What the Central Economic Work Conference means for the Chinese courts

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©China Daily

The day after the Communist Party Central Committee’s Central Economic Work Conference concluded, the Supreme People’s Court’s (SPC’s) Party Committee held a meeting to study the “spirit of the Central Economic Work Conference.”  According to SPC President Zhou Qiang, the Central Economic Work Conference has the following takeaways for the courts:

First, adhere to strict and impartial justice, and create an open, transparent and predictable rule of law business environment 

Among the points– “We must insist on protecting the lawful rights and interests of Chinese and foreign parties equally according to law and building a more competitive international investment environment.”

Note, of course, that the foreign chambers of commerce in China have other views of the current state of the business environment at the moment, but agree that rule of law, transparency, and predictability are critical for improving China’s economic performance.  The following is from the European Union Chamber of Commerce in China’s  Business Confidence Survey 2016 

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AmCham China: “Respondents now cite inconsistent regulatory interpretation and unclear laws as their No. 1 business challenge.”

Second,  use the rule of law to actively promote the supply side structural reform

Zhou Qiang called on the lower courts to work better on bankruptcy cases, give full play to the role of the information network of bankruptcy and reorganization of enterprises, actively and safely deal with “zombie enterprises”, to optimize the allocation of resources to resolve the excess capacity.

But actually, bankruptcy cases remain fraught.

According to SPC Senior Judge Du Wanhua, charged with making bankruptcy law work better, in China bankruptcy requires a unified coordination mechanism  with government and courts, under Party Committee leadership.

In recent high profile corporate bankruptcies, such as LDK Solar, the local governments say that they cannot afford to rescue the companies, and so the burden must fall on creditors. The LDK case has drawn complaints from bankruptcy practitioners that the local government-led restructuring was designed to force banks to swallow the losses. Another lawyer commented that local governments’ intervention in bankruptcy cases has often disrupted their fairness.

It is likely that we will see more developments in 2017 concerning bankruptcy.

The third is to further increase the protection of property rights

Among the points Zhou Qiang made:

  • We must strengthen the protection of property rights of various organizations and natural persons;
  • We should have the courage to correct a number of mistaken cases concerning infringement of property rights.

These statements relate to three documents issued in late November and early November on protecting property rights, linked to the Central Committee/State Council’s November 4 document on the same topic, following the document issued in late October (and describe in my recent blogpost). They include:

All three relate to (well-known) abuses of China’s justice system, including:

  • turning business disputes to criminal cases (a risk for both Chinese and foreign businesses);
  • courts freezing assets far exceeding the amount in dispute (this is one example);
  • court confiscating the personal property of the entrepreneur and his (her) family, failing to distinguish between corporate and personal property;
  • courts failing to give parties opposing freezing or confiscation order a chance to be heard;
  • courts failing to hear disputes between government and entrepreneurs fairly.

The first document (apparently drafted by the SPC Research Department, because its head explained its implications at the press conference at which the first two documents were released) repeats existing principles that state-owned and private litigants, Chinese and foreign litigants should be treated equally.  It repeats existing principles that public power must not be used to violate private property rights.

The Historical Property Rights Cases Opinion (apparently drafted by the SPC’s Trial Supervision Division, because its head explained its implications at that press conference) calls on provincial high courts to establish work groups to review mistaken cases and to avoid such tragedies in the first place, focusing on implementing the regulations restricting officials from  involving themselves in court cases and the judicial responsibility system.

The third document seeks to impose better controls on the use of enforcement procedures by the lower courts.

Comments

It is hoped that these documents can play some part in improving the quality of justice in China, despite the difficulties posed while the local courts remain under local Party/government control, and may lead to the release of unfairly convicted entrepreneurs and the return of unfairly confiscated property. Perhaps these documents may provide some protection to local judges seeking to push back against local pressure.  On the historical cases, the SPC Supervision Division should consider appealing to current or retired judges who may have been involved in these injustices to come forward (without fear of punishment), as they likely to be able to identify these cases. A defined role for lawyers would also be helpful.

On the equal protection of enterprises, it should be remembered that the SPC itself has issued documents that give special protection to some parties, such as “core military enterprises.”

It appears that these documents respond to the following:

  • years of criticism of  differential legal treatment of and discrimination against private entrepreneurs;
  • academic studies by influential institutions on the criminal law risk faced by private entrepreneurs;
  • Downturn in private investment in the Chinese economy;
  • Lack of interest on the part of private enterprise in private-public partnerships;
  • Increase in investment by private enterprise abroad, most recently illustrated by the Fuyao Glass investment in Ohio;
  • articles such as this one describing Chinese entrepreneurs as either in jail or on the road to jail.

Fourth, proactive service for the construction of “one belt one road” 

This section repeats many of the themes highlighted in the SPC’s earlier pronouncements on One Belt One Road (OBOR or Belt & Road), the maritime courts, and foreign-related commercial developments. The Chinese courts continue to grapple with the increased interaction and conflicts with courts in foreign jurisdictions. The OBOR jurisdictions are handicapped by a dearth of legal professionals with familiarity with the Chinese legal system.

We should expect to see more developments directly or indirectly linked to OBOR, including a more standardized approach to the judicial review of arbitration clauses.

Fifth, strengthen the judicial response to the risks and challenges of the economy

Among the issues that President Zhou Qiang mentioned

  •  Internet finance;
  • Internet fraud;
  • illegal fund-raising and other crimes;
  • real estate disputes;
  • cases involving people’s livelihood, increasing the recourse of migrant workers and other cases of wage arrears.

These are all ongoing, difficult issues for the courts. Legislation does not demarcate clearly the line between legal and illegal forms of financing as discussed here. Migrant workers, particularly in the construction industry, are often not hired under labor contracts but labor service contracts, which reduces their entitlements under the law. As the Chinese economy continues to soften, it is likely that complex real estate disputes (of the type seen in 2015) will burden the lower courts.

We are likely to see further developments in these areas.

President Zhou Qiang told the courts to make good use of judicial “big data” to detect trends and issues so the courts can put forward targeted recommendations for reference of the Party committee and government decision-makers. He has made this point repeatedly recently.

For foreign observers of China, judicial big data is in fact a useful source of indicating trends across the Chinese economy, society, and government.  This blog has flagged some analyses, but there is much more than can and should be done.

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