India-China Education Series Introduction to the Chinese legal system
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India-China Education Series Introduction to the Chinese legal system

Bar & Bench

Bar & Bench will bring to you a fortnightly column written by DH Law Associates Partner and Head of China Practice Santosh Pai on various topics related to the legal and business environment in China.

Bar & Bench will bring to you a fortnightly column written by DH Law Associates Partner and Head of China Practice Santosh Pai on various topics related to the legal and business environment in China. 

An overview of the Chinese legal system from an Indian perspective 

Although the legal system of the Peopleʼs Republic of China (PRC) lays claim to several thousand years of history most of its present day elements can be traced back to reforms undertaken after 1949 when it became a Republic. It has been shaped by Marxism, Leninism and Mao Zedongʼs thinking. However, the framework for most business laws that are in force today were developed more recently after China began its post-Cultural Revolution open-door reform policies in the early 1980s. These laws have been largely influenced by Chinaʼs objective of attracting foreign direct investment and technology, and its WTO commitments.

Law making bodies 

The National Peopleʼs Congress (NPC) is the supreme law making body in China comprising of approximately 3,000 delegates Ê»electedʼ from various provinces, autonomous regions and municipalities. It roughly corresponds to the Parliament in India except for several significant differences in the way its members are elected and the way it functions. The NPC meets once every year for a two-three week session in October and is charged with the power to amend the Constitution and supervise various bodies such as the State Council, Supreme Peopleʼs Court, Supreme Peopleʼs Protectorate (closest equivalent being the Home Ministry in India responsible for internal security) and the Central Military Commission (supervisory body of the armed forces).

In reality, most of the NPCʼs functions are administered by the NPC Standing Committee comprising of 150-200 individuals nominated from the NPC. The Standing Committee can legislate on any subject as long as the provisions do not go against the provisions of the Constitution. The Standing Committee supervises a number of special committees such as Nationalities Committee, Education Committee, Foreign Affairs Committee, etc. which have responsibility for drafting laws within their concerned areas. This extensive network of committees renders the role of NPC into a largely Ê»rubber-stampingʼ one.

The President of the PRC is elected by the NPC and is the chief executive of the Central Government. Much like Indiaʼs President, the President of the PRC has the power to promulgate laws adopted by the NPC, proclaim martial law, appoint envoys, etc.

The State Council (closest equivalent to the Central Government in India) is the most powerful executive body with powers to enact administrative rules and regulations. It supervises various ministries and local governments.

Each of the 33 provinces has a Local Peopleʼs Congress (closest equivalent to the State Governments in India). These bodies can legislate on a variety of local issues such as incentives for foreign investment, traffic regulations, etc. However, every law passed by the Local Peopleʼs Congress needs to be approved by the Standing Committee of the NPC thus rendering these bodies toothless when it comes to implementing any policies that are not blessed by the NPC. 

Hierarchy of laws 

All laws in the PRC are promulgated only in the Chinese script. A number of terms are used to describe a particular legal provision depending on its purpose, source of authority and intended scope. An in-exhaustive glossary of such terms is reproduced below –

a) fÇŽ(法) – a statute enacted by the NPC or its Standing Committee;

b) tiáolì(条例) –  administrative rules designed to implement a law;

c) guÄ«dìng(规定) – regulation issued by a lower-level agency addressing a specific question;

d) guÄ«zé(规则) or xìzé (细则) – Set of rules issued by a Ministry;

e) bānfā(颁发) – detailed methods or measures on a specific issue;

f) juédìng(决定) – a judicial or administrative decision with an explanatory purpose;

g) juéyì(决议) – resolutions issued by various organizations and parties, do not carry the force of law but useful in interpretation of the intent behind their actions;

h) mínglìng(明令) – proclamation issued by a state organization to prescribe legal standards and penalties.

Just like in India, one needs to consider the implications of numerous legal provisions from multiple sources before summarizing the legal position on any issue. 

Judicial System 

There are four levels in the PRCʼs judicial hierarchy – a) the Supreme Peopleʼs Court at the national level; b) the Higher Peopleʼs Courts at the provincial level; c) the Intermediate Peopleʼs Courts at the municipal level; and d) the Lower Peopleʼs Courts at the county level. Each of these courts normally consists of criminal, civil, economic and administrative divisions. Apart from these courts there are certain specialized tribunals for matters relating to intellectual property, maritime laws, military discipline, etc.

Although the organizational structure of the courts in China is quite similar to that in India, there is one significant difference which makes Chinaʼs judicial system completely different from ours. The courts in China cannot interpret the law. The power to interpret the law is exclusively vested with the legislative bodies. Judicial decisions have no value as precedents. Despite this, it is not uncommon for the Supreme Peopleʼs Court to issue lengthy decisions that contain judicial interpretations on specific issues. Such rulings are mostly issued in response to specific requests from the lower courts and serve as guidance notes aimed at increasing the efficiency of the lower courts. Any interpretative or explanatory note on legal provisions must emanate from the NPC or organs under its supervision to have the force of law.

Legal Profession 

In order to qualify as lawyers, students in the PRC need to complete an integrated four- year bachelor of law (LL.B.) course directly after secondary school. However, bachelor degree holders from other disciplines can also sit for the PRC national judicial examination in order to qualify. Indeed a majority of lawyers in practice today belong to the latter category. There are over 15,000 law firms in the PRC but only around 40 law firms with more than 100 lawyers. 

Most PRC law firms are little more than office-sharing arrangements between groups of lawyers. In extreme cases there is even reluctance on the part of one partner in a law firm to refer work to another partner within the same law firm. Some of the bigger law firms have attempted to introduce a combination of eat-what-you-kill and lockstep arrangements for partners in recent years with varying degrees of success. Despite marketing themselves as national law firms with offices in a dozen or so cities not a single law firm can deliver effective legal support uniformly across the country. This is largely because networks comprising of lawyers, judges and officers of government agencies are highly localized in China and large law firms find it difficult to penetrate these networks.

It is almost impossible for a foreign client to evaluate the real capabilities of a PRC law firm in a particular region or practice area. Lack of depth in expertise and meaningful reach in provincial towns among big law firms often means that work gets sub-contracted several times over and with a frequency that would make any foreign client uneasy. This often results in inflated legal bills for uninformed and misguided foreign clients. It is not uncommon for foreign clients to be charged fee rates comparable to those charged by international firms in London or New York for work to be performed in China by lawyers who are being paid less than one-fifth of their counterparts in the West. Risk wary in-house counsel often rationalize these unreasonable legal costs on the basis that China offers a business environment with formidable risk but unlimited potential.

To overcome these challenges, most foreign clients doing business in China prefer to retain the services of a foreign law firm with experience in China, preferably from their own country. Such foreign law firms act as the clientʼs “eyes and ears” in China and have amassed a wealth of experience while doing so. As a result, there are over 250 foreign law ï¬rms with a presence in China. Several more foreign law firms operate through Ê»best friendʼ arrangements with PRC law firms. Such alliances which work well in most other jurisdictions around the world woefully fall short of client expectations in China since the foreign partner in such an alliance inherits the shortcomings and limitations of its local Chinese partner thus disadvantaging the client.

Foreign lawyers who have lived in China for a while and can speak Mandarin are highly sought by clients for their ability to recognize pockets of competence, innumerable pitfalls and sure-shot work-arounds for seemingly impossible challenges that abound in the Chinese business and legal environment.

Santosh Pai is a Partner at D.H. Law Associates, which is the only Indian law firm to have an active China practice since 2010. He is based in Beijing and can be reached at santosh@dhlawassociates.com. He regularly blogs about India-China business topics here

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