, ssuupprraannoottee 2111..
26See Margaret Y. K. Woo , Law and Discretion in Contemporary Chinese Courts, in THE LwIIITs OF THE RULE OF LAW INCHINA 163, 170 (Karen Turner , James V. Feinerman , and R. Kent Guy eds., 2000 ).
27Id., at 163-164.
2 See Lubman, supra note 11, for an examination of this subject. For an earlier view of law and the legal profession in China, see generally VICTOR H. LI, LAv WITHoUT LAWYERS: A C2O9MSePeARATIVE VIEW OF LAW IN CHINA AND THE UNITED STATES ( 1978 ).
Margaret Y. K. Woo , Law and Discretion in Contemporary Chinese Courts, in THE LIMITS OF THE RULE OF LAW IN CHINA , supranote 26 , at 167.
3 See id ., at 169.
31See generally Lubman, supranote 21, for elaboration on this point.
32See Terry McCarthy Xian , Taking on the System , TIME (visited Oct. 9 , 2000 ) <http://w vw.cnn.com/ASIANOW/time/magazine/2000/1009/coverl.html>.
52See id .
53Leontine D. Chuang's article ForeignInvestment in China'sTelecommunicationsMarket: Reflections on the Rule of Law and Foreign Investment in China, beginning on page 509 looks at this issue in depth.
" See James Fewsmith , Reaction, Resurgence, and Succession: Chinese Politics Since Tiananmen,in THE POLITICS OF CHmNA: THE ERAs OF MAO AND DENG, supranote 18 , at 529- 530; Fairbank and Goldman, supranote 15 , at 406.
55See Fairbank and Goldman , supranote 15 , at 414.