The Shenzhen courts, dealing with the “new normal” in China’s social and economic changes ahead of the rest of the country, often find current legislation and Supreme People’s Court interpretations inadequate to deal with the issues that come before them. Divorce law and shadow banking (loans made outside the formal banking system) are two types of cases inundating the Shenzhen courts (and yes, there is a connection).

At the end of last year, the Shenzhen intermediate court issued local court guidance (with an accompanying explanation–these are not “interpretations of law”), binding only on the Shenzhen courts, on two important issues:

• divorce;
• shadow banking.

In Shenzhen, which is wealthy and where women are relatively rights conscious (at least in divorce), the local courts found that existing rules failed to deal with the issues that came before them regularly.Some of those issues include:

• marital property (particularly rights to real property);
• the business that a couple may have built up together;
• children born outside the marital relationship, and
• issues relating to cross-border marriages.

As in so many areas of Chinese law, legislation lags behind social reality.  The 2011 interpretation by Supreme People’s Court of the Marriage Law, as it relates to marital property, has been controversial both inside and outside of China, as highlighted by many articles and books addressing the issue because it has meant that in divorce, women often lost possession to home(s) to which they or their parents had contributed substantial funds.This has been particularly true in Shenzhen. The local intermediate court highlighted that over 80% of the divorce cases that are heard locally involve disputes over real property.   In divorces, women have continued to argue that they should be awarded possession of the home.

Another issue leading to disputes in and out of the courtroom is the practice of some courts. when dealing with divorces, to split ownership of the family business. The guidance directs judges to consider the family law issues only, and have the division of the business considered in separate proceedings.  These rules also contain provisions relating to Hong Kong, where there are many cross border marriages and couples whose lives and property  crisscross  the border. The court guidance, besides setting out new legal rules, provides a deep dive look into what goes on in many local marriages, judging from the rules relating to children born outside of the marital relationship.

Shadow banking loans, which the Supreme People’s Court has finally recognized to be valid (if they meet certain conditions) constitute about 20% of civil disputes in the Chinese courts, according to President Zhou Qiang’s report to the NPC, and the numbers are even greater in Shenzhen.  In the court in the business district of Futian, for example, the statistics are as follows:

• 2012: 1153 cases;
• 2013: 1627 cases
• first half of 2014: 976 cases.

The court guidance in substance an answer to FAQs of the Shenzhen courts on  the following questions (and many more):

• what if the loan relates to a gambling debt?
• What if one spouse lends money to a third party without informing the other spouse?
• How can shadow banking be distinguished from the crime of illegal fund raising?
• What if the legal representative of a company loans out company money in his own name?
• What are the ceilings, if any on interest, penalties and other fees?

We can expect that the Supreme People’s Court will be monitoring the success of these rules in practice when issuing its next judicial interpretation in these areas.  And with the Supreme People’s Court Circuit Court (Tribunal) located in Shenzhen, it is likely that discussion of these issues occurs from time to time behind the scenes.