cover sheet for this document
For many years, one of major issues for the Chinese court system has been that enforcing a judgment is difficult (there is scholarship on whether that is in fact the case). Supreme People’s Court (SPC) Justice Liu Guixiang, however, interviewed in January, 2016, noted that the number of cases involving unsatisfied judgments rose from 3.4 million in 2013 to 4.8 million in 2015 and said “The problem of some litigants escaping enforcement by transferring or hiding properties is still serious.”
For this reason, resolving difficulties in enforcement (执行难), one of the Chinese courts’ “three difficulties,” is one of the performance targets for the SPC’s judicial reforms. The 4th Five Year Court Reform Plan calls for “establishing a legal system for credit supervision, deterrence and punishment of those not fulfilling judgments against them.” The document analyzed in this blogpost fulfils that performance target and is an important building block in the construction of China’s social credit credit system.
The document analyzed is a long memorandum of understanding (MOU) concluded by the SPC and 43 other central institutions and issued in late January, 2016. It is not the first time that Chinese government institutions have used MOUs, but it appears to be the largest one of its type. The document builds on previous work by the SPC in linking its judgment debtor database with other regulators, described in an earlier blogpost. It appears that the SPC’s Enforcement Bureau, headed by Justice Liu Guixiang, head of the #1 Circuit Court, took the lead in negotiating it. He provides more background on the SPC’s enforcement efforts in this interview.
This (much longer than usual) blogpost looks at what entities are a party to the MOU, what type of document it is, what it does, and one report on how it is being implemented and issues that it raises.
The 44 cooperating institutions include government, Communist Party institutions, a public institution, and a government controlled non-profit organization, listed below in the same order as the document itself:
National Development & Reform Commission (NDRC), SPC, People’s Bank of China (PBOC), Central Organization Department, the Central Propaganda/Publicity Department, the Central Staffing Commission (SCOPSR), Central Guidance Commission on Building Spiritual Civilization, Supreme People’s Procuratorate (SPP), Ministry of Education (MOE), Ministry of Industry & Information Technology (MIIT), Ministry of Public Security (MPS), Ministry of State Security (MSS), Ministry of Civil Affairs (MCA), Ministry of Justice (MOJ), Ministry of Finance (MOF), Ministry of Human Resources and Social Security (MHRSS), Ministry of Land & Natural Resources (MLNR), Ministry of Environmental Protection (MEP), Ministry of Housing and Urban-Rural Development, Ministry of Transport, Ministry of Agriculture (MinAg), Ministry of Commerce (MOFCOM), Ministry of Culture, National Health & Family Planning Commission (NHFPC), State Owned Assets Supervision and Administration Commission (SASAC), General Administration of Customs (Customs), State Administration of Taxation (SAT), State Administration of Industry and Commerce (SAIC), General Administration of Quality Supervision, Inspection, & Quarantine (AQSIQ), State Administration of Work Safety (Work Safety Administration), China Food & Drug Administration (CFDA), State Forestry Administration, State Intellectual Property Office (SIPO), China National Tourism Administration (National Travel Administration), State Legislative Affairs Office, State Internet Information Office, China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), China Insurance Regulatory Commission (CIRC), State Administration of Civil Service, State Administration of Foreign Exchange, Communist Youth League, All China Federation of Industry & Commerce, China Railway Corporation.
What is this document?
This document was issued in the form of a two page notice by 44 institutions to provincial governments and authorities, giving the policy basis, including a 2005 Central Political Legal Committee document linked here as well as the recent Plenums and other documents. It has four pages of chops (seals) of those institutions, attaching a ten page MOU and almost 40 page appendix (where the bulk of the content is).
It appears to be the first time (or at least one of the first times) that a large group of central Party-state institutions has concluded an MOU. It shows that despite ongoing criticism of Western rule of law concepts, the Chinese Communist Party and Chinese government finds it useful to borrow some of them for its own uses.
Like the commercial version with which many of us are more familiar, this MOU is an agreement between the SPC, SPP, and regulatory bodies–in this case government, Party, dual purpose (entities that are both Party and state) organizations, an important SOE, and several public institutions. Some questions about this practice will be discussed below.
Using MOUs to do so seems to be borrowed from the United States (other jurisdictions use them, too, but among regulators or between courts), and is being used for the same reasons that US federal government agencies do (and apparently without an explicit statutory basis). as described in excerpts from this 2012 report by the US Administrative Conference by two professors, one from Harvard Law School and Vanderbilt University Law School (follow-up recommendations found here):
A typical MOU assigns responsibility for specific tasks, establishes procedures,
and binds the agencies to fulfill mutual commitments. These
agreements resemble contracts, yet they are generally unenforceable
and unreviewable by courts…Nevertheless, there appears to be no generally applicable
statutory or executive branch policy regarding the use of MOUs, leaving
their content largely to the discretion of the agencies.
Agencies sign MOUs for a variety of purposes, including (1) delineating jurisdictional lines, (2) establishing procedures for information sharing or information production, (3) agreeing to collaborate in a common mission, (4) coordinating reviews or approvals where more than one agency has authority to act in a particular substantive area, and (5) in rarer cases (and potentially subject to additional procedures under the Administrative Procedure Act (APA)) agreeing on substantive policy. Their content varies widely. Some MOUs are quite detailed, although they tend to be short documents, often less than ten pages. MOUs may specify goals, assign responsibilities, establish metrics, commit personnel and funding, and establish responsibility for oversight. Some include deadlines for revisiting and updating the agreement. Others are more like framework documents that outline principles and leave more detailed elaboration to subsequent agreements or “implementing arrangements.”
This Chinese MOU is for reasons (1), (2), and (3). There is no dispute resolution clause (unlike most commercial MOUs) and in this case the SPC is one of the parties. Chinese public policy and legal academic literature, with the occasional article in the official press has promoted the use of MOUs as a useful tool for coordination by government agencies (i.e., getting them on the same page). In fact, a number of them can be seen on the regional level, such as a recent one coordinating the tax authorities of Beijing, Tianjin, and Hebei.
A quick search of MOUs involving courts outside of China reveals one between the Supreme Court of New South Wales and the Courts of the Dubai International Financial Courts, between the Supreme Court of Indonesia and the Federal Court and Family Court of Australia, and other similar agreements.
What does this document do?
It provides for information sharing and joint implementation of penalty measures. Regarding privacy issues, it requires record keeping of users, operators, and visitors, and the establishment of necessary technical measures to protect the data security of sensitive crucial information and prevent unauthorized operations.
Information sharing and joint implementation of penalty measures
The MOU commits all those other institutions to use their authority to implement sanctions against judgment debtors, both individuals and entities, as set out on the SPC’s lists of judgment debtors, which the SPC will update regularly. These institutions are obligated to issue provisions to implement the agreed upon measures to their bureaucratic subordinates. The measures that the institutions are implementing are not new ones, as the appendix makes clear. The NDRC commits to operating the social credit platform, Credit China, linked here. All the other government departments and entities commit to enforcing or coordinating the enforcement of the penalty measures through their regulatory systems to reporting to the NDRC and SPC quarterly through the social credit platform.
Most of the MOU sets out an outline of the measures and the entities responsible for implementing them.
It requires each entity and provincial level government to issue implementing regulations. This spring has seen some regulations issued at the provincial level to implement the MOU, but few regulations seem to have been issued on the regulatory level.
Legal analysis and reality check
A Hubei judge set out his analysis of the legality of restricting high consumption by judgment debtors and a reality check on how the system is working in an article published in late April in People’s Court Daily. He said it raises jurisprudential questions, because the Constitution protects a citizen’s personal and property rights, and those constitutional rights include consumption rights. The Legislation Law provides that limits on a citizen’s personal freedom, which restrictions on high consumption can be considered to be, can only be set out in national law and interpretations of national law by the SPC.
On the topic of the operation of the system, the judge mentions that the system is only in place for a number of economically advanced areas, but is not in place nationally, and in some areas, although the system is on place at the top-level, it is not implemented at the district level. It is in place for the banks and transportation, but not yet for other authorities such as the industrial and commercial, educational, and travel authorities. How to link local systems with the national system is a problem not yet resolved.
Some comments and questions
A few comments and questions come to mind. It seems likely that the issuance of this document was approved by the political leadership at a high level, such as the Central Leading Group for Deepening Overall Reform. This document does not appear to have sparked much public discourse in China, but that may be because many members of the legal community, many of whom are Communist Party members, may be concerned about improperly discussing Central policy ((妄议中央), as discussed in this earlier blogpost.
What is the status of this document under Chinese law? An MOU is not one of the types documents mentioned by the SPC’s regulations on documents or on judicial interpretations, unless it can be said to be covered by Article 9 of the former regulations (setting out the principal types of documents, which may imply that other ones may also be issued (人民法院公文的种类主要有). That being said, the SPC has been signing MOUs with courts outside of mainland China for many years, and a report of the SPC entering into an MOU can be found from 2013, also relating to enforcement of judgments, so it seems clear the SPC takes the view that it has the inherent authority to conclude them. Is it binding on the lower courts? It appears to be the case, from the reports on the document in lower court websites. Can lower courts conclude MOUs with their counterparts at the local level? It is also unclear.
What are the domestic and international implications of the SPC and 43 other government/Party institutions concluding this MOU? How is this to be understood by Chinese and foreign legal professionals, and the Chinese and foreign public? Does it have any implications for China’s obligations under the WTO, of China establishing, or designating, and maintaining tribunals, contact points and procedures for the prompt review of all administrative actions relating to the implementation of laws, regulations, judicial decisions and administrative rulings of general application…which shall be impartial and independent of the agency entrusted with administrative enforcement (emphasis added) and shall not have any substantial interest in the outcome of the matter? What implications does this document have for China’s bilateral investment treaty (BIT) negotiations with the United States and the European Union? The US model BIT (as is usual) includes an obligation of fair and equitable treatment of covered investments and EU BITs contain similar language.
Other issues that this raises include–what procedural rights will individuals or entities have to challenge their designation as judgment debtors, and the penalty measures imposed upon them? What assurance would those individuals or entities have that their challenge would be heard fairly by the courts, if the SPC is a party to these arrangements?
Quick guide to the penalty measures
What follows is a rough summary of the MOU in table form. In the MOU, in a few instances, relevant institutions undertake to forbid judgment debtors (either individuals or entities) from the activities listed below, but generally it uses other words–“restrict” (限制) (which usually means forbid), “consider seriously” (审慎性参考), and review strictly (从严审核). How are front-line staff to implement “consider seriously” and “review seriously”?
|1. Approval for establishing securities co., investment management co., futures co.; & registration of private investment fund—consider as factor/evidence
Restrict issuing bonds, acquiring listed co.
|CSRC to implement restriction on acquiring listed co., NDRC re issuing bonds
|2. Issuing securities on the interbank—review strictly
|3. Establishing a financing guarantee co.; restrict the appointment the appointment as a director, supervisor, or senior management of a financial institution
||CBRC, CSRC, NDRC, CIRC, MIIT, MOF, MOC, PBOC, SAIC & other authorities with authority to approve appointments of financial institutions
|4.Assist in reviewing information concerning govt. procurement & restricting participation in govt procurement
|5. Restrict the establishment of insurance companies, purchase of high premium insurance products with cash value; restrict natural person & senior personnel, controller of a corporate judgment debtor from purchasing high premium insurance products
|6.Consider seriously when considering the approval of the establishment of commercial banks or branches, offices and the acquisition of partial or full shareholding of commercial banks
|7. Assist in suspending share option plans or terminate the ability of persons to exercise share options of domestic state controlled listed companies
|8. Consider seriously judgment debtor status in the approval or management of quotas for QDIIs and QFIIs
|9. When financial institutions consider financing/extending credit to a entity, consider whether it, or its legal representative, actual controller, director, supervisor, or senior management are judgment debtors, if so, approve strictly
|10. Cooperate in restricting judgment debtors from applying for subsidy-type funds & social security funding support
||NDRC, MOF, MHRSS, SASAC etc.
|11. In implementing policies for favorable treatment in investment, tax, import/export, etc., review whether the institution, its legal representative, actual controller, director, supervisor, or senior management are judgment debtors; seriously consider in implementing these policies
||NDRC, MOFCOM, Customs, SAT, AQSIQ
|12. Focus & increase regulatory attention on judgment debtors & the legal representatives, actual controllers, directors, supervisors, senior management of judgment debtors; increase random checks; impose administrative measures according to law/administrative regulations
||Market and industrial regulators
|13.For individual judgment debtors, restrict them from appointment to be a wholly state owned company director, supervisor, as well as a director or supervisor, or senior manager of a state-controlled company; for those already so serving, submit an opinion that the person should not continue to serve
||SASAC, MOF etc
|14. For individual judgment debtors, restrict them from being registered as the legal representative of a public institution
|15.Through Credit China website, make company credit information accessible to the public
||NDRC & SAIC
|16.Publicize to the public through the principal news websites information about judgment debtors
||State Information Internet Office
|17.Restrict the recruitment/hiring as civil servants or public institutions staff
||Central Organizational Department, MHRSS, State Civil Service Administration
|18.For those state organs, companies, public institutions, social organizations or their leaders, or members that are judgment debtors, forbid designation as a civilized unit or moral model or cancel such designation
||Central Propaganda Department, Central Guidance Commission on Building Spiritual Civilization
|19.Restrict from taking flights, soft sleeper and certain other specified non-necessary forms of transportation
||Ministry of Transportation, China Railway Corporation
|20. Restrict judgment debtors & their legal representatives, principal responsible persons, those directly connected with fulfilling obligations, actual controllers from staying in 4 star hotels & above; restrict consumption at nightclubs & golf courses
||National Travel Administration, MOFCOM, MPS, Ministry of Culture
|21. Restrict judgment debtors & their legal representatives, principal responsible persons, those directly linked to fulfilling obligations from purchasing real estate; assist in restricting judgment debtors from engaging in transactions involving state owned company assets, state assets, etc.
||MLNR, MHRUC, SASAC, other relevant authorities
|22. Cooperate in providing information about 4 star & above hotels; restrict judgment creditors and their legal representatives, principal responsible persons, those directly involved in fulfilling obligations, actual controls, from participating in tour groups; restrict them from enjoying travel related services; restrict judgment debtors from consuming services in resort areas
||MOFCOM, Nation Travel Administration
|23. Restrict the children of judgment debtors and the legal representative, principle responsible person, and those directly involved in fulfilling obligations, actual controllers from studying at expensive private schools
|24. Assist in reviewing judgment debtor’s identity, passports, vehicle registration; assist in locating judgment debtors, restrict them from exiting the country; assist in seizing and sealing vehicles
|25. Restrict the use of state-owned forestry land; restrict applications for focal forestry construction projects; restrict application for focal grasslands protection projects
||NDRC, State Forestry Administration, MinAg
|26.Review information about Customs certificates and qualifications of judgment debtors; restrict them from being companies confirmed by Customs; for import/export goods & other Customs operations, implement strict controls;
|27. Review information concerning product safety approval & licensing; restrict engaging in food, drug & other industries; restrict persons from being the responsible person, director, supervisor, or senior manager
||CFDA, AQSIQ, Work Safety Administration, SAIC
|28. Cooperate in reviewing registration information concerning fishing ship by judgment creditors
|29.Cooperate in reviewing information concerning judgment debt passenger & freight vehicle registration
||Ministry of Transportation
|30.Cooperate in reviewing information concerning whether lawyers or law firms are judgment debtors; restrict judgment debtors for a certain time from being designated as advanced or outstanding
|31.Assist in reviewing the marriage registration of judgment debtors
||MCA, MFA, NHFPC
|32.Assist with establishing a file to investigate, prosecute, etc. of the crime of refusing to enforce a judgment or ruling
||SPP & MPS