How the Supreme People’s Court Serves the Greater Bay Area Strategy

Photo taken on a bridge between Hong Kong and Shenzhen, 2018

In the run-up to the 25th Anniversary of the establishment of the Hong Kong Special Administrative Region, the Supreme People’s Court (SPC) issued a report on its work (Chinese only) in support of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) Strategy 2019-2022.  The report was republished on the website of the Liaison Office of the Central People’s Government in the Hong Kong Special Administrative Region (HKSAR)),  the Liaison Office of the Central People’s Government in the Macao Special Administrative Region (Macao SAR) and in mainland Chinese media. The lack of an English (and Portuguese) translation I attribute to the need to publish the report timely.

This report contains useful information for legal professionals in Hong Kong, Macao, and those beyond as it reveals issues and concerns in the area of civil and commercial law as relations between the mainland and the two SARs become closer through the GBA Strategy. For reasons of time, I am focusing my comments on the first two sections but the rest of the report merits analysis as well. My comments are in italics.

I. Political background

The opening sentence of the report states that the development of the  Greater Bay Area is a national strategy personally devised, personally planned, and personally driven by President Xi Jinping. The report sets out how the judicial functions of the courts serve and safeguard the construction of the GBA. The opening paragraph sets out some of the basic principles that the SPC is implementing, including “promoting the convergence (linkage) of judicial legal rules,  deepening judicial exchanges and cooperation among Guangdong, Hong Kong and Macao  (在推进粤港澳司法法律规则衔接,深化粤港澳司法交流合作).

The first sentence frames the political importance of the report and the work of the SPC supporting the GBA Strategy.

The SPC has issued many “judicial services and safeguards” documents setting out the role of the courts in supporting and promoting national strategies. Understanding these documents is important for understanding current issues in the Chinese courts as related to that strategy, as well as the future direction of judicial policy and related measures. This blog has analyzed quite a few of those “judicial services and safeguards” documents.  Of those many posts, GBA-related “judicial services and safeguards” documents are mentioned here and there.  The report sets out a list in the following section.

Section III will briefly address the judicial legal rules linkage and judicial exchanges and cooperation policies.

II. Mechanisms for implementing the GBA national strategy through the courts

The mechanism is “horizontal coordination and vertical implementation.”   The SPC established a GBA special working small group (专项工作小组) jointly composed of relevant SPC departments and the Guangdong Higher People’s Court (Guangdong High Court) The Guangdong High Court is the institution that has principal responsibility. It has involved all levels of the (mainland) Chinese courts.

It is the normal working practice of the SPC and other central institutions to establish working small groups to achieve important tasks that link across institutions.  It appears that a significant part of the GBA strategy involves implementing reforms within the mainland. It is not clear whether there are discussions among the Guangdong High Court and HKSAR and Macao SAR authorities on specific matters affecting the two SARs.  One assumes that to be the case.

The SPC has focused on promoting judicial cooperation mechanisms between the Mainland and Hong Kong and Macau, signed the “Meeting Minutes” (会议纪要) with Hong Kong and Macau on strengthening judicial and legal exchanges and cooperation, and instructed the Guangdong High Court and the Hong Kong Department of Justice (HK DOJ) to sign a “Guangdong-Hong Kong-Macao Greater Bay Area Legal Exchange and Mutual Cooperation Arrangement” (粤港澳大湾区法律交流与互鉴框架安排). 

It appears that the SPC is taking the lead on more major matters involving interactions with Hong Kong and Macao.  I have not been able to find all of the documents mentioned, however. It appears that this legal exchange and mutual cooperation agreement (dated 2019) should be added to the list of arrangements about which I wrote last year. I have not been able to identify the full text of this arrangement and would welcome a citation. Judge Si Yanli mentioned the Meeting Minutes and Mutual Cooperation Arrangement in her article published earlier this year.

To  implement “wherever the Party Center’s policy decisions are deployed, the judicial services of the people’s courts will be there”  (党中央的决策部署到哪里,司法服务就跟进到哪里), the SPC issued the following documents:

A version of the above slogan can be seen across central institutions, including the Central  Commission for Disciplinary Inspection, Sinograin, and the National People’s Congress.  SPC Vice President Yang Wanming has used a version before at a 2020 press conference, as I noted here.

  1. Opinion Concerning the Provision of Judicial Services and Safeguards for the Construction of the Guangdong, Hong Kong, and Macao Greater Bay Area 关于为粤港澳大湾区建设提供司法服务和保障的意见》I have not been able to locate this document.
  2.  Opinions of the Supreme People’s Court on Providing Support and Guarantee for Shenzhen to Build Itself into a Pilot Demonstration Zone for Socialism with Chinese Characteristics关于支持和保障深圳建设中国特色社会主义先行示范区的意见
  3. Opinions of the Supreme People’s Court on Supporting and Guaranteeing the Construction of the Guangdong-Macao In-Depth Cooperation Zone in Hengqin《关于支持和保障横琴粤澳深度合作区建设的意见》
  4.  Opinions of the Supreme People’s Court on Supporting and Guaranteeing Comprehensively Deepening the Reform and Opening-up of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone (关于支持和保障全面深化前海深港现代服务业合作区改革开放的意见)

I mentioned the latter three documents in earlier blogposts.

The Guangdong High Court, taking the lead in implementing GBA judicial policy, has issued a number of operational plans and assembled a list of reform measures.  The operational plan includes: 1. three-year operational plan for promoting the construction of the GBA (推进粤港澳大湾区建设三年行动方案);

2.  Three-Year Action Plan to Support Shenzhen in Building an Experimental Demonstration Zone for Socialism with Chinese Characteristics(支持深圳建设中国特色社会主义先行示范区三年行动方案)

3.  A list plus ledger of 46 reform measures “清单+台账”方式推动46项改革举措

Other measures that GBA-area  local people’s courts have taken:

  1. centralized trial of foreign-related, Hong Kong, Macao and Taiwan civil and commercial cases  (this is a theme in professionalizing the hearing of foreign-related cases);
  2. Trying out a trial model of “professional judges + Hong Kong and Macao jurors  + industry experts”; (it is not clear how much this is actually happening in the Covid era, with strict border controls still ongoing);
  3. Accumulate practical experience that can be promoted and replicated elsewhere such as the centralized jurisdiction of Hong Kong and Macao-related cases, separation of complicated and simple cases, and expanded application of laws.
  4. The Higher People’s Court of Guangdong Province has released 60 typical cases of cross-border disputes in the Guangdong-Hong Kong-Macao Greater Bay Area for three consecutive years, providing professional and clear legal guidance for parties in the three places. See my earlier blogpost on SPC typical cases.
  5. The Shenzhen Intermediate People’s Court established the first administrative trial center in the Mainland to implement centralized jurisdiction of administrative cases and took the lead in exploring the transfer of some administrative cases involving Hong Kong and Macao to the jurisdiction of grassroots courts. The People’s Court of the Guangdong-Macao Deep Cooperation Zone in Hengqin was inaugurated,

This last list of matters is highlighting the accomplishments of the GBA courts in implementing judicial reform, especially in mechanisms that can be replicated elsewhere in the Chinese court system.

III. Judicial Legal Rules Convergence and Judicial Exchanges and Cooperation Policies

Section 3 of the report addresses this topic, focusing primarily on what is termed judicial exchanges and cooperation policies (司法交流合作), mentioning that the SPC concluded three arrangements and one judicial assistance document (司法协助文件) with the HKSAR and two arrangements with the Macao SAR.  Because I have previously written about this topic in several earlier blogposts, I will instead focus on the topic of judicial legal rules convergence (linkage, 司法法律规则衔接). The report mentions very little about this.

As mentioned above, Judge Si Yanli published an article earlier this year (2022) in China Law Review(Research into Difficult Issues of Legal Rules Convergence in the Greater Bay Area, Focusing on the Diversified Dispute Resolution Mechanism as an Entry Point中国法律评论, 粤港澳大湾区法律规则衔接疑难问题研究——以多元化纠纷解决机制为切入点 ) with very useful insights for understanding what is meant by judicial legal rules convergence (linkage) and the areas of law that are under consideration. What she discusses in her article are not official statements of policy.

Among the many suggestions for rule convergence in her article are the following: concluding civil and commercial judicial assistance agreements between (or among) Guangdong, Hong Kong and Macao. Among the areas she suggests a GBA judicial assistance agreement would be useful is the service of process and creating a mechanism bringing the entire process online. She also suggests that the three jurisdictions cooperate in areas of law outside of the arrangements that have been reached, such as inheritance and intellectual property.  She also suggests that Hong Kong and Macao invested entities in the GBA be able to choose Hong Kong or Macao law for contracts and Hong Kong or Macao arbitral institutions for arbitration. Note that an article on the website of the Hong Kong Department of Justice mentions that this is being piloted. 

Judge Si very usefully proposes a GBA agreement on the enforcement of mediation agreements that would draw on the Singapore Mediation Convention, discussing the many obstacles in the way of that occurring, including gaps in Chinese (mainland) mediation legislation.  Hong Kong official media has reported on work on GBA mediation platform, with ongoing work on mutual recognition of qualifications, accreditation, and mediator code of conduct.

————-

 As I have previously commented, the judicial (and more broadly, the legal) aspects of the GBA merit more attention than they have received thus far.  But understanding the documents of the GBA has its challenges. As mentioned previously,  some documents have not yet been made public.  The larger challenge in understanding them for local Hong Kong (and I assume Macao students) is that it requires the reader to be familiar with the language of (mainland) Chinese official documents.   

The GBA is likely to have an impact on the careers of at least some students in the GBA area law schools, including my own students at the Peking University School of Transnational Law (in Shenzhen), as well as in Hong Kong’s and Macao’s three law schools, so I look forward to some group of students taking up the challenge.

_______________________________________________________

Finally, I will post occasionally & shorter blogposts from now on, while I work on several articles that have deadlines this summer.

 

Rebuilding the Court Funding Mechanism After Recent Reforms

SPC list of winners of the Ram City Cup for judicial reform essays

This post is a lengthy summary/incomplete translation of an article entitled 省级统管后法院经费保障机制再造 (Reconstruction of the Court’s Funding Guarantee Mechanism after Provincial Administration)by Fan Lisi (范丽思), a judge of the Wuhou People’s Court, Chengdu, Sichuan Province. Judge Fan was one of the first prize winners in the 2020  “Ram City Cup” competition for articles on judicial reform, administered by the Supreme People’s Court (SPC)’s judicial reform office.  People’s Justice (人民司法) published her article in 2021. Many thanks to Guo Ran, a current Tufts student, and Tina Chen ( 陈雨茗), an Oxford undergraduate for assisting with the translation/summary. I have included some explanations in square brackets [].  I have omitted most of the charts/graphics.  I welcome corrections to the summary/abridged translation and comments.

Based on her review of data from multiple provinces/directly administered cities, the author shows that the reform of funding the courts at the provincial level (cited as one of the successes of the judicial reforms in several English language academic articles) has been a failure. The reforms make the local courts even more dependent on local financing. She explains why that happened. 

I surmise that 2022 will be an even more challenging year for court budgets in many areas, as provincial/local budgets are under greater stress because of testing for Covid-19, decreased income from land sales, and less tax revenue because of lockdown-related downturns in business activity. 

She looks at other court financing models abroad and discusses a topic I have rarely seen mentioned in the academic literature about the Chinese courts (certainly in English–I don’t claim to be as familiar with the Chinese academic literature)–separating the judicial and administrative functions. I have had discussions with several persons previously affiliated with the SPC on this issue.  She proposes that the SPC establish a finance committee and that local courts establish counterpart institutions. Drawing on her research on Chinese court funding and that of other jurisdictions, she proposes a new model.  I cannot claim any expertise on this and will not comment on the practicability of her proposal. 

Introduction

The role of the people’s courts in national governance has changed.  Judicial authority has transformed into a central power from a local power  [司法事权属性已由地方事权转变为中央事权]. The transformation of the courts’ functions requires a mechanism for guaranteeing funding that matches the operation of judicial power. The provincial unified administration reform in 2014 saw the beginning of the current funding guarantee mechanism reform. [This reform was part of the 4th Five-Year Judicial Reform Plan]. But after five years of pilot practice, the provincial unified administration has not achieved its established goals of “de-localization,” “de-administratization” [去行政化] and “balanced judicial supply power  (均衡司法供给力).”  It is necessary to reflect on the reasons for the failure of the provincial unified management reform, clarify the theoretical components [应然内涵] of the court funding guarantee mechanism, identify the situational variables affecting the choice of reform tools, and “reload “the reform toolbox. Based on provincial unified management, China should build a court funding guarantee mechanism that follows judicial principles [规律]  and financial management principles, so as to effectively solve the problem of financial resources for the operation of the judiciary and assist in constructing modern social governance in China based on the rule of law.

Number

Problems that the Reform aimed to resolve

Solution provided by the Reform

Underlying judicial value

1

Who is paying (the money)?

The source of funding is raised to the provincial level of administration, altering from local finance departments to provincial finance departments.

To allow the courts to gain independence economically from local governments, removing localized variants and guarantee judicial independence.

2

Who is responsible for the distribution and management of the money?

The main body of funding is raised to the provincial level. Funding used to be distributed and managed by local financial departments is now subject to provincial financial departments.

To eliminate regional differences within the same province, and to realize the standardization of judicial services through standardizing financing capacity of the courts.

3

How is the total amount of funding determined?

Fixed-base budget: The reform uses the total amount of funds before as the “base;” the base will only be raised but not reduced.

Institutionally secure the “guaranteed amount” of legal funding, overcome the problem of arbitrariness in determining the total amount of funding in the previous years, and establish a benign dynamic growth mechanism of funding

4

To whom is the power of reviewing budgets vested in:

Governmental budgeting department with limited power to review: provincial finance departments delegate the power to conduct initial review of budgets to provincial courts. They will then sum up the subordinate courts’ budgets and conduct initial review of their reasonableness and compliance. Then the provincial finance department will submit them among other departmental budgets to the provincial People’s Congress.

Develop the court’s function of funding management, make use of the higher court’s knowledge of the lower courts, and enable the higher courts to fully participate in the lower courts’ budget filing, review, and coordination processes

I.  Benchmarking review: Evaluating the practical effectiveness of provincial unified management

The provincial unified management of court funding attempts to centralize the administration of court funding at the provincial level. Cout funding was previously an obligation of local government on the same administrative level as the local court. The reform aims to break the previous local court fund management pattern, reshaping the relationship between courts, administrative agencies, and Party and government agencies, which has had an impact on the autonomy and fairness of the local courts.

To analyze the success of this reform, the author selected the 2019 and 2020 budget and final accounts data of 1,535 basic-level courts (data from 14 provincial-level jurisdictions: Tianjin, Jiangsu, Guangxi, Hunan, Jiangxi, Inner Mongolia, Guizhou, Hebei, Shaanxi, Shanghai, Guangdong, Beijing, Shanxi, Yunnan. She reviewed the following data:

  1. basic-level court department’s budget,
  2. final accounts public statement, and
  3. people’s courts’ financial statistics analysis system

and analyzed key indicators such as :

  1. source of funding,
  2. average cost of each case
  3. average public expenditure per case, and t
  4. growth rate of case-handling operational funds, etc. 

A. The reform has not eliminated local court dependence on  government at the same level

The study presented the following findings:

(1) Shifting the source of court funding has not completely freed the local courts from depending on local governments.

The current judicial reform centered on withdrawing court funding from the government-led horizontal model of bureaucracy and removing the function of allocating or transferring funds from governments on the same administrative level through institutional reforms, which in turn removes the possibility of the judiciaries colluding with governments on the same administrative level to solicit funding. After the transformation into provincial unified management, the judiciaries’ funding will mainly be composed of provincial finance; governments on the same administrative level will cease to allocate funds to the judiciary.

By examining the funding income structure of the sample courts in 2020, the study found that, out of 741 courts that have been reformed, 249 still relied on funding from governments on the same administrative level, which comprised 43.22% of the courts’ total funding.

In the case of some local courts in Shanxi and Hebei province, the percentage could even reach 87%.  Funding from government on the same administrative level compensates for the lack of funding for:

  1. labor costs;
  2. office administration;
  3. facilities procurement; and
  4. general maintenance,

Labor costs are the largest proportion, at 63.05%.

From the above data, it is clear that nearly 33.6% of local courts have not yet completely detached from local governments financially, even after the reform.

 B.  Raising the funding guarantee to the provincial level has not significantly improved unequal financial supply capacity

 Balanced judicial finance is the necessary condition for standardized judicial services. One of the objectives of the provincial unified management reform was to ensure that the public has equal access to judicial services of equivalent quality and quantity within a province, by arranging courts’ funds on a provincial level.

The equalization of financing provision capacity is a sensitive indicator. In order to obtain a concrete observation of this indicator, the author has selected “public expenditure per case” and “cost per case” to reflect, respectively, the ability to finance “administrative affairs” and “enforcement of courts’ decision”….

Suppose we reflect on the tools adopted by the provincial unified management plan. In that case, we could explore the problems in tool selection and application with the existing reform and establish useful precedents for a new funding guarantee mechanism.

C. The policy requirement of a guaranteed minimum funding does not necessarily produce a sustainable dynamic increase in the courts’ funds.

In “Framework Opinions on Several Issues of Judicial System Reform Pilot” (referred to as “Framework Opinions”)  issued by the Central Leadership in 2014, it was stated that after the implementation of the provincial unified management reform the total amount of funding must not decrease, however, this minimum requirement does not suggest a sustainable increase in funding. Among the sample courts, 711 courts experienced growth in the number of cases heard in 2018.

Through comparing and analyzing the growth rate of cases heard and the growth of overall funding in handling cases, it was found that in 66.67% of the courts the growth rate of overall case funding was lower than the growth rate of cases heard; among them, 55.13% of the courts even had a decrease in case funding when the number of cases heard had increased; the courts that been reformed had a comparative advantage in terms of the increase of funding in cases. Among the 237 courts that saw equivalent or higher growth in case funding than cases heard, there was almost a fifty-fifty division between reformed and unreformed courts. (See the figure below)

D. The power of provincial courts to manage funds continues to be marginalized.

Under the institutional framework of “One Government, One Committee and Two Courts”, [government, the supervision commission, the courts and procuratorate] judicial independence manifests in the division of labor rather than independent authority from the government.

However, a mode of leading and being led, managing and being managed is formed between the local courts and government on the same administrative level, through the mediation of the fiscal relationship. The provincial unified management reform hopes to rebalance the power constraints between the provincial court and governmental departments, through the practice of restoring an interactive relationship between the courts and government, by developing the courts’ own financial management capacity and transferring the power to manage funds from government to the courts.

But the four management models developed in the process of promoting the reform have been found to be problematic in their own respects: the direct management model (adopted by 57.15% of the reformed courts) tends to marginalize the managing power of provincial courts, and local courts will communicate directly with provincial fiscal departments; in the assisted-management model (adopted by 38.1% of the reformed courts), although the provincial courts are involved in the management process, their role is reduced to that of a megaphone, with no substantial power of their own; the model of entrusting municipal management of court funds does not achieve the reform objective of transferring the fund management power to the provincial courts; the trusteeship model, in which the provincial treasury delegates the daily management of funds to the provincial courts, is only an expedient measure to fill up the absence of the provincial government’s financial management capacity. It is also worth noting that only one province has adopted this model.

Therefore, it can be concluded that the provincial courts have not taken up the power of allocating funds as the reform expected, and have again ended up being marginalized in fund management.

II. real-world problems: dissecting the failure of provincial management reforms

Reason 1: lack of capacity to financially supply at the provincial level inhibits the local courts from becoming financially independent from local governments

The ideal plan, according to the provincial unified management reform is that the local courts should be funded only by the provincial treasury. This is a completely novel expenditure for the provincial budget and can only be financed through increased provincial revenue. However, a comparative analysis of the increase in the courts’ budget against the incremental revenue increase at the provincial level suggests that almost all provincial-level finances are unable to satisfy such a large increase in funding demand: Tianjin, Guizhou, Beijing, and 10 other regions have experienced a reduction in provincial-level revenues compared to the previous year, and it is simply impossible to spare funding for local courts when existing provincial needs remain difficult to satisfy.

Jiangxi, Yunnan, and Guangdong Province have less than 1.8 billion Yuan of increase in revenue to finance their own budgets, which is far less than the funding needs of local and provincial courts. Even in economically developed regions such as Shanghai and Beijing, budgets were further contracted compared to the previous year, with arranged courts’ budget revenue accounting for less than 2% of the provincial budget. The same lack of financial supply capacity can be observed. (See Table 2)

The lack of financial supply capacity on the provincial level has forced the courts to continue fundraising with the local governments. In the process of fundraising, the local courts will now have to communicate on the one hand with the provincial finance department for more funding, and on the other hand with the local government to compensate for the lack. Having to communicate simultaneously on two administrative levels increases the costs of fundraising for the courts. A further difficulty since the reform lies in the fact that, facing the funding applications from the local courts, the local government can decline their requests using the reform as a legitimate excuse, by saying that the courts have now “completed the provincial unified management reform”, increasing difficulties in fundraising, and potentially deepening local courts’ dependence on local governments.

Reason 2:

The reform asked for formal unified management on the provincial level, while failing to bring about substantial unity in expenses, resulting in the continued imbalance of financial supply capacity within provinces. Firstly, provincial unified management suggests standardization, however, in reality, local standard in labor and public funds still persists, while the funding for case-handling remains insufficiently supplemented. Secondly, the reform also demands unity in expenses, i.e. the amount of funding from provincial expenditure to the local courts should be standardized. But the reality is that the provincial finance department simply required local governments to report the total funding allocated to local courts before the reform, and use this figure as a criterion to budget for local courts for the year. Some provinces with limited capacity to guarantee funding even require the local finance departments to transfer this amount upward, before the provincial finance department then transfers the funding to the courts, so as to achieve formal unified management. Provincial finances in this process did not take effective means to coordinate and adjust the funding budgets to balance the substantial expenditure, and the status quo of having huge gaps in financial capacity among the courts within provinces has not been significantly improved.

Reason 3:

There is a tension between the self-expansionary nature of court funding and the principle of necessity, which prevented court funding from increasing alongside the expansion in courts’ capacity to handle cases. The idea of public finance in principal-agent theory conceptualizes the government as a “trust fund” established to serve the public interest of society, whilst recognizing that the government’s natural tendency of self-expansion may create excessive demand for financial power. Therefore, in order to curb the government’s urge to abuse public finance, budgeting should follow the principle of necessity.

The courts, however, while budgeting for their own expenditures, tend to be self-expansionary: justice is the highest normative value of judicial activities; when justice and economic efficiency are in tension, cost-effectiveness has to come second. Fair and just judicial activities must be backed up by adequate and stable financial resources. However, when reviewing court budgets, finance departments usually follow the principle of necessity and reject the demands to increase budgets alongside the expansion of judicial activities, while the courts themselves have no effective means to reject this practice.

Reason 4: The absence of legislation and policies leads to the lack of legitimacy in the expansion of courts’ power to manage funds

It was clearly stated in “Framework Opinions” that it aims at “the establishment of a provincial unified management mechanism”, i.e. the department responsible for managing courts’ funding is the provincial finance department. The revised budget law in 2018 defines the budget as “public actions involving revenue and expenditure”. The statute did not specify for the normative standard of judicial actions involving revenue and expenditure, which suggests that the state has recognized, on a legislative and policy level, the subordinate status of the court budget in relation to the total public budget. The relationship between the finance department and the courts constitutes a de facto managing-and-managed relationship. Although having provincial courts participating in the management of funds allows for the decision-makers to make informed decisions, the whole process is made difficult due to the lack of legitimacy in the expansion of power.

III. Theoretical reflection on the reform’s “toolbox”

A. The normative components and theoretical toolbox of the court funding guarantee mechanism

Before introducing a theory to transform the court funding guarantee mechanism, it is necessary to clarify its normative outlook. The author examined changes in the PRC’s court funding guarantee system since 1949 and its counterparts in Japan, the U.K., and the United States. She concluded that the court funding guarantee mechanism must determine four core issues in varying political and economic environments: the source of funding, the court funding administrator, the method of ascertaining court budgets, and the authority to review court budgets.

1. The source of funding, or who pays the money

Judicial services maintain social order and justice through the resolution of specific disputes. It is both a private product that protects the legal interests of individuals and a public product that provides legal services to the state. Therefore, when ascertaining the source of funding, there are two available sources, namely, the state and the litigating parties. In cases where the state provides court funding, two sources are available–central government finance and local government finance–depending on the financial condition of each government.

Due to the centralized nature of unitary states, central government finance tends to be the funding provider in unitary states such as Japan and the United Kingdom. On the other hand, the federal countries tend to fund the court through local government finance. For example, the U.S. state courts are financed by state funds. Some other courts are also funded by the litigating parties. The British civil courts, for example, are funded by the case acceptance fee. Although China is a unitary state, Chinese local courts have historically been funded by local government finance because of the country’s vast territory, significant regional differences, and limited central financial resources.

2. The court funding administrator, or who manages and distributes funding

Generally speaking, whoever pays for the funds naturally controls the allocation and management of the funds, so the funding provider is usually the guarantor of court funding. The central government finance is guaranteed by the central government, and the local government finance is guaranteed by local governments. This one-to-one correspondence is particularly prominent during the historical variations of China’s court funding mechanism.

To prevent undue government interference in judicial fairness, many countries have enacted laws or other institutional arrangements that grant the court funding administrator a high degree of independence from the government that provides court funding. For example, in Japan, the Supreme Court is mainly responsible for funding management; the United Kingdom and the United States have set up an independent judicial administrative department for this purpose. Depending on the funding provider and its dynamic interaction with the court, the author identified four main administrators of court funding–the central government, the local government, the Department of Judicial Administration, and the courts.

3. The method of ascertaining court budgets, or how to determine the total amount of funding

Figuring out the quantity of budgetary funds helps the judiciary to secure the resources necessary for it. To ascertain court budgets, there are three methods to choose from: “fixed amount method”, “fixed percentage method”, and “incremental budget increase method”. The four periods of China’s funding guarantee model all rely on the fixed amount method or its modifications, as it is operationally the easiest; the fixed percentage method is more often used in Latin American countries. However, it is not accepted by the mainstream because one cannot quantitatively test and justify the set percentage; the incremental budget increase method, which is the most responsive to the needs of the courts, is used in the United States and the United Kingdom.

4. The authority to review court budgets, or who has the power to review and revise the court budget during budget declaration and approval

Depending on the level of detail that the executive branch reviews court budgets, there are three types of budget review authority: “government departmental review”, “independent review”, and “government departmental review with limited power”. In the government departmental review model, the court budget is a sub-system of the government budget. The government finance department has the strongest scrutiny and involvement in the courts’ budget. In the independent review model, the courts are relatively independent, and the finance department has the weakest scrutiny of the court budgets. The court budget is filed, reviewed, and revised within the court system or by an independent judicial funding management authority. The government has no substantive right to review or revise the court budgets. In the “government departmental review with limited power” model, the court has a say and could participate in the budget review process, but the ultimate review power still lies within the finance department. The model is a compromise between the first two models, but is essentially more inclined to the government departmental review model.

Summary: By comparing the application of the four major types of guarantee tools during various reform periods and in different political entities, the author concluded that the choice of reform tools in the “toolbox” is closely related to the national financial situation, political institutions and the role and function of judicial power in society. The reform plan of court funding guarantee should fully consider the influence of situational variables including political, economic and judicial power. It should also accurately identify the role and function of courts in the national governance structure. To fill the reform “toolbox,” it should choose the appropriate combination of the above 13 tools.

B. Reflections on the problems with the existing reform

Having clarified the reform’s normative outlook and theoretical toolbox, it is necessary to reflect on the tools adopted by the provincial unified management plan. In this way, we could explore the problems in tool selection and application with the existing reform and set up useful precedents for a new funding guarantee mechanism.

1. Confusions in tool selection: the unclear boundary between judicial authority and administrative authority in the judiciary

The unclear boundary between judicial authority and administrative authority in the judiciary has led to the inappropriate mixing of reform tools for judicial funding and judicial administrative funding. Judicial authority refers to the court’s authority to try and legal supervision on behalf of the state, while the administrative authority in the judiciary refers to the power to manage personnel, property, technical equipment and other administrative affairs of the judiciary for the purpose of supporting judicial authority.

The two kinds of authority are essentially different in forms, functions, and substantive contents. The operation of judicial authority should follow the judicial principles and stress judicial independence; the administrative authority in the judiciary should follow administrative principles and stress subordination within the administrative hierarchy. However, in the provincial unified management reform, the two authorities have been confused as the same court functions. The funds for case handling and court facilities, which represent the operating costs of judicial power, and the personnel and public expenditure funds, which represent the operating costs of administrative affairs, are placed in the same guarantee model. The choice of various reform tools has failed to differentiate between the operation of the two powers.

2. Reflection on the choice of tools: the court’s role and function remain unclear, resulting in the deviation of tool choices from the reform’s values

Historical changes in the court’s funding mechanism have shown a continued evolution of the court’s functions. The court’s role in society and the state determines the Party’s policy arrangement of court funding: if the court serves to resolve specific cases and disputes within its jurisdiction, then the court exercises local affairs; as the judicial responsibility should match with the court’s power of finance, the court should be financed by local government. If the court serves to promote the rule of law in social governance at the national level, then the court should be financed by the central government.

Since the founding of the PRC, the court’s role has shifted from a means to an end to an end in itself; from “a political means to realize revolutionary goals” to “a manifestation of value in improving the political system.” The court’s function has been elevated to the level of “providing the foundation of the rule of law for national development.

Accordingly, the court should be funded by the central government. The provincial unified management plan has been aware of the public service provision function of judicial products. It has also established values  such as“de-localization” and “ameliorating the regional divergence in financial supply capability.” Nevertheless, since it still viewed the court’s main role as the settler of specific disputes, the source, and management of court funding remained on a provincial level after the reform, which partially contradicted the reform’s goal of de-localization.

3. Reflection on the application of tools: the insufficiency of financial resources hindered the intended application of tools

The foremost issue of funding reform is to figure out “where the money comes from.” As the leading reformer, the court did not control economic resources. Therefore, when faced with significant financial supply shortages on a provincial level, the reformers sought to avoid the risk of failed reforms. They came up with a compromised but effective method: the courts on each administrative level cooperated with local finances to determine a base amount of funding, which must be no less than the pre-reform amount. The local governments on the same administrative level would then transfer the funding to the provincial treasury, which would then distribute funding to local courts through transfer payments.

This process formally satisfies the requirements of provincial unified management and that the court funding remains no less that the current level. It also seems to push forward the reform. However, the local governments on the same administrative level remained deftly as the actual source of funding. The provincial courts were deprived of the possibility to coordinate the arrangement of provincial funds. The end result of the reform completely deviated from its original intention of shifting the main body of funding guarantee up to the provincial level.

4. Reflection on the implementation of tools: insufficient political resources leads to the lack of internal motivation to enact and push forward the reform tools

The court funding guarantee mechanism reform seems to be a reform within the judiciary. However, because China’s court funding system is decentralized and deeply intertwined with politics, the reform would not only involve a reconfiguration of legal institutions and their respective functions. It would also require adjustments to China’s contemporary legal principles. In practice, both the local financial departments and the provincial financial departments held a passively cooperative attitude toward the reform initiatives, resulting in the initiatives’ weak implementation nationwide compared with other reforms of the judicial system.

The court funding guarantee mechanism reform seems to be a reform within the judiciary. However, because China’s court funding system is decentralized and deeply intertwined with politics, the reform would not only involve a reconfiguration of legal institutions and their respective functions. It would also require adjustments to China’s contemporary legal principles. In practice, both the local financial departments and the provincial financial departments held a passively cooperative attitude toward the reform initiatives, resulting in the initiatives’ weak implementation nationwide compared with other reforms of the judicial system.

 IV. Tool Re-selection: the remaking of the court guarantee mechanism around “separation of the judicial and administrative authorities”

Having reflected on the reform toolbox, the author concluded that the new funding guarantee mechanism should abide by the principle of “separation of the judicial and administrative authorities.” Accordingly, it should apply different funding guarantee mechanisms for judicial and administrative fundings in the judiciary. It should also re-select the source of funding, the funding guarantee administrator, and the reviewer of judicial funding budgets. The reform should also establish a dynamic growth mechanism for court funding centered on the average cost per case.

A. A general change of plan: from single-center provincial unified management to a unified management model based on the judicial-administrative separation

Xi Jinping pointed out that “the judicial power is fundamentally a central governmental affair.” According to the principle that the administrative power should match with the financial expediture responsibility [根据事权与财政支出责任匹配的原则], the main body in charge of judicial expenditure should be the central government. The judicial funding should thus be included in the central government budget and managed by the central government management mechanism yet to be established.

On the other hand, as the judicial administration includes judicial personnel, property, legal infrastructure construction and maintenance, and party and political-administrative affairs, it manifests interactions between the local courts and governments. Compared with judicial power, judicial administrative power demonstrates a clear local feature. Therefore, it should continue with the provincial unified management model, with its funding mainly provided by provincial finance and supplemented by the transfer payment from a national and provincial level.

B. Changing the source of judicial funding: establishing a special fund for judicial activities to guarantee stable funding

The central government finance should collect the litigation fee revenue from all courts nationwide and set up a special fund for judicial expense for case-handling. It should also establish five basic rules to fully implement the “separation of revenue and expenditure” requirement – unified revenue collection and expenditure, earmarking, limitation on carryover and balance surplus, managing surplus/shortage, and auditing and supervision – which would, in principle, prohibit mixing judicial funds with administrative funds. In this way, it provides a stable source of revenue for the central finance to guarantee court case-handling expenditure:

Firstly, litigation fees are capital costs charged by the courts in providing judicial products and services to the litigating parties. Its main purpose is to compensate for the material costs of service provision. Therefore, the use of litigation fee revenue to compensate for the cost of case-handling is justified and reasonable. Secondly, the analysis of the sample courts’ financial data shows that the total litigation fee revenue in 2019 was 27,830 billion Yuan, and the total expenditure on case handling and equipment was 22.266 billion yuan. The litigation fees exceed the court’s case-handling expenditure by 0.25 times, so it is realistic to compensate the case-handling cost with the litigation fee revenue.

In addition, it is necessary to clarify that the use of litigation fee income as a source of financial guarantee for central finance does not violate the principle of “separation of revenue and expediture.” Nor does it mean a rollback to the “revenue generation era” at the cost of litigating parties.

Although the litigation fee is collected by the court, it goes directly into the central treasury. The central treasury is responsible for both the management and expediture of litigation fees after collection, not the courts themselves. This solution is thus in line with the principle of “separation of revenue and expenditure.”

Additionally, through reasonable institutional arrangements, the funding distribution is not linked to the local courts’ amounts of litigation fee revenue. The courts at all levels thus lose the original motive to increase allocated funds by generating more litigation fee revenues.

C. Reforming the court funding administrator: setting up an independent professional institution responsible for the management and allocation of funds.

The Supreme People’s Court should set up a judicial fund management committee. The committee should consist of professionals in charge of managing the judicial funds, which should include financial budget management experts, personnel assigned by the Ministry of Finance, and audit experts. 

Specifically, the committee should: communicate on behalf of the Supreme People’s Court with the central finance department and the National People’s Congress and its Standing Committee; collaborate with the Ministry of Finance to design a set of regulations on judicial fund management and budget filing; be responsible for the budget collection and review of lower courts; be responsible for the budget declaration and responding the questioning of higher administrative institutions; assume internal supervision responsibilities; establish a special inspection system that regularly monitors the exercise of judicial funding.

The provincial courts should set up funding management committees that consist of budgeting, auditing, accounting and other professionals as well as the personnel appointed from the provincial finance departments. The committee should be specifically responsible for communicating with the funding management committee of the Supreme People’s Court, managing and allocating the judicial funds below the provincial level, communicating with the provincial finances, and managing and allocating the judicial administrative funds below the provincial level.

D. Changing the method of determining judicial funding budget: establishing a dynamic budget adjustment mechanism around the average cost per case.

The early stage of the reform: the average cost per case varies from place to place; some courts’ case-handling expenses are intertwined with public expediture of varying amounts; the court financial personnel varies in their professionality; and some financial data lack credibility. To solve the problems, the total amount of funding can be temporarily determined as the sum of the previous year’s case-handling and equipment expenses. The funding can float with the growth or decline in the number of cases handled in the next years.

Trial run phase: Strictly enforce the absolute one-way barrier [单向绝对壁垒]  between judicial and administrative funding; constructing IT infrastructure [信息化建设] under the supervision of the Supreme People’s Court, so that the quality control of data information could improve.

Formal operation phase: After 3 to 5 years trial run, the judicial funding should have basically eliminated administrative funding, and the quality of data should have been effectively guaranteed. Then, the government would collect historical funding statistics and local development indicators and determine key elements such as “the average cost per case,” “the proportion of case categories,” “case growth expectation,” and “local economic development indicators.” In this way, the government could construct a system of indicators and a dynamic funding adjustment mechanism around the average cost per case.

E.  Inheriting and improving the budgetary framework [预算权归属工作]: establishing a judicial budget system led by the judicial fund management committee.

As a legal basis to modify the court budget status in the existing budgetary model is lacking, the court funding reform must be restrained by the governmental sector budget model. Both judicial and administrative funding should also follow the basic principles in the current budget law. However, the Supreme People’s Court judicial funding management committee and provincial court judicial funding management committees could participate in the design, review, and auditing of budget rules. The committees could set up institutional arrangements such as restricting the finance departments’ right to delete or edit court budgets during the review process. In this way, it could effectively exclude undue interference from the administrative branch.

Conclusion

The funding guarantee proposal based on “the separation of judicial and administrative funding” is a problem-oriented one. It also reflects the strategies adopted by the provincial unified management reform. By transferring the litigation fee to the newly established judicial funds in the central government, the proposal could provide sufficient and stable financial resources for the centralized provision of judicial funding; by decoupling judicial funding from provincial finance, the proposal could reduce the provincial financial burden and effectively alleviate funding shortages; by establishing a dynamic adjustment mechanism for judicial funding, which centers around the average cost per case, the proposal could effectively balance the judicial financial supply capacity nationwide; by establishing judicial funding management committees and other professional organizations to participate in the funding management, the proposal could provide an institutional basis for empowering the courts. The funding guarantee model attempts to solve various problems faced by the current reform from the real-world application perspective and thus has a strong practical value.