26 June 2013

上课: Crime Rates in China – Political Pressure + Statistics = Cue Elevator Music

Crime rates in China are low. The latest statistics (see UN Office on Drugs and Crime) place China in the arena with Switzerland and Japan, countries which boast some of the best internationally acknowledged public security and domestic order. As of 2012, China’s murder rate was calculated at 1.1 per 100,000 (compare to Switzerland at 0.7, Britain at 1.2 and America at 5.0). The total amount of reported criminal cases in 2010 was 2.6million (in the US there were 10.3million cases that year). Violent crime and property crime show similarly low numbers. Drug trafficking and abuse rates have not shown significant increase from their near non-existent numbers pre-1979. 

Statistics are by nature misleading. How much credence can we really attribute to these glowing reports? The devil is in the details: ‘murder’ does not necessarily include killings which occur in the course of other violent crimes, nor is each one ‘murder’ equivalent to one victim. According to the World Health Organisation, for the 23,300 murders in 2002, there were 38,000 deaths from “homicide-related injuries”. Furthermore, ‘violent crime’ has no set definition and property crimes do not appear to always count towards general crime statistics. So maybe don’t go poking metaphorical bears in China just yet. 

Let’s set the scene. 

China has experienced profound social, political and economic change in the past 30 years. The country is under significant social stress - growing pains if you will – as millions of rural migrant workers flood the cities and the economic gap between rich and poor widens. From what we know of the human condition, these circumstances do not match with the rosy picture painted by the crime statistics. 

Crime in contemporary China is divided into two distinct periods in almost every analysis: Mao Era (1950s-1979) and Post-Deng Xiaoping Reforms Era (1980s-present). Mao Era China was virtually crime-less. Scholars have attributed this to an “institutional suppression of personal economic motivation”. All property which was valuable enough to steal was a state asset and thus the property of the many already and punishments were prohibitive in their severity. Deng Xiaoping’s Reforms in 1978 marked the economic remaking of China. Accompanying these reforms were the introduction of mobility and the reality of unemployment (factors not within contemplation for Mao’s China). The sun had set on the utopian collective and an economically driven society had taken the field. 

The division between the eras is artificially intensified. The government laments the increase in crime, blaming western cultural influences and glorifying the Mao Era days of security and safety. The idea is: crime is a plague from the West. Are not Hollywood movies known for making good guys out of criminals (see: Ocean’s Eleven) and commending a flagrant disregard of the rules? Chinese culture is one of harmony and peace – no one would deliberately seek to commit any offence. Of course, this is a ridiculous notion. Crime obviously existed in China before 1979. And it’s not as if Chinese culture doesn’t glorify the rogue – one of the Four Great Classical Novels (四大名著) is The Water Bandits (水浒传), a Robin Hood-esque tale of outlaws. But this aspiration to go back and adhere to ‘true Chinese values’ of ‘pre-crime’ drives much of the Ministry of Public Security’s goals. 

The first time China submitted its national crime statistics to Interpol was in 1986. Before that, they were considered ‘state secrets’. Crime statistics are the affair of the Ministry of Public Security and reported yearly by the National Bureau of Statistics. Offences are categorized as criminal (more serious) or public security (less serious) cases. The classical problems with official statistics are there: victims’ reporting behaviour varies over time; definitions of crime change; and recording standards are not consistent. Problems are exacerbated by the Ministry’s aspirations. 

In 2010, the Ministry of Public Security demanded at least 85% success rate in murder cases. The result: if their chances for cracking a case don’t look so great, police officers simply do not register the case. Statistics only look at the registered papers, after all. The 1980s-1990s policy of handing out ‘case-cracking’ bonuses also led to under-recording; police officers once again were incentivised not to record hard-to-solve cases. An emphasis on clearing cases also has darker consequences: wrongful conviction and torture to get favourable confessions are serious concerns to scholars and the populace. 

And there we have it: political pressure and a glorious history of crime-free society set a high bar for China. Maybe China’s low crime rates do not tell the whole story. Maybe the statistics are a bit on the utopian side. But we cannot say anything for sure. 

In the end, what matters is that China feels safe. People are not afraid to walk around alone at night and girls don’t clutch desperately at their purses in the crowded Beijing metro. A prevailing sense that public security is high may do more for crime rates than reports tabulating incremental increases.

One RenMin professor joked: let’s not give the people the idea that there is a burgeoning market for crime out there. 

KEYWORDS: Crime in China, Statistics, Policing, Mao Era, Ministry of Public Security, Safety and Public Order

10 June 2013

上课: FDI and BITS – Enter Stage 3, Thank You Barbados

China is a land of contradictions. While one NPC (National People’s Congress) member refers to China as a developing country, a standing judge of the Supreme Court staunchly defines China as a developed nation. The Middle Kingdom flaunts a free market alongside a planned economy. It is both an investor (especially in Africa) and the largest recipient of foreign direct investment in the world after surpassing the USA in 2012.

The first law relating to Foreign Direct Investment (FDI) was the Sino-Foreign Equity Joint Venture (EJV) Law promulgated in 1979, when China officially opened its doors to the world. Other traditional forms of FDI followed: Wholly-Foreign-Owned Enterprises (WFOE) in 1986, Sino-foreign Co-operative Joint Ventures in 1988. A few years later, new patterns joined the game: Foreign Investment Companies Limited by Shares (FICLS), Holding Investment Companies (HIC), and Build Operation Transfer (BOT)s. 

FDI and Joint Venture Law is a clear demonstration of one of the major themes in Chinese Law: incremental transition. Not only does this area of law speak of the co-existence of prima facie mutually exclusive dichotomies (China standing with one leg in the developed and the other in the developing world), but it also highlights China’s priorities as it slowly opens up. China has gone through three distinct stages of development, most clearly visible in Bilateral Investment Treaties (BIT) she has signed. 

Stage One kicks off in 1982: China signs her first BIT with Sweden (yes, the Swedes – but fear not, lest all my ramblings about the Deutsch be naught, Germany was close behind). This was the era of the traditional patterns for FDI, where the norm was limited liability companies where the Chinese would be able to have a say (for this was the time when the legal climate lacked a Corporate Law and all corporations belonged to the government). China wanted investors really invest in China: no half-built house of cards subject to the whims of the foreign market and no exploitation of China’s labour and natural resources. EJVs required foreign investors to invest a minimum of 25% of the capital (as opposed to most other contemporary systems in developing countries, which set a maximum in order to prevent foreign control). China wanted foreign investors to make efforts in the management of their joint ventures; to be invested in their enterprises. Registered capital, profits and risks were to be divided by equity and no matter what the percentage of investment was covered by the foreign investor, the Chairman of the Board of Directors (the big boss of the EJV), had to be Chinese. All production and operation plans had to be submitted in their intimate entirety to the corresponding administrative authority (a planned economy check by the government). WFOEs – since no Chinese party can participate in the enterprise – were governed by two strict requirements: (1) advanced technology and equipment should be used; and (2) products produced should be marketed outside China. China would benefit through the in-state building and operation of advanced technology. Activate educational thirst for a self-sustainable industrial revolution. 

In Stage One, most BITs advocated negotiation and consultation first and only allowed international ad hoc arbitration if the local court confirmed nationalization or expropriation (read: at the discretion of the Chinese government). 

Stage Two spans 1993-1998, defined by China joining ICSID (International Center for Settlement of Investment Disputes). The laws themselves were changing: no longer was the Chairman of the Board of Directors required to be Chinese – this was to be decided privately by the parties with the only stipulation that if the Chairman was foreign, the Vice-Chairman be Chinese and vice versa. And the big drop: no arbitrary nationalization or expropriation of the joint venture was permitted to the government. Except for “the social public interest”, joint ventures could breathe easy. BITs added provisions: competent courts of the contracting party accepting the investment can settle disputes (before, this was limited to Chinese domestic courts); disputes involving the amount of compensation for expropriation that cannot be settled within six months could now be submitted to ICSID or ad hoc arbitration if the state is not party to ICSID (with the caveat that only disputes involving the amount of compensation for expropriation could be submitted to the ICSID or ad hoc arbitration).

Stage Three is largely marked by reforms to many of the FDI and Joint Venture laws enumerated at the beginning of this essay – all circa 2000 (China having ascended to the WTO effective in 2001). The ascension of China to the WTO is a reoccurring factor in much of the legal reform present in the Chinese system. Trade unions were granted a voice. Raw materials for the joint venture could be purchased both inside and outside of China, according to the principle of fairness and reasonableness. Furthermore, there was no longer a need to file production and operation plans to the Chinese government. The independence of the joint ventures became a factor in law-making.

But Stage Three really begins in 1998 with the signing of the BIT between China and Barbados. This BIT lifted all limitations: all disputes, not just those involving expropriation or nationalization compensation, could be submitted to ICSID and ad hoc tribunals. And while ad hoc tribunal awards are only final and binding as reviewed by domestic Chinese courts, ICSID awards are final and binding with only ICSID itself having the authority to declare the awards non-enforceable. The unspoken shift: Chinese courts delegating some of their power. 

Three stages, a neat depiction of changing Chinese priorities: incremental opening up of the Chinese economy and the acquiescence of the legal system to playing the international legal game (at least as far as disputes go). The BIT with Barbados marked the start of a stage that is still incrementally working towards greater independence for joint ventures and greater protection of foreign enterprises today.

Thank you, Barbados. 

KEYWORDS: FDI, Joint Venture Law, EJV, WFOE, BIT, Incremental Transition, Opening Up, Developed & Developing, WTO, ICSID, ad hoc international tribunals, expropriation, tribunal awards

04 June 2013

问题: Guiding Cases - Selected Wisdom from the Supreme People’s Court

As I have discussed before, China is primarily a civil law country. The law is a body of codified, written rules not determined by judges. However, China is also special. Due to the legal kick-start the country went through in 1979, the laws are patchy and lacking comprehensiveness. Furthermore, broad changes have taken place in China’s social and economic spheres (and are still taking place today) – the system needs an internal mechanism to make up for the fact that laws cannot cover all the new developing social and economic relations.

Xi Jinping, General Secretary of the Communist Party of China Central Committee, for one, is concerned with the efficiency and authority of the judicial system. The list of aspirations is long: efficiency, judicial transparency, judicial justice, improved access to justice…en bref, he wants a China ruled by law. What the system needs is judicial reform and innovation.

Part of the solution: guiding cases. Two questions immediately arise.

One, what are ‘guiding’ cases? They cannot be referenced or cited, nor are they binding on the courts. A head-turner for us disciples of the common law, who live by precedent and incorporate cases into our music in our spare time. These are not common law cases: they are more like a hovering notion for the judges to keep in mind. An advisory opinion that is not an advisory opinion. 

Two, why have guiding cases? Can these really meet Xi Jinping’s lofty goals? In the opinion of Professor Wu Shuchen of Shandong University, yes: “the effect of the guiding cases system…first, significantly limits the discretionary power of judges and effectively avoids the defect of different verdicts for similar cases; second, it significantly reduces the uncertainty and unpredictability of the law.” 

So far, the guiding cases have served to cover particularly prickly areas of the law – they provide general provision for cases that happen frequently enough to warrant guidance but not to such an extent that they rank high on the list of priorities for the NPC. With a heavily backed up legislative, the guiding cases act as a steam-valve. For example: of the four guiding cases released upon the SPC’s initiation of the system in 2001, Shanghai Centaline Property v Tao DeHua addressed disputes arising from “private transactions by passing intermediary” between buyers and the intermediaries in second-hand property transactions. Intermediaries were not allowed to pursue damages for use of information if the buyer could have accessed this information through other legal means. A niche area of the law that the NPC would not be able to prioritize but which needed resolution, as intermediary companies are the de facto way to purchase urban property in China. 

The younger generations of legal scholars are open to this quasi-common law addition to the legal system. After all, the Constitution gives the SPC the power to issue advisory cases. Furthermore, most of these up-and-coming legal scholars have served educational terms in common law countries; the efficiency and dynamic adaptability of using case-law is not lost on them. An active judiciary is not that bad of an idea. 

Sixteen cases have been released so far, and no large legal opposition has formed (apart from a few furrowed eyebrows in the legal literature from the legal purists). Hopefully, at least, guiding cases will promote an environment where the rule of law is victorious and people can settle all their problems by legal means. 

Interested? Check out the catalogue of guiding cases with commentary and legal analysis (yes, in English): https://cgc.law.stanford.edu/

KEYWORDS: Supreme People’s Court, Guiding Cases, Judicial Interpretation, Shanghai Centaline Property v Tao DeHua, NPC