Law in the People's Republic of China, a topic that as recently as a decade ago attracted very little attention, is now attracting a good deal of it. Commercial loose-leaf services now keep close track of Chinese legal developments publishing virtually all foreign-related laws and regulations as they issue from Beijing along with English translations. There is even a Chinese law discussion list on the Internet, where both broad policy issues and technical legal points are the subject of increasingly lively exchanges by specialists around the world.

 

There are good reasons for this growing interest in Chinese law. Most immediately, foreign businesses that are engaged in or considering doing business with China have an obvious need to acquire a greater understanding of the evolving legal environment within which they will have to operate. Foreign governments, in the face of China's growing importance in world trade and investment, are interested in protecting their nations' interests by ensuring the compatibility of China's legal system with that of the world economy. So it’s important to understand China's foreign business law.

 

1. Background

In December 1978 the Third Plenum of the Eleventh Central Committee of the Communist Party of China ended a long period of internal chaos and relative isolation from the outside world by announcing China's "opening" -- an opening to the outside world and an opening up of Chinese society as well. As part of this program, the Plenum announced China's intention to devote resources to the building after a period of prolonged and profound legal underdevelopment, of a society based on the rule of law.

 

It is no secret that China's "opening" was driven in some substantial measure by a desire to attract foreign investments and one of the first manifestations of its new openness was the passage by the National People's Congress (NPC), China's national legislature, in 1979 of an Equity Joint Venture Law, designed to offer foreign firms and individuals legal undergirding for direct investment projects. Following that China proceeded to enact during the decade of the 1980s what one conference speaker described as an "avalanche" of laws and implementing regulations on foreign trade and investment. As Professor Potter has observed: "In contrast to the relative dearth of regulatory enactments that greeted foreign business executives and their counselors in the early 1980s, a full array of laws and regulations is now in place." (Potter, p. 81.) Together these measures constitute a coherent framework for conducting foreign trade and investment.

 

It is a characteristic of legal frameworks that no sooner are they built than one discovers that they need to be rebuilt. And what emerged quite clearly from the two conferences was that the Chinese themselves fully understand this. The policymakers and Chinese legal academics who were the principal architects of China's foreign trade and investment regime are now spending a great deal of time on law revision. (One speaker suggested the only brake on change was the paucity of trained legal personnel to carry forward the task of law revision.) Indeed, the metaphor most often used by conference speakers to describe Chinese foreign trade and investment law was that of the moving target.

 

In its effort to build a comprehensive new legal order China decided to embark on what was in effect a dual-track strategy, making a distinction between laws applicable domestically and laws applicable to foreign matters. (In the view of several conference speakers that distinction may now be in the process of breaking down.) Nonetheless certain domestic legislation has a direct bearing on foreign trade and investment.

 

2. Domestic Legislation Bearing on Foreign Trade and Investment

China promulgated a new Constitution in 1982 and an amended version of the same in 1988. Both documents recognize the right of foreigners "to invest in China and to enter into various forms of economic cooperation with Chinese enterprises." Both also promise that foreign investors' rights and interests will be protected. (1982 Constitution, as amended 1988, Article 18). The General Principles of Civil Law, which corresponds to the first chapter or General Part of a European civil code1 and was a centerpiece of China's lawmaking efforts in the 1980s, specifies that joint ventures and wholly owned foreign enterprises may obtain the status of a Chinese legal person, with all the rights appertaining to that status, upon the appropriate registration and approval (Article 41). China's Civil Procedure Law (draft version, 1982; final version, 1991) explicitly recognizes the right of foreigners to sue in Chinese courts. The Administrative Litigation Law of 1989 allows foreigners the right to challenge administrative agency decisions in court. A final piece of "domestic" legislation bearing on foreign trade and investment is China's recently enacted Company Law (1993). This law, designed primarily to promote the reorganization of China's domestic enterprises, also by its terms makes new modes of direct investment available to foreign investors.

 

3. Foreign-Related Trade Laws

While important for foreign traders and investors these laws are surpassed in importance by those addressed specifically to foreign trade and investment.

 

Through a series of laws passed in the 1980s, China sought to regulate in great detail trade in goods between Chinese and foreign business enterprises. These laws governed such things as the licensing of imports and exports, commodity inspection, and the content of import-export contracts. Chief among them is the so-called Foreign Economic Contract Law (FECL) of 1985.

 

The FECL applies to "foreign-related contracts," an admittedly vague term. But according to the experts, it refers to any contracts in which one of the parties is a foreigner. For example, the FECL would apply to a contract between an American automobile producer and a Chinese supplier of auto parts or to a Chinese-French joint venture auto parts maker and the same American auto producer. It would not, however, apply to a contract between the Chinese-French auto parts maker (joint ventures are considered to be Chinese legal persons) and a Chinese automobile producer. China has a separate Economic Contract Law governing contracts between domestic enterprises, including joint ventures.

 

The FECL regulates contractual terms and has other provisions affecting contractual validity. It has a provision that allows contracting parties to provide for the arbitration of disputes and to specify the applicable law the arbitrators shall apply. It should be noted that the FECL is itself subordinate to the United Nations Convention on the International Sale of Goods, an agreement governing contracts for the international sale of commercial goods to which China has acceded (see below).

 

In 1994 the NPC enacted a comprehensive Foreign Trade Law, which seeks to unify all the enactments concerning the organization and administration of foreign trade into a coherent whole. Implementing regulations are expected shortly.

 

There are several striking features of China's foreign trade law regime, the most important of which, stressed repeatedly at both conferences, is that engaging in foreign trade requires the official permission of the state. A corollary of this principle is that government authorities may review the terms of foreign trade contracts and may order any changes they deem appropriate before approval. Only Chinese parties (including Chinese/foreign joint ventures, purely private Chinese concerns, and state-owned enterprises) who have received official permission may engage in foreign trade. Foreigners who wish to contract with Chinese entities must first establish that these entities have received official authorization to engage in foreign trade. Any foreigner who enters into a contract with a nonauthorized entity, has entered into a contract that has no validity under Chinese law. He will likely find himself without legal recourse should the agreement be breached by the Chinese side.

 

Another serious hazard of which foreigners wishing to engage in trade with Chinese businesses must be aware of is the result of decentralization in China since 1978. In the past almost all of China's economic activity was in the hands of a relatively few large Chinese national companies, each with a headquarters and numerous branches. The headquarters and branches could be seen, and were seen legally, as constituting a single business entity. But that situation has now changed radically due to China's economic reforms. What were previously large conglomerates have now been broken up into numerous independent operating entities, each responsible for its own profits and losses. Whereas previously a national company might be held ultimately responsible for an export contract entered into by a provincial branch, now it might turn out that what looks like a provincial branch of a national company, though retaining the former national company's name, is in fact an independent legal entity with exclusive responsibility for its contractual commitments. Foreigners wishing to do business with Chinese firms need to be aware of this new economic and legal reality.

 

China's new foreign trade law regime raises several very significant issues. The principal one that came up for discussion at both conferences has to do with the accessibility of information on Chinese business concerns. Legal and business records in China are in such a state that foreigners often find it impossible to establish the exact legal status of a Chinese business entity with which they propose to deal, i.e., whether it is an independent entity or a branch, or to determine whether it has authorization to engage in foreign trade. This of course makes the task of negotiation a hazardous one. The consensus among observers is that this situation needs to be clarified if foreign trade contracts are to continue to grow.

 

A second issue that came up for some discussion was the Chinese commodity inspection system. An American lawyer at the Beijing conference with long experience in Chinese foreign trade, while acknowledging that China had made great progress in the area of commodity inspection, argued that there are further changes that need to be made. There is a need for foreigners and Chinese alike to know more about the exact standards applied by the Commodity Inspection Bureau. Furthermore, it was argued that there should be some relatively expeditious way of challenging bureau decisions. Finally, it was suggested that China consider letting foreigners designate some entity other than the bureau for the inspection of commodities.

 

4. Foreign Direct Investment Regulation

China's legal regime for the encouragement and regulation of foreign direct investment was a main focus of discussion at both conferences. It is in this area that the National People's Congress has been most prolific in passing legislation, and it is in this area that the laws passed have had such significant consequences.

 

As noted above, China enacted its first law affecting foreign direct investment in 1979, the Equity Joint Venture Law. This measure sanctioned the creation, subject to state approval, of joint Sino-foreign business enterprises. Participants in these ventures are liable for the firm's debts and entitled to its profits to the extent of capital contributed. They are authorized to exist for up to thirty years or more and are recognized under Chinese law as legal persons. Equity joint ventures are governed by their Boards of Directors and under the original law the Chair had to be Chinese. The law was amended in 1990 to permit foreigners to serve as Chairs. There is a minimum 25% equity requirement on the part of the foreign partner to the joint venture. Ownership interests in equity joint ventures are not transferable.

 

In the years since 1979 China has enacted laws sanctioning other types of foreign direct investment. In 1986 it authorized the establishment in China of wholly owned foreign enterprises. Two years later it passed a Cooperative Joint Venture Law, authorizing the creation of contractual joint ventures as opposed to equity joint ventures. These enterprises resemble general partnerships in structure and operation. Contractual joint ventures, like equity joint ventures, are subject to government approval and if approved are recognized as legal persons. They enjoy limited liability and may be of any duration the venturers choose. There are no minimum contributions on the part of foreigners, and the participants are free to decide on the distribution of profits and losses.

 

All laws affecting foreign direct investment have been followed by the promulgation of corresponding implementing regulations.

 

That China's laws have been successful in the promotion of foreign direct investment is witnessed by the fact that through 1994 China had approved some 206,000 foreign investment projects which together employ over 14 million people and account for approximately 29% of China's exports.

 

In 1993 the Chinese National People's Congress enacted a Company Law which applies potentially at least, to both domestic and foreign business entities. Under the Company Law, which makes new forms of business organization available to Chinese firms, potential new investment vehicles have become available to foreign investors in China as well. These are (1) the limited liability company, resembling in legal character a German limited liability company; and (2) the company limited by shares, similar to an American corporation. These new forms of business organization may give foreign investors more autonomy and managerial control than under the old investment vehicles, such as equity ventures and contractual joint ventures. In addition they open up the possibility of portfolio investment inasmuch as the law permits ownership interests in companies limited by shares to be listed and traded on exchanges.

 

By law what were formerly equity joint ventures can be transformed into companies limited by shares. The Company Law also permits foreign companies to establish Chinese subsidiaries. The new law is seen by some observers as an attempt by China to create a single unified law of business organization, applying to domestic enterprises, joint ventures, and wholly owned foreign concerns alike. Whether it will have this effect is at the moment a topic about which there is considerable speculation but no firm consensus. The view of some is that foreigners may wish to retain the preferential treatment that is available to joint ventures and wholly foreign owned enterprises under existing legislation.

 

5. Intellectual Property Protection

China's laws concerning the protection of intellectual property are not, strictly speaking, foreign trade or investment measures, but rather part of the country's domestic legislation. However, an argument can be made that these laws came into existence principally in order to encourage the transfer of foreign technology to China and only secondarily to provide protection to Chinese citizens. So in some sense they may be seen as belonging to China's foreign trade law regime.

 

A complete intellectual property law apparatus is now in place in China. China enacted its first modern intellectual property law, a Trademark Law in 1982. (It was amended in 1983 to permit the registration of service marks.) It enacted Patent and Copyright laws, respectively, in 1985 and 1990. An Unfair Competition Law, forbidding among other things unauthorized use of commercial names and false and misleading claims about a product, came into force in December, 1993. In addition to these laws China has entered into several Memoranda of Understanding with the United States concerning measures to be taken for the better protection of intellectual property.

 

Chinese intellectual property law resembles American intellectual property law in some respects but differs from it in others. Unlike American law, Chinese patent law does not protect new varieties of plants nor new breeds of animals, although it does protect new methods of making seeds. Furthermore, as in American law, one cannot patent computer software by itself in China but only in connection with new hardware. In seeking to protect computer software in China one is relegated exclusively to the regime of copyright law. As presented at both conferences, China plans to revise its copyright law to more fully cover the field of computer software or enact sui generis software protection legislation.

 

Discussion of China's intellectual property laws has centered more on the laws' enforcement or nonenforcement, rather than on their content. Actually, the content of these measures compare favorably with the intellectual property laws of most modern commercial nations. If there are deficiencies, the same exists in the intellectual property laws of virtually every nation in the world. In every country intellectual property law is struggling to keep up with the blistering pace of technological development especially in the computer field.

 

6. Dispute Resolution

Provision for the resolution of disputes is a key feature of any legal system, and Chinese officials at both conferences acknowledged the importance of effective dispute resolution mechanism for confidence building in foreign business. As noted earlier, under Chinese law foreign businesses have the right to sue in Chinese courts. (See Civil Procedure Law, Article 185-7 ff.) Indeed the Intermediate People's Courts, the second-level courts from the bottom in the Chinese judicial hierarchy, have economic tribunals for the hearing of cases involving foreigners. Cases involving foreigners are heard with some regularity in China's Maritime Courts. These specialized courts exist in the coastal cities for the purpose of hearing maritime trade and maritime casualty cases. In general, however, the Chinese court system has rarely been resorted to by foreigners in foreign trade matters, and arbitration is the favored method of dispute resolution in this area.

 

Chinese law permits parties to a foreign trade contract to include provision for the arbitration of disputes that may arise under the agreement. The parties are free to choose which body of law shall be applied in resolving the dispute and to provide for arbitration outside China, in the International Chamber of Commerce, the Stockholm Chamber of Commerce or the London Court of International Arbitration, to name a few examples. In practice, however, most contracts call for the resolution of disputes in China and that is where the vast bulk of international trade arbitration takes place. A rather elaborate arbitration apparatus has grown up to meet this demand.

 

China has had some sort of system for the arbitration of international trade disputes for many years. One existed even during its period of autarky and relative isolation from international commerce. But China's current system for international trade arbitration dates to 1988 when the China International Economic and Trade Arbitration Commission (CIETAC) was established. This tribunal is authorized to handle all international trade disputes. (China has a separate system for domestic arbitration.) In recent years, the tribunal has been handling a great many disputes. In 1994, for example, it accepted 829 cases for arbitration, thus making it one of the busiest arbitration tribunals in the world. China recently enacted a new Arbitration Law. It and new arbitration rules are set to go into effect in September, 1995. The new law broadens the scope of disputes that may be submitted to arbitration. It sets tight time limits on the rendering of awards. It also allows arbitration to continue even when the underlying contract is found to be invalid.

 

CIETAC, which is headquartered in Beijing but has subcommissions in Shenzhen and Shanghai, is an organization somewhat like the American Arbitration Association. Rather than hearing cases itself, it arranges for their hearing by individuals drawn from a list of arbitrators it has approved. And it supplies administrative support for the conduct of arbitration. There have been few complaints against CIETAC arbitration panels on the score of fairness or impartiality. The dispute resolution machinery has come under criticism on other scores, however.

 

CIETAC has apparently been unduly slow at times in processing cases. In the opinion of some it places undue emphasis on pressuring parties to compromise even when the relationship between them has completely broken down. CIETAC arbitrators, too, some argue, have a tendency to overlook clearly applicable law and decide disputes on rough intuitions of justice. The major area of controversy, however, concerns the enforcement of arbitral awards.

 

Considerable doubt exists among many foreign experts on Chinese law as to whether arbitral awards are readily enforceable in Chinese courts. Some contend that the record of enforcement is unclear at best, very spotty at worst. A leading scholar-practitioner who spoke at the San Francisco conference, expressed the view that one simply cannot say for certain whether arbitral awards will be enforced in Chinese courts--especially if they are adverse to local companies. Yet, he noted, a clear record of regular enforcement of arbitral awards is essential if foreigners are to have confidence in the system.2 It should be noted that Chinese legal officials, including officials affiliated with CIETAC, vigorously disagreed with this view, contending that the dimensions of this problem have been exaggerated.

 

7. International Agreements

A summary of Chinese foreign trade and investment lawmaking in the past sixteen years would be incomplete without mention of the important international treaties and agreements that China has entered into, all of which have a direct bearing on foreign trade and investment. The first of these was the Paris Convention for the Protection of Industrial Property, which China signed in 1984. In 1987 China acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and in 1991 to the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention). In that same year China joined the Hague Convention on the Service of Documents Abroad. (It has not however as of this writing acceded to the United Nations Convention on the Collection of Evidence Abroad.) In 1992, China joined the Berne Convention on Protection of Literary and Artistic Works. In addition it has entered into numerous bilateral trade agreements with other nations. It is worth mentioning --a point stressed by several Chinese speakers both at the San Francisco and at the Beijing Conference-- that under Chinese law if there is a conflict between Chinese domestic legislation and the provision of an international agreement, the international provision takes precedence unless China has specifically reserved the right to apply its own law. This is in contrast to American law, where just the reverse is true.

 

Law in the People's Republic of China, a topic that as recently as a decade ago attracted very little attention, is now attracting a good deal of it. Commercial loose-leaf services now keep close track of Chinese legal developments publishing virtually all foreign-related laws and regulations as they issue from Beijing along with English translations. There is even a Chinese law discussion list on the Internet, where both broad policy issues and technical legal points are the subject of increasingly lively exchanges by specialists around the world.

 

There are good reasons for this growing interest in Chinese law. Most immediately, foreign businesses that are engaged in or considering doing business with China have an obvious need to acquire a greater understanding of the evolving legal environment within which they will have to operate. Foreign governments, in the face of China's growing importance in world trade and investment, are interested in protecting their nations' interests by ensuring the compatibility of China's legal system with that of the world economy. So it’s important to understand China's foreign business law.

 

1. Background

In December 1978 the Third Plenum of the Eleventh Central Committee of the Communist Party of China ended a long period of internal chaos and relative isolation from the outside world by announcing China's "opening" -- an opening to the outside world and an opening up of Chinese society as well. As part of this program, the Plenum announced China's intention to devote resources to the building after a period of prolonged and profound legal underdevelopment, of a society based on the rule of law.

 

It is no secret that China's "opening" was driven in some substantial measure by a desire to attract foreign investments and one of the first manifestations of its new openness was the passage by the National People's Congress (NPC), China's national legislature, in 1979 of an Equity Joint Venture Law, designed to offer foreign firms and individuals legal undergirding for direct investment projects. Following that China proceeded to enact during the decade of the 1980s what one conference speaker described as an "avalanche" of laws and implementing regulations on foreign trade and investment. As Professor Potter has observed: "In contrast to the relative dearth of regulatory enactments that greeted foreign business executives and their counselors in the early 1980s, a full array of laws and regulations is now in place." (Potter, p. 81.) Together these measures constitute a coherent framework for conducting foreign trade and investment.

 

It is a characteristic of legal frameworks that no sooner are they built than one discovers that they need to be rebuilt. And what emerged quite clearly from the two conferences was that the Chinese themselves fully understand this. The policymakers and Chinese legal academics who were the principal architects of China's foreign trade and investment regime are now spending a great deal of time on law revision. (One speaker suggested the only brake on change was the paucity of trained legal personnel to carry forward the task of law revision.) Indeed, the metaphor most often used by conference speakers to describe Chinese foreign trade and investment law was that of the moving target.

 

In its effort to build a comprehensive new legal order China decided to embark on what was in effect a dual-track strategy, making a distinction between laws applicable domestically and laws applicable to foreign matters. (In the view of several conference speakers that distinction may now be in the process of breaking down.) Nonetheless certain domestic legislation has a direct bearing on foreign trade and investment.

 

2. Domestic Legislation Bearing on Foreign Trade and Investment

China promulgated a new Constitution in 1982 and an amended version of the same in 1988. Both documents recognize the right of foreigners "to invest in China and to enter into various forms of economic cooperation with Chinese enterprises." Both also promise that foreign investors' rights and interests will be protected. (1982 Constitution, as amended 1988, Article 18). The General Principles of Civil Law, which corresponds to the first chapter or General Part of a European civil code1 and was a centerpiece of China's lawmaking efforts in the 1980s, specifies that joint ventures and wholly owned foreign enterprises may obtain the status of a Chinese legal person, with all the rights appertaining to that status, upon the appropriate registration and approval (Article 41). China's Civil Procedure Law (draft version, 1982; final version, 1991) explicitly recognizes the right of foreigners to sue in Chinese courts. The Administrative Litigation Law of 1989 allows foreigners the right to challenge administrative agency decisions in court. A final piece of "domestic" legislation bearing on foreign trade and investment is China's recently enacted Company Law (1993). This law, designed primarily to promote the reorganization of China's domestic enterprises, also by its terms makes new modes of direct investment available to foreign investors.

 

3. Foreign-Related Trade Laws

While important for foreign traders and investors these laws are surpassed in importance by those addressed specifically to foreign trade and investment.

 

Through a series of laws passed in the 1980s, China sought to regulate in great detail trade in goods between Chinese and foreign business enterprises. These laws governed such things as the licensing of imports and exports, commodity inspection, and the content of import-export contracts. Chief among them is the so-called Foreign Economic Contract Law (FECL) of 1985.

 

The FECL applies to "foreign-related contracts," an admittedly vague term. But according to the experts, it refers to any contracts in which one of the parties is a foreigner. For example, the FECL would apply to a contract between an American automobile producer and a Chinese supplier of auto parts or to a Chinese-French joint venture auto parts maker and the same American auto producer. It would not, however, apply to a contract between the Chinese-French auto parts maker (joint ventures are considered to be Chinese legal persons) and a Chinese automobile producer. China has a separate Economic Contract Law governing contracts between domestic enterprises, including joint ventures.

 

The FECL regulates contractual terms and has other provisions affecting contractual validity. It has a provision that allows contracting parties to provide for the arbitration of disputes and to specify the applicable law the arbitrators shall apply. It should be noted that the FECL is itself subordinate to the United Nations Convention on the International Sale of Goods, an agreement governing contracts for the international sale of commercial goods to which China has acceded (see below).

 

In 1994 the NPC enacted a comprehensive Foreign Trade Law, which seeks to unify all the enactments concerning the organization and administration of foreign trade into a coherent whole. Implementing regulations are expected shortly.

 

There are several striking features of China's foreign trade law regime, the most important of which, stressed repeatedly at both conferences, is that engaging in foreign trade requires the official permission of the state. A corollary of this principle is that government authorities may review the terms of foreign trade contracts and may order any changes they deem appropriate before approval. Only Chinese parties (including Chinese/foreign joint ventures, purely private Chinese concerns, and state-owned enterprises) who have received official permission may engage in foreign trade. Foreigners who wish to contract with Chinese entities must first establish that these entities have received official authorization to engage in foreign trade. Any foreigner who enters into a contract with a nonauthorized entity, has entered into a contract that has no validity under Chinese law. He will likely find himself without legal recourse should the agreement be breached by the Chinese side.

 

Another serious hazard of which foreigners wishing to engage in trade with Chinese businesses must be aware of is the result of decentralization in China since 1978. In the past almost all of China's economic activity was in the hands of a relatively few large Chinese national companies, each with a headquarters and numerous branches. The headquarters and branches could be seen, and were seen legally, as constituting a single business entity. But that situation has now changed radically due to China's economic reforms. What were previously large conglomerates have now been broken up into numerous independent operating entities, each responsible for its own profits and losses. Whereas previously a national company might be held ultimately responsible for an export contract entered into by a provincial branch, now it might turn out that what looks like a provincial branch of a national company, though retaining the former national company's name, is in fact an independent legal entity with exclusive responsibility for its contractual commitments. Foreigners wishing to do business with Chinese firms need to be aware of this new economic and legal reality.

 

China's new foreign trade law regime raises several very significant issues. The principal one that came up for discussion at both conferences has to do with the accessibility of information on Chinese business concerns. Legal and business records in China are in such a state that foreigners often find it impossible to establish the exact legal status of a Chinese business entity with which they propose to deal, i.e., whether it is an independent entity or a branch, or to determine whether it has authorization to engage in foreign trade. This of course makes the task of negotiation a hazardous one. The consensus among observers is that this situation needs to be clarified if foreign trade contracts are to continue to grow.

 

A second issue that came up for some discussion was the Chinese commodity inspection system. An American lawyer at the Beijing conference with long experience in Chinese foreign trade, while acknowledging that China had made great progress in the area of commodity inspection, argued that there are further changes that need to be made. There is a need for foreigners and Chinese alike to know more about the exact standards applied by the Commodity Inspection Bureau. Furthermore, it was argued that there should be some relatively expeditious way of challenging bureau decisions. Finally, it was suggested that China consider letting foreigners designate some entity other than the bureau for the inspection of commodities.

 

4. Foreign Direct Investment Regulation

China's legal regime for the encouragement and regulation of foreign direct investment was a main focus of discussion at both conferences. It is in this area that the National People's Congress has been most prolific in passing legislation, and it is in this area that the laws passed have had such significant consequences.

 

As noted above, China enacted its first law affecting foreign direct investment in 1979, the Equity Joint Venture Law. This measure sanctioned the creation, subject to state approval, of joint Sino-foreign business enterprises. Participants in these ventures are liable for the firm's debts and entitled to its profits to the extent of capital contributed. They are authorized to exist for up to thirty years or more and are recognized under Chinese law as legal persons. Equity joint ventures are governed by their Boards of Directors and under the original law the Chair had to be Chinese. The law was amended in 1990 to permit foreigners to serve as Chairs. There is a minimum 25% equity requirement on the part of the foreign partner to the joint venture. Ownership interests in equity joint ventures are not transferable.

 

In the years since 1979 China has enacted laws sanctioning other types of foreign direct investment. In 1986 it authorized the establishment in China of wholly owned foreign enterprises. Two years later it passed a Cooperative Joint Venture Law, authorizing the creation of contractual joint ventures as opposed to equity joint ventures. These enterprises resemble general partnerships in structure and operation. Contractual joint ventures, like equity joint ventures, are subject to government approval and if approved are recognized as legal persons. They enjoy limited liability and may be of any duration the venturers choose. There are no minimum contributions on the part of foreigners, and the participants are free to decide on the distribution of profits and losses.

 

All laws affecting foreign direct investment have been followed by the promulgation of corresponding implementing regulations.

 

That China's laws have been successful in the promotion of foreign direct investment is witnessed by the fact that through 1994 China had approved some 206,000 foreign investment projects which together employ over 14 million people and account for approximately 29% of China's exports.

 

In 1993 the Chinese National People's Congress enacted a Company Law which applies potentially at least, to both domestic and foreign business entities. Under the Company Law, which makes new forms of business organization available to Chinese firms, potential new investment vehicles have become available to foreign investors in China as well. These are (1) the limited liability company, resembling in legal character a German limited liability company; and (2) the company limited by shares, similar to an American corporation. These new forms of business organization may give foreign investors more autonomy and managerial control than under the old investment vehicles, such as equity ventures and contractual joint ventures. In addition they open up the possibility of portfolio investment inasmuch as the law permits ownership interests in companies limited by shares to be listed and traded on exchanges.

 

By law what were formerly equity joint ventures can be transformed into companies limited by shares. The Company Law also permits foreign companies to establish Chinese subsidiaries. The new law is seen by some observers as an attempt by China to create a single unified law of business organization, applying to domestic enterprises, joint ventures, and wholly owned foreign concerns alike. Whether it will have this effect is at the moment a topic about which there is considerable speculation but no firm consensus. The view of some is that foreigners may wish to retain the preferential treatment that is available to joint ventures and wholly foreign owned enterprises under existing legislation.

 

5. Intellectual Property Protection

China's laws concerning the protection of intellectual property are not, strictly speaking, foreign trade or investment measures, but rather part of the country's domestic legislation. However, an argument can be made that these laws came into existence principally in order to encourage the transfer of foreign technology to China and only secondarily to provide protection to Chinese citizens. So in some sense they may be seen as belonging to China's foreign trade law regime.

 

A complete intellectual property law apparatus is now in place in China. China enacted its first modern intellectual property law, a Trademark Law in 1982. (It was amended in 1983 to permit the registration of service marks.) It enacted Patent and Copyright laws, respectively, in 1985 and 1990. An Unfair Competition Law, forbidding among other things unauthorized use of commercial names and false and misleading claims about a product, came into force in December, 1993. In addition to these laws China has entered into several Memoranda of Understanding with the United States concerning measures to be taken for the better protection of intellectual property.

 

Chinese intellectual property law resembles American intellectual property law in some respects but differs from it in others. Unlike American law, Chinese patent law does not protect new varieties of plants nor new breeds of animals, although it does protect new methods of making seeds. Furthermore, as in American law, one cannot patent computer software by itself in China but only in connection with new hardware. In seeking to protect computer software in China one is relegated exclusively to the regime of copyright law. As presented at both conferences, China plans to revise its copyright law to more fully cover the field of computer software or enact sui generis software protection legislation.

 

Discussion of China's intellectual property laws has centered more on the laws' enforcement or nonenforcement, rather than on their content. Actually, the content of these measures compare favorably with the intellectual property laws of most modern commercial nations. If there are deficiencies, the same exists in the intellectual property laws of virtually every nation in the world. In every country intellectual property law is struggling to keep up with the blistering pace of technological development especially in the computer field.

 

6. Dispute Resolution

Provision for the resolution of disputes is a key feature of any legal system, and Chinese officials at both conferences acknowledged the importance of effective dispute resolution mechanism for confidence building in foreign business. As noted earlier, under Chinese law foreign businesses have the right to sue in Chinese courts. (See Civil Procedure Law, Article 185-7 ff.) Indeed the Intermediate People's Courts, the second-level courts from the bottom in the Chinese judicial hierarchy, have economic tribunals for the hearing of cases involving foreigners. Cases involving foreigners are heard with some regularity in China's Maritime Courts. These specialized courts exist in the coastal cities for the purpose of hearing maritime trade and maritime casualty cases. In general, however, the Chinese court system has rarely been resorted to by foreigners in foreign trade matters, and arbitration is the favored method of dispute resolution in this area.

 

Chinese law permits parties to a foreign trade contract to include provision for the arbitration of disputes that may arise under the agreement. The parties are free to choose which body of law shall be applied in resolving the dispute and to provide for arbitration outside China, in the International Chamber of Commerce, the Stockholm Chamber of Commerce or the London Court of International Arbitration, to name a few examples. In practice, however, most contracts call for the resolution of disputes in China and that is where the vast bulk of international trade arbitration takes place. A rather elaborate arbitration apparatus has grown up to meet this demand.

 

China has had some sort of system for the arbitration of international trade disputes for many years. One existed even during its period of autarky and relative isolation from international commerce. But China's current system for international trade arbitration dates to 1988 when the China International Economic and Trade Arbitration Commission (CIETAC) was established. This tribunal is authorized to handle all international trade disputes. (China has a separate system for domestic arbitration.) In recent years, the tribunal has been handling a great many disputes. In 1994, for example, it accepted 829 cases for arbitration, thus making it one of the busiest arbitration tribunals in the world. China recently enacted a new Arbitration Law. It and new arbitration rules are set to go into effect in September, 1995. The new law broadens the scope of disputes that may be submitted to arbitration. It sets tight time limits on the rendering of awards. It also allows arbitration to continue even when the underlying contract is found to be invalid.

 

CIETAC, which is headquartered in Beijing but has subcommissions in Shenzhen and Shanghai, is an organization somewhat like the American Arbitration Association. Rather than hearing cases itself, it arranges for their hearing by individuals drawn from a list of arbitrators it has approved. And it supplies administrative support for the conduct of arbitration. There have been few complaints against CIETAC arbitration panels on the score of fairness or impartiality. The dispute resolution machinery has come under criticism on other scores, however.

 

CIETAC has apparently been unduly slow at times in processing cases. In the opinion of some it places undue emphasis on pressuring parties to compromise even when the relationship between them has completely broken down. CIETAC arbitrators, too, some argue, have a tendency to overlook clearly applicable law and decide disputes on rough intuitions of justice. The major area of controversy, however, concerns the enforcement of arbitral awards.

 

Considerable doubt exists among many foreign experts on Chinese law as to whether arbitral awards are readily enforceable in Chinese courts. Some contend that the record of enforcement is unclear at best, very spotty at worst. A leading scholar-practitioner who spoke at the San Francisco conference, expressed the view that one simply cannot say for certain whether arbitral awards will be enforced in Chinese courts--especially if they are adverse to local companies. Yet, he noted, a clear record of regular enforcement of arbitral awards is essential if foreigners are to have confidence in the system.2 It should be noted that Chinese legal officials, including officials affiliated with CIETAC, vigorously disagreed with this view, contending that the dimensions of this problem have been exaggerated.

 

7. International Agreements

A summary of Chinese foreign trade and investment lawmaking in the past sixteen years would be incomplete without mention of the important international treaties and agreements that China has entered into, all of which have a direct bearing on foreign trade and investment. The first of these was the Paris Convention for the Protection of Industrial Property, which China signed in 1984. In 1987 China acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and in 1991 to the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention). In that same year China joined the Hague Convention on the Service of Documents Abroad. (It has not however as of this writing acceded to the United Nations Convention on the Collection of Evidence Abroad.) In 1992, China joined the Berne Convention on Protection of Literary and Artistic Works. In addition it has entered into numerous bilateral trade agreements with other nations. It is worth mentioning --a point stressed by several Chinese speakers both at the San Francisco and at the Beijing Conference-- that under Chinese law if there is a conflict between Chinese domestic legislation and the provision of an international agreement, the international provision takes precedence unless China has specifically reserved the right to apply its own law. This is in contrast to American law, where just the reverse is true.