The Chinese Legal System
The Chinese legal system has undergone several, sometimes radical, phases of reform. The present legal system of the People's Republic of China began developing in the late 1970's. The current legislation of the PRC reflects a structural similarity to countries like Germany and France. In recent years, China has begun to adopt some principles and institutions along the lines of a common law system. Passage of the Sino-Foreign Equity Venture Law in 1979 marked China’s first step towards establishing a legal structure able to govern foreign investment. At present, due to WTO accession, the Chinese legal system has entered a new period of radical change.
China’s accession to the World Trade Organization highlighted the need for radical legal reform, in particular the need to strengthen the rule of law. Chinese legal tradition lacks this concept having been based for thousands of years on the rule of only one man, namely the emperor. Despite attempts to reform the system feudal and Confucian influences still exist and pose a serious threat to China’s efforts at establishing the rule of law. In particular, the reliance of judges on the bureaucracy impedes consistent and systematic application of legislation. It is widely accepted in China that the courts must be reformed if they are to play the essential role of regulating China’s developing market. Fair, efficient, and predictable judicial institutions are necessary to settle disputes and review bureaucratic decisions. At present poor training, inefficient procedures, lack of transparency, and a reliance on local governments for funding have all undermined the courts’ ability to handle cases fairly and efficiently. A second major concern is administrative law, a key mechanism for improving government regulatory policies and increasing the predictability, openness and fairness of China’s vast bureaucracy.
Doing business in China is a cultural as well as an economic and legal transaction. Lacking a transparent system where investors are able to entirely trust the rule of law, personal contacts and guanxi still play a major role in conducting business and conflict resolution. Direct confrontation should be avoided if at all possible. When disputes arise in a contract Chinese people and Chinese institutions prefer to resolve them through conciliation talks. As stipulated by the Foreign Economic Contract Law (article 37): “In case of dispute, contracting parties will do everything possible to settle it through consultation or mediation by a third party”. If an amicable settlement is not possible, then the only solution is to hire a local lawyer and settle the dispute in court. Chinese laws do not allow non-Chinese lawyers to present a case; during a trial all the arguments and evidence presented must be in Chinese. Moreover, all documents must be filed in Chinese. Chinese lawyers rarely make grand speeches as they do in Western countries; a mastery of written Chinese is therefore essential. Cases are decided by a panel of judges that bases its decisions largely on the documents presented. Enlisting the support of local expertise on legal matters therefore becomes crucial to ensure the protection of business interests.