Looking for Law in China
92 Pages Posted: 26 Apr 2007
This article addresses the causes, management and likely future of legal uncertainty that has marked the environment for foreign direct investment (FDI) in China since it was reintroduced in 1979. To attract FDI, local governments and investors have adopted a variety of tactics, many of which violate national laws and policies.
Major causes of uncertainty include the following:
Incomplete, unclear and tentative legislation and rule-making due to the understandable difficulty of filling a legal vacuum.
Structural problems include disorderly allocation of power among central law-making agencies, inconsistencies between national legislation and local legislation and practice, and inadequate institutions for dispute resolution.
Chinese legal culture is reflected in loose drafting, lack of transparency and extremely wide bureaucratic discretion.
Uncertainty results also from the tension between state control and opening markets, which is often resolved when policy trumps law, as in a recent regulation on foreign acquisition of Chinese enterprises that requires special approval of certain transactions that would affect a "key industry" or "national or economic security" - but without defining those terms.
Foreign investors and Chinese officials have dealt with uncertainty in a variety of ways. High-ranking officials have sometimes countenanced violations of law and policy by investors who have curried their favor (e.g., Rupert Murdoch). More commonly, local officials grant unauthorized investment incentives, exceed limits on their authority to approve investment projects and otherwise disregard central law and policies. Such conduct led, for example, to the dominance of the French chain Carrefour in the retail sector. Investors and officials often rely on personal relationships, sometimes corrupt, and intermediaries who are sometimes unreliable.
Uncertainty will persist because the causes enumerated here will be long-lived, especially the ongoing autonomy of local governments, lack of clarity in defining the goals of economic reform and guiding its course, and the persistence of the CCP's overriding aim of maintaining its dominance over Chinese society.
The problems surveyed here also suggest that legal reform generally will continue to be constrained by the rapidity of social change and the crisis of values that presently roils Chinese society. In Beijing, progress, albeit slow, on legal reform conflicts with the policy of CCP dominance; meanwhile, around the country, citizens' rights-consciousness is increasing, but local governments often resist the assertion of rights. Shaping post-Mao Chinese legal culture, like economic reform, continues to be a work in progress.
Keywords: China, foreign direct investment, legal institutions, legal uncertainty
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