Why Did My Lawyer Quit?

Commenting on Latham & Watkins’s withdrawal from representing the Chinese company Wahaha, I kept looking for the reason(s) for the withdrawal. I knew that there had to be some legitimate reason(s); otherwise, the withdrawal would be unethical under the American Bar Association’s Model Rule on Professional Ethics. My mind also led me to wonder how the Chinese law and legal ethics deal with the same issue. Bearing in mind that this post might be a bit technical, I will try to stick to simplicity and help people understand the differences between the two regimes of legal ethics, and how they protect clients’ interests when lawyers decide to quit.

First off, the ABA contemplates two types of withdrawals—permissible and mandatory. A lawyer must withdraw under the following conditions:

1. The lawyer’s physical or mental condition materially impairs the lawyer’s ability to represent the client;
2. The lawyer is discharged;
3. When the lawyer learns of a client’s crime or fraud, and the lawyer fails to dissuade the client from continuing such crime or fraud (Actual knowledge required, mere suspicion not enough). See In re American Continental Corp.

Under ABA Rule 1.16, a lawyer may withdraw if the following conditions are met:

4. The withdrawal will have no material adverse effect on the interests of the client; see Gilles v. Wiley, Malehorn & Sirota
5. The lawyer reasonably believes that the client is doing something criminal or fraudulent;
6. The client has used the client’s service to perpetrate fraud or a crime;
7. The client insists on doing stuff repugnant to the lawyer, and with which the lawyer has a fundamental disagreement;
8. Client fails to perform substantially under contract (paying fees);
9. The representation will result in an unreasonable financial burden on the lawyer or has been rendered unreasonably difficult by the client;
10. The representation will result in a violation of ethical rules or other law; or
11. Other good cause as deemed appropriate by a sitting judge.

Latham & Watkins’s withdrawal from representing Wahaha in the Los Angeles case has to be based on one of the above 11 causes. Once a lawyer decides to withdraw, she has to obtain permission from the court in a litigation case, and the court will examine the reason(s) given by the lawyer to determine whether the facts warrant a withdrawal. Of course, since the case is in California, Latham & Watkins’s lawyers in the local office have to follow California ethical rules, which might differ from the ABA Rules. Because I am not very knowledgeable about the California rules, I will just use the ABA Rules for illustration purposes.(In reality, the California rules and ABA Rules should be substantially similar with respect to terminating representation.)

Compared to the ABA Rules on withdrawal, the Chinese counterpart is far less specific. Currently, two documents provide guidance on the subject of terminating legal representation—the Lawyer’s Law of China (2007) and the Code of Conduct for Practicing Lawyers (2004 Provisional).

The Lawyer’s Law states that lawyers have the right to refuse or terminate representation in the following situations (similar to mandatory withdrawal):

1. the matter to be undertaken by the lawyer violates the law;
2. the client uses the lawyer’s service to violate the law;
3. the client purposefully withhold material facts from the lawyer.
See Lawyer’s Law (2007 Amended), Article 32, paragraph 2.

The Code of Conduct for Practicing Lawyers forbids terminating representation without appropriate cause, see Article 65; but it allows withdrawal when:

4. the lawyer learns of a present conflict of interest between her client and another existing client, (withdraw from representing the client who signed the contract but has not paid fees) see Article 85;

5. the lawyer is suddenly stricken with illness or disease and cannot physically continue the representation, see Article 89; [prompt notice to and agreement from client required before withdrawal]

6. the lawyer has changed her job and needs to move away, see Article 89 [prompt notice to and agreement from client required before withdrawal].

A simple and literal comparison of the American and Chinese rules may lead one to conclude the following:
1. Both rules mandate withdrawal when clients engage in fraud and/or crime, but the American rule requires the lawyer’s subjective knowledge, while the Chinese rule is less transparent on whether knowledge or suspicion is required for terminating the representation.

2. Where withdrawal is permissible, both rules require proper cause. The ABA Rules list six detailed and one general cause, whereas the Chinese rule provides three detailed causes for withdrawal, making the Code of Conduct much less instructive than its American counterpart. But, this is probably typical of statutes and rules in a civil law jurisdiction, where minute and exhaustive provisions on certain topics are less common than in the common law jurisdictions.

3. Overall, from a legal ethics perspective, clients with American lawyers should be able to enjoy more protection under the ABA Rules than they might under the Chinese rules. Under the ABA Rules, a client, at least, pretty much knows why her lawyer quit by way of eliminating the possibilities. But the Chinese rules leave so much room for generality that it might be hard to figure out why her lawyer terminated.

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Blogroll Addition

Check out Romain Guerel's blog: China and I.

He blogs on a host of interesting topics, and he posts an assortment of videos & audios. The following are just a few examples:

The battle for oil: China vs US oil companies

Powering China: Roundtable with Three-time Pulitzer winner Thomas L. Friedman

As the French President Sarkozy visits China with his delegation of business persons, lots of big contracts have been signed during the visit. Be sure to check Romain's blog for his take on the visit and its impact on both countries.

Move Over, Administrative Regulations!

Mr. Ma wanted to tour some of the most beautiful places in central China with his son. He always wanted to visit those places himself, and he longed for his son to tag along so that he may appreciate the natural and historical beauty of these places too. The only time to go is, of course, during the week long May Day holiday when the entire country travels and vacations. Mr. Ma knew that the trip would be expensive, tiresome, and crowded, but he did not care, because he really wanted to go and figured this year would be the year. So, he called a traveling agency and booked the tour for two. Upon paying the necessary amount to and signing a contract with the traveling company, Mr. Ma was pregnant with excitement about touring the sites with his son, despite the inconveniences that he foresaw.

The tour lived up to its hype for the most part, and Mr. Ma enjoyed almost all the sites he visited, except for two. His tour guide, an agent of the traveling agency—Shanghai Chunqiu Huangpu Traveling Agency, had decided that visits to those two sites would be replaced by a shopping trip instead. When Mr. Ma confronted the agent and the agency about skipping the two sites, they pretty much thumbed their noses at him, telling him that a distant glance at those two places would be just as gratifying as walking through them with thousands of people. Mr. Ma insisted that those two sites were included in the contract, but to no avail.

Mr. Ma was outraged and decided to sue under the contract for damages. But the real issue was what laws/regulations should apply to determine the appropriate amount of damage. The plaintiff argued the Contract Law of China should apply since the parties had a valid contract governing their relationship, while the defendant averred that the Standards for Compensation on Traveling Quality Guarantee (Provisional) (“Compensation Standards”), issued by the National Tourism Administration in 1997.

Plaintiff pleaded for specific performance of the contract, i.e. tour of the sites skipped by the defendant. In the alternative, he asked for monetary damages in the amount of 5,890 Yuan (amount that it would cost the plaintiff to travel to those sites in an alternative tour), in addition to attorney’s fees totaling 4,000 Yuan. The defendant, on the other hand, answered that the proper damage under the Compensation Standards should be 280 Yuan, the value of admissions to the two sites plus relevant compensation.

The Court ruled in favor of Mr. Ma, but denied all that he desired. It held that the Contract Law should apply, and the defendant should compensate Mr. Ma for the economic damages resulting from the breach of contract. Specific performance of the contract, given the nature of the contract and the circumstances, is not the proper remedy. Rather, the defendant should pay Mr. Ma 2,400 Yuan, on account of the contractual provisions regarding transportation, admission tickets, lodging, and tour guide fees. And the Court specifically pointed out that it came out with the amount because the parties did not stipulate the method and amount of damages in case of breach by either party.

That is the story, but it does not end here.

Although insignificant in the amount of damages, this case is very significant in a few aspects:

1. The Court refused to apply the Compensation Standards even though they were directly applicable to the facts of this case. So, it can be inferred that in case of a direct conflict between the Contract Law and an administrative regulation the former prevails. Theoretically, it has always been the case, but it is less obvious in reality. The Court made the theory alive, which entitles the Court a pat on the back.

2. More consumers are choosing to exercise their legal rights and are not afraid of doing so in courts. Mr. Ma represents one of those individuals that do not let a wrongdoer walk free without putting up a fight. His attorney’s fees are probably more than the compensation he received. But that is kinda beside the point here.

3. The Court was very competent in reaching its decision. It looked at the plain language of the contract, excluded force majeure as an excuse for the breach, and reached an equitable decision for lack of contractual provisions on damages.

Remember that China currently has more than 10,000 regulations of various hues? If Chinese courts start to follow the example of this Shanghai court, those regulations that conflict with Chinese laws might have to really MOVE OVER. And that might not be a bad thing at all.

Danone-Wahaha Dispute: No End in Sight

As the Danone-Wahaha dispute drags on, no end seems near for each party in their multi-country, multi-continent war. Lately, Danone has received some good news, whereas Wahaha is feeling the heat of loosing its original lawyers in the United States and some adverse judicial rulings against its off-shore assets.

By way of background, the following are the battle fronts:

1. Danone v. Wahaha in arbitration in Stockholm

2. Danone v. Wahaha, Zong Qinghou’s daughter and wife, Wahaha off-shore companies in a Los Angeles Superior court

3. Wahaha v. Danone in arbitration in Hangzhou, China

4. Danone v. Wahaha off-shore companies in a British Virgin Islands court

5. Danone v. Wahaha off-shore companies in an American Samoa court

6. Wahaha v. Danone in derivative action in Shenyang Intermediate People’s Court in China

Wahaha was shocked to learn that its litigation lawyers withdrew from the representation in the case pending in Los Angeles. Some speculate that Latham & Watkins withdrew because its client provided false testimony. In any international litigation, changing lawyers midstream always adds a strain to the case, in terms of finances, preparedness, and possibly momentum. Wahaha quickly found new lawyers for its case, and let’s hope that the new lawyers will get up to speed on the case for Wahaha. Because of the change, it will probably take more time for the parties to conduct discovery, thus pushing the trial to a later date if they do not settle.

Bad news also arrived for Wahaha from the courts in the British Virgin Islands and the American Samoa. Reportedly, both courts ruled in favor of Danone, freezing assets [in Chinese only] of Wahaha’s off-shore companies in both jurisdictions, respectively. The courts also appointed receivers for said companies. (I do not know Danone’s causes of action in these two courts, after some research.) Given the two rulings, Wahaha should be evaluating its overall strategies because it has been defending itself in multiple jurisdictions, with less than satisfactory results. It is unknown whether Wahaha will challenge these rulings.

In addition, final arbitral decisions are also pending in Stockholm and Hangzhou.

Overall, Wahaha has a pretty tough road ahead, while Danone is having the upper hand on the legal matters. Of course, Danone’s business prospect in China is a totally different matter, since winning in courts does not naturally and necessarily translate into winning consumers’ hearts in China. Wahaha is apparently preparing for the worse by using a brand new trademark—Qili 启力.

With no end in sight for this international dispute, both parties are probably feeling the battle fatigue, and the bite of their legal fees. Will they try to work things out with some kind of compromise on their own? Will they attempt to reach some kind of agreement with the French president as an intermediary (if he chose to intervene during his trip to China)? Or will they continue the knock-down, drag-out fight? As far as Danone is concerned, the last option seems most likely if Wahaha does not give up a few inches, because Danone currently stands in a very strong position.

“No Harm, No Foul”: China Wins Trade Dispute on Paper Exports

As reported by the New York Times, the United States International Trade Commission (USITC) handed a victory to the Chinese government and a few glossy paper exporters in their trade dispute with the U.S. government over “illegal subsidies.”

Notably, the USITC refused to endorse tariffs on Chinese glossy paper as requested by American producers, and it “threw out” duties on Chinese imports “authorized” by the Bush government. The reason for this ruling against the American parties is that the USITC found no “material injury” or “threat of material injury” to American manufacturers, despite allegations of illegal subsidies by the Chinese government.

Currently, industries such as steel and tire are also seeking relief, and of course the key to their success seems be to evidence of “material injury” or threat thereof.

China Hearsay looks beyond these trade cases and rulings, and sees glimpse of protectionism in the U.S. and the EU.

Maybe, the Chinese government and those Chinese glossy paper exporters will have something to be thankful for at this time of the year.

"China Hearsayworthy" and Signs of China JV Trouble

The always prolific and thoughtful China Hearsay came out with something quite entertaining, and with a bit of southern accent: You Know You’re [Your China JV Is] in Trouble When the . . .

[For a sampling:]

JV partners haven’t spoken to each other for 7 years.
CFO is the wife of the local partner.
Foreign investor has never visited the JV and forgot what city it’s in.
Local partner claims he is son of a PLA general.
Neither party can remember who was supposed to file the application docs.

Stan points out five more signs dooming a China joint venture. Of course, not all of these signs will be present in all JV failures, but some definitely are in the Danone-Wahaha joint venture fallout.

U.S.--China Rule of Law Forum

Today, I had the distinct pleasure of attending the U.S.-China Rule of Law Forum. The U.S.—China Rule of Law Forum is an exchange program, sponsored by Senator Kaye Bailey Hutchinson (Texas), and it is hosted by Dean Attanasio at the SMU Dedman School of Law. Because of the high profile of the Chinese delegation and the lively discussions during the program, it is one hour well spent, and I’d like to share what I witnessed.

First, the Chinese delegation consists of a group of people from various legal backgrounds. Some are law professors, such as Professor Lixin Yang; some are from the Standing Committee of the People’s Congress; some are from the Ministry of Justice; some are from the Supreme People’s Procuratorate of China; and a few are from private practice; and a Grand Justice, Mr. Liu Jiachen of the Supreme People’s Court, was also a member. In sum, the delegation is good mix of people with substantial knowledge about the development and reform in China’s legal system.

Second, Madam Liu gave a 30 minute keynote speech, titled the Legal Situation and Law Reform in China. During her speech, she briefly highlighted China’s achievement in comprehensive legal reform since the late 1970s. She cited some interesting statistics: in the past 30 years, China enacted about 230 laws, 1000 administrative regulations, and over 10,000 local rules and regulations throughout the country. In the meantime, China also amended and appealed many laws to weed out those no longer in sync with the Chinese society. As a result of these developments, China has established political, social, economic relationships in a brand new legal system governed by law. And the establishment of the legal system has led to specifications of rights and duties of parties, methods of dispute resolution, and a fundamental state policy—rule by law.

Madam Liu was also quick to note the long way ahead of China’s efforts to build a society ruled by law. Much has been accomplished, yet much remains to be done. In the long way ahead, China is willing and ready to borrow from legislative successes from other nations, including those in the common law system. She specifically noted the legal accomplishments of the United States in building a system of the rule of law that works for the U.S., and in training “an army of a million lawyers.”

Her identification with the U.S. legal system quickly turned into a discussion about the importance of building individual legal systems appropriate for each sovereign nation. Each nation has the right to choose a legal system based its own historical, social, and economic backgrounds. And a recognition of the uniqueness of legal systems in different countries help build a world with diverse and colorful legal systems.

Then, Madam Liu calls on the U.S. and China to cooperate in building stronger mutual understanding on the rule of law. In the context of increasing globalization, nations need to work together to achieve justice, build equality, and resolve conflicts. To achieve that, many Chinese students are choosing the study of law, making law practice a fast growing professional area.

Third, I post only the highlights of the Q & A session that I was able to jot down.

Question 1 (SMU law student)—How much deference do courts give to the Chinese communist party opinions/directions in reaching their decisions?

Answer (Grand Justice Jiachen Liu)—Judicial independence is protected by the Chinese Constitution. The judiciary works very hard to try cases independently and their work is in line with the will of the people. Some people in the West misunderstand judicial independence in China, and ignores that China has chosen its own path for its judiciary, which serves China well.

Question 2 (SMU law student)—How will Hong Kong’s common law system mesh with China’s legal system in the coming years?

Answer (member from the Standing Committee of the People’s Congress)—Hong Kong is currently governed by its own Basic Law, under which judicial judgments are independent and final. Even though the judicial systems in China and Hong Kong are widely different, the Central Government and Hong Kong (SAR) Government can operate under the Basic Law to resolve differences. However, if issues concerning technicality cannot be resolved that way, the Standing Committee of the People’s Congress has the power and authority to issue its own interpretation, which will be controlling in resolving such technical differences. This has been done and been accepted by the people of Hong Kong.

Question 3 (SMU reference librarian)—China currently has a compilation system for laws based principally on the date of promulgation. What kind of progress has China made in creating a comprehensive code, like the US Code, to make research on Chinese law easier?

Answer (Member from the Standing Committee)—It is still a work in progress; and it has been a problem for our own researcher as well. We have made some progress in building a comprehensive legal database of laws and regulations. That should make researching easier if you have the URL to that website.

Question 4 (SMU student, me)—China recently revised its Lawyer’s Law to make lawyers’ lives easier. But one persistent issue still seems to loom at large. Article 34 of the Lawyer’s Law requires a lawyer to keep his client’s secret information confidential (i.e. past crime), but Article 84 of the Criminal Procedure Law requires any individual to report any information about crimes to law enforcement authorities. If we consider lawyers as individuals in the sense of the Criminal Procedure Law, there is an apparent conflict between the two laws. How should a lawyer deal with this issue in his/her practice?

Answer 4 (Law professor, Bingzhi Zhao)—As a law professor and a part-time practicing attorney, I hope to answer this question. On the surface, there seems to be a conflict. However, there is no direct conflict. If you look at the apparent conflict in the frame of the relationship between laws, it looks very different. Some laws are special, such as the Lawyer’s Law. Because lawyers enjoy an immunity from the reporting duty under the Criminal Procedure Law while representing a client, the conflict goes away in that situation. In the past decade since the promulgation of the Lawyer’s Law, this apparent conflict was consistently dealt that way.

[Sidebar: another delegate told me in private conversation that the Criminal Procedure Law will soon be amended, which will probably deal with the conflict.]

Question 5 (SMU law student)—Would you please talk about China’s efforts in intellectual property protection?

Answer—IPR protection is both a Chinese and a global issue. Since China’s entry to the WTO, China has paid more attention to IPR protection in a three-pronged approach: legislation, administrative agency enforcement, and police involvement. In terms of progress made in China, here are the statistics:
2002—2006, about 54,321 IP cases were filed in various courts; 52,000 cases were adjudicated by courts. Compared to the same 5 year period between 1997 and 2001, those numbers represent a growth of 145% and 141%, respectively.

By 2006, China has 172 courts devoted to try IP cases.

China has 16,600 judges specializing in IP cases.

Question 6 (SMU law student)—What type of legal regime does China have in dealing with product liability in light of the recent product recalls?

Answer (Professor Lixin Yang)—China actually borrowed heavily from the American and British common law in creating its own product liability law. In 1986, the General Principles of Civil Code was passed, whose Article 122 is devoted to tort liability. While China is in the middle of creating its comprehensive Civil Code, the Tort Law will be lifted out of general provisions and be an independent body of law in the Civil Code. In a civil law system, it is rare to have an independent Tort Law. And the Tort Law will probably come out either next year or in 2009.

I hope that you enjoyed my long notes from this function. It was an incredible experience for me.

Judges: Mind Your Image and Manners

The Henan Supreme People’s Court recently made news here and here. It issued China’s first institutionalized provincial level judicial etiquette—《河南省人民法院司法礼仪规范(试行)》, the Henan Province People's Court judicial etiquette (Provisional) (“Judicial Etiquettes”). The much hyped Judicial Etiquettes will become effective on August 1, 2008, across the central province of Henan.

It sets out some norms for judges to follow while on or off the bench. Some deal with speech, some deal with dress code, and others concern basic manners in a court room.

The following 11 types of sentences addressing lawyers are banned:

1. Stop talking (or more crudely, shut up).
别再说了。

2. Am I the judge or you are?
你当法官还是我当法官。

3. Do you or I know the law?
你懂法还是我懂法。

4. Whose words are controlling here?
你说了算还是我说了算。

5. Shall we listen to you or me?
听你的还是听我的。

6. Not agreeing to mediation is not good for you.
　　 不同意调解对你可没好处。

7. Your case is sure to win/lose.
你这个案件肯定要输（赢）的。

8. How are you lawyering the case?!
你这个律师怎么当的。

9. This Court is not here for you alone.
法院不是为你一个人开的。

10. You are annoying.
烦人。

　11. This is how I’m gonna rule. You are free to appeal, to whomever and wherever.
我就这样判了，你去告好了，想找谁找谁，想去哪告去哪告。

Aren’t these rules great?! Taxi drivers in Beijing and the judges in Henan finally have something in common to talk about—Caution, Speech. What is more, the judges in Henan are now officially required to deliver justice and politeness. Hopefully, that is not a tall order.

There is more to the Judicial Etiquettes. Judges in Henan also have to mind their manners too on the bench. For example, they cannot do these:

1. leave the bench in the middle of proceedings;
不得擅自离开审判席

2. receive phone calls or play computer games;
不得接听电话、玩游戏

3. wear sandals or slippers;
不得有穿拖鞋

4. Pick ears or cut fingernails;
掏耳朵、剪指甲

5. Smoke, eat snacks, or any other improper activities
吸烟、吃零食等不雅行为

I cannot imagine these happening in a court room; but apparently it’s been an issue in Henan People’s courts. Not targeting Henan Province here or have anything against it, which is the cradle of the Chinese civilization, but it is Henan that first came up with these rules.

And the following are my favorites:
1. Male judges shall not grow long hair, beard, or shave their heads bald.
2. Female judges shall not “dye their hair, wear heavy make-up, tattoos or painted nails.”
3. While wearing their uniforms, judges should not hold hands, arms with others in the public.

Overall, I see the Judicial Etiquettes as a positive thing, especially in the light that lawyers will get more respect in court rooms. But, what is wrong with male judges growing long hair? Is it the continuing campaign to root out any remaining influence of the Qing Dynasty? And female judge paining their nails?

Take it easy, your Honors in Henan.

IP Piracy: Does China Deserve the Bad Name?

The answer is more likely a “yes” than “no” for the average consumer exposed to the media’s persistent portrayal of China.

Assuming that you live in the West, you probably have heard the usually song and dance from the media—China is undergoing drastic changes, BUT its record on intellectual property is atrocious.

Now, Tim Johnson of the China Rises Blog (added to my blogroll) came out with a post, titled Is China unfairly bashed on piracy? In his post he urges a fresh look, posing the question: “Is it possible that the media have got it wrong?”

Then, he went on to cite a research report by a law professor out of Thomas Jefferson Law School:

That’s what a professor at the Thomas Jefferson School of Law in San Diego says [The media might have got it wrong]. He’s written a 24-page report that essentially says China, taken as a whole, is not the leading global pirate. When figures are adjusted for population, China's rates of intellectual property violation are lower than those of many other countries, including the United States.

Read his entire post and the underlying report; maybe a new perspective will change the way you view China’s piracy sin.

China's New Anti-Monopoly Law: More Power to the People or the Government?

China’s promulgation of its first ever comprehensive anti-monopoly statute captivated the interest of many scholars and practicing lawyers. Since the first draft of the Anti-Monopoly Law (“AML”) first surfaced, countless articles and comments have been written about the law, given the heavy-weight nature of a comprehensive competition law. Some even referred to this newly-adopted AML as “an economic constitution”, underlining its prospective important rule in China’s economy.

As the clock ticks down toward August 1, 2008, when the AML will become effective, some have expressed their concerns and thoughts about what exactly the AML could bring to the table in terms of fulfilling the stated legislative purposes of this law. Will it be a law enforced in the best interest of protecting consumer rights and general public interests, or will it be just another vehicle for the government to increase its power and influence in the private domain of business and commerce?

Recently, I finished reading an article written by Mr. Paul Jones, a Canadian international lawyer based in Toronto. Paul not only does an excellent job of reassembling the AML in a more reader-friendly fashion (unless you are a civil law statute purist who loves reading civil codes as they are), but also adds some very thoughtful discussions about what the AML is about or could morph into in the future:

On August 30, 2007, after l3 years of discussion the 29th Session of the l0th National People's Congress adopted the Anti-Monopoly Law ("AML") to come into effect on August l, 2008. Will this be the new "economic constitution" for China's market economy as hoped by the sponsors; or a source of "uncertainty for domestic and foreign companies over how the government will use its new powers?" Foreign companies are particularly concerned about provisions allowing for a review of mergers and acquisitions on national security grounds.

The answer at this time must be that, like the development of China's market economy, the AML is still a work in progress. While the basic framework of general principles has been set out in the AML, as would be appropriate for a fundamental piece of civil law legislation, the details that expand upon and clarify the principles will come in the regulations, measures and guidelines that hopefully will be issued in the months to come.

Please click here to read the entire article.

China’s Foreign Investment Guide Catalogue Revised

November 7, 2007 marks an important date for foreign investment policies in China, as reported by the China Briefing Blog and elsewhere (in Chinese):

The Ministry of Commerce and the National Development and Reform Commission jointly released the latest Catalogue for the Guidance of Foreign Investment Industries today.

The catalogue, approved by the state council, will take effect on December 1 according to the NDRC’s website. The new catalogue replaces a catalogue that came into effect in 2004.

While continuing to encourage foreign investment towards the hi-tech, equipment manufacturing and new material industries, the catalogue adds service-outsourcing and modern logistics to the service industry in an effort to fulfill China’s commitment to the WTO.

Overseas investment targeting conventional manufacturing industries in which China has mastered advanced technologies and has competent production capacity is no longer encouraged in the new catalogue.

Under pressure to clean up a growing environmental catastrophe, Beijing is pushing FDI towards developing clean production, reproducible energy, and ecological protection. Foreign capital is not permitted in the exploration of rare and non-reproducible mineral resources, or in high consuming and polluting industries.

Hoping to further spur development away from the booming coast, the revised catalogue drops the article limiting foreign investment in the central and western regions of China. Introducing foreign capital will also be considered in rejuvenating Northeast China and other historical industrial bases.

These revisions to the Investment Guide Catalogue are consistent with recent changes in other Chinese laws and regulations. For example, China revised it tax code to unify tax rates for domestic and foreign-originated companies, while at the same time providing tax incentives for clean and environmentally friendly industries. In addition, China modified its catalogue of export products to limit the export of inexpensive and labor-intensive goods, with the purpose of adjusting trade imbalance with its trading partners and addressing environmental concerns.

Here is the revised Investment Guide Catalogue in Chinese [I have not been able to find an English version]; here is the old Investment Guide Catalogue in English as of 2004. Be sure to note the differences.
**********************************************************************************
Update:

The English version of the Revised Foreign Investment Guide Catalogue can be found below:

Here, for an unofficial translation.

So far, I have not been able to find an official translation. Generally, one should be able to find official translations of important laws and regulations at http://www.fdi.gov.cn/pub/FDI_EN/default.htm

If a reader finds the official translation, would you please leave the URL of the site in your comment to this post? Thanks!

Check Out These Blogs

I have added the following to my blogroll, and they are essential courses of my weekly China reading diet:

China Business Blog
China Success Stories
China Digital Times
The China Vortex
Cup of Cha

Visit often and enjoy the intellectual nurishment...

China Forces Corporate Social Responsibility Down Chinese Exporters’ Throat

The idea of corporate governance and responsibility seems to be gaining quite a bit of traction lately in China.

In the wake of China’s product quality/safety/reputation perfect storm, discussions, new policies and governmental actions regarding corporate governance and responsibility are taking place in China in many spectrums of the society.

The Chinese government has taken a slew of actions to address food safety, and the quality of export products.

Recently, China Vortex, a blog authored by China expert Paul Denlinger, did an excellent post, titled Are Chinese Corporate Earnings Inflated? The post examines the discussions of corporate responsibility by former Chinese official, and it states that such discussions signal “strong internal pressure in China to make corporations more accountable…” [I have added China Vortex to the blogroll.]

I left a comment there:

The days of high corporate earnings without internalizing the externalities related to such income appear, at least in theory, to be nearing their end, at least to the exporters. As you might be aware of already, China has introduced tougher environmental regulations, specifically targeting exporters. Basically, the rules spell out this message–if you pollute, you don’t export for as long as it takes you to clean up.

For concerned people, like Mr. Xu Shanda, this means an advancement of their cause for corporate responsibility, at least in the export industries as of now. The following is an excerpt of the
above-mentioned article by Jane Spencer of [Wall Street Journal] on Nov. 1, 2007:

“China is introducing new antipollution regulations for its booming export industry, in an unusual collaboration between thegovernment’s environmental-enforcement arm and the Ministry of Commerce.
The rules could affect thousands of Chinese suppliers that make goods for multinational companies. Earlier this week, Zhang Lijun, vice director of China’s State Environmental Protection Administration, said export manufacturers that violate China’s pollution laws would be forced to close for one to three years. The policy will be enforced jointly by SEPA and the Ministry of Commerce. The ministry said the prices of Chinese exports are artificially low because factories aren’t …”

This is a good move, and it would be better to expand the rules to cover non-export companies too. After all, a polluter is a polluter, regardless of the nature of the underlying operations. Internalizing externalities should be party of every company’s cost of operations.

Besides, the Nankai University Business School just hosted the 4th International Symposium of Corporate Governance, highlighting current academic research and discourse about corporate governance and social responsibility around the world. One international symposium does not make Chinese corporations improve their governance, nor does it shape them up to be more socially responsible. However, such exchanges of ideas very likely will lead to policy shifts inside China on the very issue of corporate social responsibility, especially in the greater context of growing awareness on the consequences of corporate irresponsibility and a government touting sustainable growth and social harmony.

Even though China has not had its version of Enron and Worldcom, it has the ever-worsening environmental disaster, caused by countless irresponsible corporate polluters. To maintain sustainable growth, policy-makers in China have no other options other than adopting new rules and regulations to cause the birth of responsible corporate governance within companies in China. An international symposium is a good step forward, but definitely not the only step. For a list of papers presented in the symposium, read this (Chinese only). And keep your eyes peeled for policy adjustments on corporate social responsibility in China as it will affect a lot of players out there.

China and Macao Signed Arbitration Enforcement Agreement

On October 30, 2007, mainland China and Macao Special Administrative Region (SAR) signed an agreement to mutually recognize and enforce arbitral awards originated from both sides (China-Macao Arbitration Enforcement Agreement). This agreement, as explained by a justice of the Supreme People’s Court, represents another step forward in China and Macao’s judicial cooperation.

Even though Macao will not in the near future be as financially important as Hong Kong is in terms of international trade, commerce, and dispute resolution, it has the potential to become a regional hub for commercial transactions in service industries. As it has been reported, the gaming industry in Macao is poised to rival Las Vegas. Given Macao’s commercial importance in the service industries, China Business Law Blog aims to write more posts on laws and regulations of Macao, SAR.

The agreement signed recently is a continuation of previous judicial cooperation agreements. And it is the third agreement between the respective judiciaries. In 2001, they signed the 《关于内地与澳门特别行政区法院就民商事案件相互委托送达司法文书和调取证据的安排》, an agreement to mutually deliver judicial documents and cooperate in evidence gathering, with respect to civil disputes. In 2006, cooperation between the two sides expanded to include the mutual recognition and enforcement of judgments in civil cases, which is called the 《内地与澳门特别行政区关于相互认可和执行民商事判决的安排》.

The China-Macao Arbitration Agreement referenced the New York Convention for its content, and the agreement consists of 16 articles, covering topics from applicability of the agreement, to the requirements for enforcement, and to retroactivity.

Please check back later for details of the China-Macao Arbitration Enforcement Agreement.

Money Laundering Case In Spotlight

As China’s economy continues to sizzle, financial crimes have become a prime target for the law enforcement folks. Many discussions out there deplored the seemingly ubiquity of money laundering activities in China. To sharpen tools used against such crimes, the Anti-money Laundering Law (“AMLL”) was adopted in 2006 and has become effective as of January 1, 2007.

In terms of the scope of authority granted responsibilities imposed by the AMLL, Michael Sylvester at Flaming Hoops Blog nicely summed it up for us:

The Law on Anti-Money Laundering … establishes, for the first time and in a comprehensive manner, the anti-money laundering supervision and management system in China, and defines the AML responsibilities and functions of the competent authority of the State Council, relevant agencies and organizations under the State Council; it imposes anti-money laundering obligations on designated non-financial institutions, and clearly defines the scope of financial
institutions that shall undertake anti-money laundering obligations, their obligations as well as legal liabilities in the case of violation of the Law; as for the anti-money laundering investigation measures, it establishes the terms of such exercise, the agencies to carry out investigation, approval procedures and time limit of investigation; it also stipulates the fundamental principles of international anti-money laundering cooperation.

Recently the government successfully prosecuted a significant money laundering case, using the AMLL. According to this report, the defendants, consisting mostly of Taiwanese individuals, illegally obtained money by stealing banking information from Internet shoppers. Then they transferred such funds into their accounts in a Shanghai Industrial & Commerce Bank branch. Afterwards, to avoid suspicion, defendants acquired multiple debit cards to disperse their “dirty” funds; then they withdrew cash totaling 1.08 million Yuan from ATM machines and bank tellers, all of which was subsequently transferred to another bank account set up by their ring leader. Unbeknownst to them, their activities did not escape the eyes of the newly-established anti-money laundering network, a consortium among commercial banks, the People’s Bank (central bank), the police, and procurators (prosecutors).

The defendants got their jail time and monetary fines. But, I do not think that is the end of this case. It looks to me that the government is going after violators, and in the absence of detailed statistics regarding suspected and prosecuted violations, it is hard to comment on the effectiveness of the anti-money laundering monitoring system currently in place. Nonetheless, a small success is still a success.

And the fact that the defendants are Taiwanese individuals is curious to me. Does it signal that the Chinese government is not afraid of putting “foreigners” behind bars for financial crimes?