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Abstract:
Corporate governance (gongsi zhili) is a concept whose time seems definitely to have come in China. Chinese definitions of corporate governance in the abstract tend to cover the system regulating relationships among all parties with interests in a business organization, usually spelling out shareholders as a particularly important group. But Chinese corporate governance discourse in practice focuses almost exclusively on agency problems, and within only two types of firms: state-owned enterprises (SOEs), particularly after their transformation into one of the corporate forms provided for under the Company Law, and listed companies, which must be companies limited by shares (CLS) under the Company Law. This article discusses Chinese corporate governance in this narrow sense, and attempts to explain some perplexing features of its discourse, laws, and institutions (abbreviated hereinafter as "corporate governance laws and institutions" or CGLI).

A fundamental dilemma of Chinese CGLI stems from the state policy of maintaining a full or controlling ownership interest in enterprises in several sectors. The state wants the enterprises it owns to be run efficiently, but not solely for the purpose of wealth maximization. A necessary element of state control of an enterprise is the use of that control for purposes such as the maintenance of urban employment levels, direct control over sensitive industries, or politically-motivated job placement.

This in turn creates several problems. First, many of these goals are not easily measured and there is no obvious way of balancing them one against the other. This creates monitoring difficulties. Second, the policy of continued state involvement sets up a conflict of interest between the state as controlling shareholder and other shareholders. In using its control for purposes other than value maximization, the state exploits minority shareholders who have no other way to benefit from their investment.

The major theme of this article is that the state wants to make SOEs operate more efficiently by subjecting them to a new and different set of rules - the rules of organization under the "modern enterprise system". Policymakers then find, however, that they must change and adjust the rules to take account of continuing state ownership. Moreover, the need to provide for the special circumstances of state-sector enterprises ends up hijacking the entire Company Law, so that instead of state-sector enterprises being made more efficient by being forced to follow the rules for private-sector enterprises (the original ambition), potential private-sector enterprises are hamstrung by having to follow rules that make sense only in a heavily state-invested economy.

China, People's Republic of China, Chinese law, corporate governance, company law

Abstract:
This paper surveys China's legal system in the economic reform era. We analyze the role of law in the economy, assessing whether China's formal legal system contributed to those expectations of stable and predictable rights of property and contract that are prerequisites for growth. The paper begins by detailing legal developments. The relationship between legal and economic development was bidirectional - a coevolutionary process. We then examine three spheres of activity - property rights, agreements to trade, and corporate governance - asking whether law plays an important role, how that role has changed, and what the current problems are. Common themes arise. First, there have been profound changes, with law playing an increasingly important role. Second, formal legal institutions have not made a critical contribution to China's remarkable economic success. This latter conclusion leaves open the question of which mechanisms generated the necessary expectations of reasonable returns from decentralized economic activity. We briefly reflect on mechanisms other than law that might have produced such expectations, for example, the role of local Communist Party officials. However, lack of empirical information suggests this is a topic for future research.

China, institutions, law, property rights, contracts, corporate governance

Abstract:
Corporate governance (gongsi zhili) is a concept whose time has come in China, and the institution of the independent director is a major part of this concept. Policymakers in several countries such as the United Kingdom and Japan have turned to independent directors as an important element of legal and policy reform in the field of corporate governance. In August 2001, the China Securities Regulatory Commission (CSRC) issued its Guidance Opinion on the Establishment of an Independent Director System in Listed Companies. Covering all companies listed on Chinese stock exchanges (but not Chinese companies listed overseas), it constitutes the most comprehensive measure taken to date by the CSRC - or indeed by any Chinese governmental authority - to regulate internal corporate governance through the institution of the independent director.

This article discusses the institution of independent directors, and the Independent Director Opinion specifically, as a potential solution to Chinese corporate governance problems. It begins by discussing special features of the Chinese corporate landscape and the most prominent problems in the area of corporate governance. It then proceeds to identify differing conceptions of what is broadly termed the independent director - the outside director, the disinterested director, and the (more narrowly defined) independent director - and discusses the approaches taken in several different jurisdictions.

The article canvasses empirical research on the relationship between independent directors and corporate performance in the United States, as well as in China, and finds that the research yields similar conclusions: there is no strong link. The article concludes by arguing that proponents of the institution of independent directors misconceive the nature of the corporate governance problem in China, as well as the functioning of independent directors in the United States, and have not taken into account specific features of the Chinese institutional environment - particularly the legal environment - that affect the viability of any proposed solution.

China, Chinese law, corporate governance, directors, independent directors, disinterested directors, outside directors

Abstract:
The impact of WTO membership both on China and its trading partners, both for good and for ill, has been greatly overstated. WTO treaty obligations and Dispute Settlement Body rulings will not become part of Chinese domestic unless specifically incorporated by Chinese legislation. Moreover, the WTO does not require a perfect legal system of its members; instead, it requires a degree of transparency and fairness in certain limited areas. Although some of China's WTO commitments will be difficult for it to fulfill, even non-fulfillment will not result in the predicted flood of WTO dispute settlement proceedings, since such proceedings can be brought only by member governments with their own particular set of priorities, diplomatic considerations, and limited resources.

China, Chinese law, World Trade Organization, WTO, international law, trade law, treaty law, Asian law, comparative law

Abstract:
An important school of thought in institutional economics (the "Rights Hypothesis") holds that economic growth requires a legal order offering stable and predictable rights of property and contract because the absence of such rights discourages investment and specialization. Without the security of expectations offered by such a legal order, according to the Rights Hypothesis, the risks of a great number of otherwise beneficial transactions far outweigh their expected return, and as a result such transactions simply do not occur. Society is mired in an economy of short-term deals between actors bound by non-legal ties such as family solidarity which by their nature cannot bind large numbers of strangers.

The history of China's post-Mao economic reform has provided interesting material against which to test the Rights Hypothesis. Two features of that history in particular stand out. First, the institutions by which rights are enforced, in particular courts, are perceived to be weak, and thus rights are perceived to be unenforceable. (It is perception, which determines whether persons are willing to invest and make deals, that counts for purposes of the Rights Hypothesis.) Second, China has indeed enjoyed substantial economic growth in recent years.

There are many ways to interpret these observations. First, the hypothesis could be right and the observation of weak legal institutions wrong: rights are enforced in the system, but in a way that is not immediately apparent. Second, the hypothesis could be right and the observation of growth wrong: either the statistics are misleading, or growth is actually low relative to what it would have been with stronger legal institutions. Third, the hypothesis could simply be wrong: there is no strong link between legal institutions and economic growth.

Each of the above interpretations has a certain plausibility. On the other hand, they cannot all be correct. In this paper I propose an understanding of Chinese legal institutions and their impact on economic transactions (and on investment in particular) that will allow us, if not to reconcile, at least to refine these different interpretations to make them less mutually inconsistent. More broadly, I will propose a reformulation of the Rights Hypothesis that retains the emphasis on security of property but substantially downgrades the importance of a formal legal system that provides effective enforcement of contract rights.

China, Chinese law, People's Republic of China, law and development

Abstract:
Despite the surprisingly shaky support in empirical research for the value of independent directors, their desirability seems to be taken for granted in policy-making circles. Yet important elements of the concept of and rationale for independent directors remain curiously obscure and unexamined. As a result, the empirical findings we do have may be misapplied, and judicial gap-filling may be harder than imagined when legislative intent cannot be divined or is contradictory.

This article attempts to unpack the concept broadly understood by the term independent director and to distinguish among its various concrete manifestations. In particular, I discuss the critical differences between independent, outside, and disinterested directors, arguing that these manifestations serve different purposes and should not be confused one with the other. This discussion is illustrated with examples from U.S. state and federal law as well as stock exchange regulations, and supplemented with comparative reference to the United Kingdom, Germany, and Japan, with a brief mention of Chinese practice as well. I also argue that the whole purpose of having independent directors is surprisingly undertheorized, leading to inconsistent rules, in particular regarding the effect of director shareholding, both across countries and within the United States.

independent directors, comparative corporate law, outside directors, non-executive directors, disinterested directors, corporate governance

Abstract:
Since the early 1990s, China has come a long way in legislating the foundational rules for its reformed economy. Virtually all of the important areas-contracts, business organizations, securities, bankruptcy, and secured transactions, to name a few - are now covered by national legislation as well as lower-level regulations. Yet an important feature of a legal structure suited to a market economy is missing: the ability of the system to generate from below solutions to problems not adequately dealt with by existing legislation. The top-down model that has dominated Chinese law reform efforts to date can only do so much. What is needed now is a more welcoming attitude to market-generated solutions to the gaps and other problems that will invariably exist in legislation. The state's distrust of civil-society institutions and other bottom-up initiatives suggests, however, that this different approach will not come easily.

China, transition economies, economic regulation, economic reform

Abstract:
Understanding the Chinese legal system is not simple because it is (probably) very different from a Western one. The understanding of the Chinese legal system that results from any study will depend crucially on the selection of a paradigm with which to define what counts as an observation and against which to measure and assess the observations, either descriptively or normatively. This is not to say that the selection of a paradigm will make the difference between understanding and not understanding. It will, however, make a difference between understanding in one way and understanding in another way. Whether one of those ways is better than another depends on how still more methodological issues are settled: the purpose that is to be served by the understanding that is sought, and whether that purpose is itself a valuable one.

This paper explores the ways in which the Chinese legal system can be understood through the use, conscious or not, of different models, and in particular the phenomenon of what appear to be mistakes and aberrations in the system when we apply those models. I offer a particular way of modeling the Chinese legal system, and show how this way of modeling produces observations that can be explained only as errors or aberrations. I will then show how other ways of modeling would explain these observations as normal and expected phenomena. Finally, I will discuss the challenge these multiple ways of modeling pose to the analyst. A model that explains an observation as normal is not necessarily superior to a model that can only explain it as an error or an aberration: mistakes and aberrations do happen. Yet surely it is also intellectually satisfying to have a model of a set of phenomena that provides a plausible account of almost all of them.

China, Chinese law, People's Republic of China, methodology, law, constitution

Abstract:
The last few years have seen a proliferation of programs by Western states and international agencies designed, in broad terms, to promote reforms in the Chinese judicial system. What is not clear, however, is whether there has been systematic thinking about the precise goals to be sought in these and other projects, whether these goals are appropriate, and indeed whether their achievement can even be ascertained in some measurable way. This paper is an attempt to think about what we know, what we might want to know, and what we can know about China's judicial system, broadly defined.

A key finding of this paper is that information about China's judicial system, even in the form of reliable and representative statistics, is not always what it seems to be. In other words, without a deeper understanding of the actual functioning of China's courts and other legal institutions, it is very easy to look for the wrong type of information and to misinterpret the information we have. Like the drunk in the joke who looked for his lost car keys under the streetlamp because the light was better there, we can be tempted to overvalue the importance of features of China's judicial system that can be measured by easily obtainable data. Thus, a priority in an empirical research agenda at this stage of our understanding should be further research into the actual functioning of China's various legal institutions so that we can have a better idea of what questions to ask.

China, empirical research, fieldwork, judicial system, Chinese law, legal system, courts, judiciary

Abstract:
This essay examines an old question - why it is often so difficult for transplanted legal norms and institutions to take - with the hope of shedding a bit of new light on it through a specific focus on institutions for corporate governance in China. Foreign norms and institutions are borrowed because they seem to the borrowers to serve some need. Very often they are borrowed in a time of rapid social change in which the home culture, so to speak, is lagging behind. But the problem of fit is real and severe.

First, although the borrowers may imagine their needs to be the same as those of the society that produced the institution to be borrowed, this is rarely so. They may misread the needs of the source society, or may misunderstand the needs of their own society.

Second, the borrowed institution in fact does not perfectly serve any particular need in the source society. Institutions develop not in response to particular objectively defined social needs, but as a result of a complex interplay of social forces with different agendas. A given institution might be a field of contestation for different groups with radically differing goals without being the natural servant of any of them. As a result, it is virtually impossible for a borrowed institution to survive the transition into the borrowing society intact, if by "intact" we mean that it performs exactly the same function. Indeed, if it could, that would imply that the borrowing society was indistinguishable from the source society, and it is precisely the difference that prompted the borrowing in the first place.

In this essay, I look at a number of borrowings: the concept of the industrial trust, independent directors, the board of supervisors, and fiduciary duties (which might be more aptly deemed an aborted borrowing). I conclude that none of the above borrowings has taken because they were marked by a failure to understand the history and supporting institutions of the borrowed institution or concept in its home jurisdiction. I end with a speculation that it is particularly difficult for the Chinese legal system to borrow from Western jurisdictions because the Chinese system, as a result of its history both traditional and recent, is concerned more with the balancing of interests than with the vindication of rights.

Abstract:
Despite the surprisingly shaky support in empirical research for the value of independent directors, their desirability seems to be taken for granted in policy-making circles. Yet important elements of the concept of and rationale for independent directors remain curiously obscure and unexamined. As a result, the empirical findings we do have may be misapplied, and judicial gap-filling may be harder than imagined when legislative intent cannot be divined or is contradictory.

This article attempts to unpack the concept broadly understood by the term independent director and to distinguish among its various concrete manifestations. In particular, I discuss the critical differences between independent, outside, and disinterested directors, arguing that these manifestations serve different purposes and should not be confused with each other. This discussion is illustrated with examples from United States state and federal laws as well as stock exchange regulations, and supplemented with comparative reference to the United Kingdom, Germany, and Japan, with a brief mention of Chinese practice as well. I also argue that the whole purpose of having independent directors is surprisingly undertheorized, leading to inconsistent rules, in particular regarding the effect of director shareholding, both across countries and within the United States.

Delaware, journal, corporate, law, clark, value, independant directors, empirical

Abstract:
Whether the judgments of United States courts can and will be enforced in China is a question that will be increasingly asked as economic ties grow between the two countries. At present, at least, the answer is straightforward: U.S. judgments will not be enforced. Chinese law requires the existence of a treaty or de facto reciprocity in order to enforce a foreign judgment; neither exists between the United States and China. Research reveals specific cases in which enforcement was refused and no cases in which enforcement was granted. Thus, the best alternative for litigants seeking the assistance of Chinese courts is to obtain an arbitration award in a New York Convention member country - China is a member itself - or to litigate in Chinese courts.

China,enforcement, judgments, New York Convention, Chinese law, People's Republic of China

Abstract:
The substantive norms of Chinese corporate governance have been studied extensively inside and outside China. Yet much less attention has been paid to the Chinese institutional environment that determines whether and how far those norms will be made meaningful. While complaints about general lack of enforcement are common, less common are analyzes that concretely tie institutional capacity to specific enforcement problems. This article aims to fill that gap. It surveys a number of state and non-state channels for the enforcement of corporate governance rules and standards in China, from markets to regulatory bodies, looking at the specific capacities of each. It concludes by finding that while the state for political reasons prefers to leave enforcement to state regulatory bodies, its repression of civil society institutions is so severe that even a modest relaxation could have substantial benefits.

China, People's Republic of China, corporate governance, institutions

Abstract:
One of the most perplexing aspects of Chinese enterprise law concerns the conditions under which state institutions will acknowledge and give effect to the existence of a business organization distinct from the natural or legal persons that participate in its operations. The answer might appear to be simple - they will do so whenever legally stipulated conditions are met - but this answer would be wrong. State institutions often give real and meaningful effect to the existence of entities with no apparent statutory basis, or whose legal basis dictates consequences that seem at odds with the consequences called for by constitutionally superior law. On what basis does the court (or some other government agency) decide that a corporation does or does not exist?

This essay raises the question in the context of Chinese enterprise law. Chinese courts and government agencies do not consider a statute to be necessary for the recognition of an organization's existence. At the same time, however, a mere assertion by an interested party is not good enough, either. But if a legal basis is not required, what exactly is the basis of a governmental decision that an entity exists or not?

This essay postulates that the very attempt to find a consistent rule involves a misunderstanding of what the system is all about; that the system under examination is not designed to produce consistent rules, and that any rationalization of existing decisions is not the discovery of an inherent underlying principle, but rather nothing more than a formulation that happens to fit the materials today but may not fit them tomorrow. There simply does not exist any consistent rule of recognition guiding the decisions of various governmental agencies in China when they face the question of whether or not to acknowledge a claim that a particular business entity "exists" and that particular consequences should follow from the existence. While such a consistent rule might be a good idea, there is nothing in the Chinese legal system that will operate to produce one.

This claim follows from what I posit as a fundamental characteristic of China's current legal system: its radical polycentricity. There is no single Chinese legal "system"; that there are instead many Chinese legal systems, each with its own jurisdiction, hierarchy of authority, and way of operating. As a result, Chinese enterprise law is only a part of what there is to say about Chinese enterprise organization and the practical rights of various claimants to enterprise assets. Indeed, a legal sanction is not necessary for a Chinese enterprise to have an existence that is acknowledged as affecting legal rights of various parties. An enterprise can "exist" if a government agency says it exists and has the capacity to make its fiat respected in part or all of the system. There are no rules about which government agency has the power to create what kind of enterprise, and there is no settled way to resolve disputes about such power.

China, Chinese law, corporate governance, entity law, organizational law, corporate law, company law, debtor-creditor law, polycentricity

Abstract:
This paper is an analysis of the overhaul of China's substantive Criminal Code which went into effect on October 1, 1997. The changes that have been enacted, while quite extensive, cannot be viewed as an effort to liberalize, much less to advance human rights. Instead, the watchwords of the Criminal Code reform are modernization, rationalization and professionalization. These all speak to the desire of the present Chinese leadership to ground its legitimacy in the law, as previous generations of leaders sought legitimacy from their revolutionary credentials, their military authority, or their technocratic skills. The pursuit of this goal means that, in sharp contrast to the past, the law must appear as neutral and non-ideological as possible.

The overarching logic of the new Code is to rationalize and to modernize, to reduce the exercise of discretionary power, to depoliticize the law, and to keep pace with the momentous changes that have taken place in Chinese society since the adoption of the 1979 Code. The ideological trappings of the old Code are all but gone. Preambular language about the primacy of Marxism-Leninism-Mao Zedong Thought and the dictatorship of the proletariat has given way to invocation of the Constitution. The revised Code brings together criminal provisions that were previously scattered in a variety of statutes. Many new offenses are added, while old ones are more sharply defined. Penalties are revised to be consistent with the crime. This is a document that is designed less to be wielded against ideological adversaries than to be applied in a consistent and rational manner by people with specialized legal skills.

But from the point of view of movement toward international human rights standards, the revisions to the Criminal Code add little. What progress there is, when taken in conjunction with the 1996 reforms to the Criminal Procedure Law, is largely at a procedural rather than substantive level. The overt influence of international norms is less marked in the case of the Criminal Code. When revisions to the Criminal Procedure Law were under discussion, proponents of reform drew explicitly on international human rights law to bolster their arguments for strengthening the rights of criminal defendants. Similar arguments appear to have prevailed mainly in the Criminal Code's abolition of the former Code's provisions on analogy, which had made it possible for someone to be punished for an act that was not prohibited by any statute.

The aspect of the revisions that has received the greatest attention internationally--the relabeling of "crimes of counterrevolution" as "crimes endangering state security"--provides no encouragement at all from a human rights perspective. On its face, this change is part of a general trend to depoliticize the law. Yet the revisions' effect--and their evident intention--is actually to increase the state's ability to criminalize internationally recognized rights of free expression and association by adding to the already lengthy list of punishable offenses. An even more serious failure of the revisions is that they did nothing whatsoever to rationalize, let alone liberalize, the operation of penal institutions, such as re-education through labor, which continue outside the statutory framework of the Criminal Code.