China Business Law Blog Moved

China Business Law Blog 中国商法博客 has been relocated to http://chinabusinesslawblog.com.

Click here for posts at the new site.

New Boss at the Supreme People's Court of China

After almost ten (10) years of service at the SPC, Hon. Xiao Yang is stepping down, and his replacement has been selected and confirmed by the National People’s Congress...

The rest of the post is here.

Vulnerability of Chinese Lawyers

The sudden disappearance and resurfacing of Beijing Lawyer Teng Biao captured lots of attention and generated much reporting in the media.

If you haven't listened to this (the fourth one on the list) radio program, discussing Teng Biao's experience with the Beijing Police and the challenges that Weiquan lawyers face, I strongly recommend it.

It makes me want to watch To Kill a Mockingbird again.

Common Questions about China-related Law Practice

I just received an e-mail (ABA China Committee Listserve) with a list of most-frequently-asked questions posed by students and young lawyers about China-related law practice. As a law student, with a strong interest in a China-related law practice, I thought it relevant to post, and hope that readers would provide some good responses.

Here are the questions:

(1) What are the most important skills for a US lawyer in a China practice to possess?

(2) What do your clients perceive as being the greatest advantage to having a US-trained lawyer as opposed to a Chinese lawyer for their China-related work?

(3) Specifically how does knowledge of US law add to your competitive advantage within China?

(4) Should a US lawyer entering a China practice have a specialization within the law? Or is being somewhat of a generalist acceptable (or even advantageous)?

(5) Is experience in the US necessary or desirable before working in a legal capacity in China? If so, how much experience would your recommend and why?

(6) What opportunities do you see for US-trained lawyers in China outside of the law firm setting? Outside of the law altogether?

(7) How important is knowing the Chinese language to practice in China? Is it necessary or desirable to know any dialects? If so, which ones and why? Assuming that Chinese language skills are a necessity, is comprehensive fluency necessary prior to working in a China office, or is language something that can be improved upon while working there?

(8) Would an LLM degree in Chinese Law or international law enhance a US lawyer's marketability with respect to potential employers?

(9) Would admission as a Hong Kong solicitor (lawyer) make a US lawyer more marketable if the US lawyer wants to practice in mainland China only?

(10) Do you have any other advice that you would give to a student or young lawyer interested in working in this area?

Your comments are much appreciated.

China Business Law Blog, Moving Away from Blogspot...

I have been test-driving a clone of China Business Law Blog for one week at http://www.chinabusinesslawblog.com/ via wordpress, and it's been working out ok. So, I want to let readers know that I will gradually move to the new site. During the transition, I will post at both sites concurrently.

If you are a frequent reader of CBLB, please reset your “favorite” to http://www.chinabusinesslawblog.com/. If you have kindly linked to CBLB, please extend your courtesies by adjusting your blogroll. And if you are a reader out of China, you should be able to access CBLB directly at http://www.chinabusinesslawblog.com/.

Legal Ethics, in Chinese Style

Risking shameless self-promotion, I post the highlights of my article Chinese Law on Lawyers Amended: Progress Made and to be Made, published by the China Law & Practice in February 2008.



(Somehow, the endnotes seem to be messed up in copy-and-paste process. I apologize for the mess.)

Introduction Omitted.

EXPANDED SCOPE OF THE DUTY OF CONFIDENTIALITY

Compared to its predecessor, the Amendments take a more expansive view of lawyers’ duty of confidentiality to their clients. Before the Amendments, the Lawyer’s Law required lawyers to keep confidential 1) secrets of the State, 2) commercial secrets of their clients that they come to know in the course of the representations, and 3) private affairs of their clients.[i] Article 38 of the newly amended law tracks the original provisions on confidentiality under the original Lawyer’s Law as set forth above; but, paragraph two of Article 38 inserts the difference—with respect to confidential information of clients and other third parties that lawyers come to know in the course of representation, lawyers shall not disclose such information unless exceptions apply.[ii] Obviously, protected information now includes personal privacy, commercial secrets, and any other information that clients want to keep confidential during the course of the representation. And the expanded scope of confidentiality adjusts the attorney-client relationship for better protection of clients’ interests.

In comparison with other jurisdictions, such as the United States, the duty of confidentiality imposed by the Amendments is limited if not sparse since lawyers only have to maintain secrets of current clients, and those of the State. The Amendments do advance clients’ interest in confidentiality, but the protection afforded does not seem to go beyond current representation[i] as confidentiality relative to former and prospective clients are not addressed in the Amendments. Under the American Bar Association’s Model Rules of Professional Conduct (ABA Model Rules), lawyers have the duty to keep confidential information of not only current clients, but also former and prospective clients unless such clients give informed consent or relevant exceptions apply.[ii] Furthermore, the ABA Model Rules by comparison set a low threshold for what constitutes confidential information—“information relating to the representation of a client”[iii] or “information learned in consultation”.[iv] This liberal standard on confidentiality “contributes to the trust that is the hallmark of the client-attorney relationship.”[v] It remains to be seen whether China’s All Lawyers Bar Association will adopt governing rules with as expansive a view toward confidentiality as the ABA Model Rules, following the adoption of the Amendments.

STRICTER PROHIBITION AGAINST CONFLICT OF INTEREST

The Amendments also widen Chinese lawyers’ duty of loyalty by imposing stricter standards on the avoidance of conflicts of interest. Under the previous version of the Lawyers’ Law, a lawyer was prohibited from simultaneously representing clients with direct conflicts, for example, opponents of the same case. Pursuant to Article 39 of the Amendments, a lawyer shall not represent clients whose interests are adverse to those of the lawyer or the lawyer’s family members, in addition to the proscription against representing clients with direct conflict. Furthermore, the Amendments specifically prohibit a lawyer from inappropriately accepting property or benefits from a party opponent or third party, and from colluding with a party opponent or third party to injure the interests of his or her client. With respect to law firms, the Amendments require them to establish a conflict checking mechanism to avoid conflicts of interests among their clients, which codifies similar mandates in the China Rules of Legal Ethics.[i] Unfortunately, the Amendments do not define what constitutes a “conflict of interests”, and for a practicing attorney in need of guidance, the answer lies in the current China Rules of Legal Ethics. Article 76 defines a conflict of interests as any situation where representing a new client might cause conflict with the representation of another existing client.[ii]

ALTERNATIVE ROUTE TO THE BAR

An alternative way to obtaining a bar license emerges in the Amendments. Previously, individuals could legally become lawyers only if they passed the national bar examination, or if they were professionals in legal research or education with special permission from the Ministry of Justice. Given a shortage of experienced lawyers in certain specialized areas, such as finance, securities, intellectual property, and international law,[i] the Amendments provide a practical measure to overcome such a critical shortage. Individuals with a bachelor’s degree and more than 15 years of working experience in the above-referenced shortage areas may obtain their law license in those specialized areas upon passing relevant tests conducted by the Ministry of Justice. And according to the Amendments, the State Council will issue regulations about the implementation of this alternative licensing program.

STATUTORY CONFLICT

Despite the many clarifications for and additions to the Lawyer’s Law, the Amendments still leave an apparent conflict between the Lawyer’s Law and the Criminal Procedure Law of the People’s Republic of China (Criminal Procedure Law). As discussed, one goal of the Amendments is to expand the scope of the duty of confidentiality. However, Article 84 of the Criminal Procedure Law imposes an all-encompassing duty on all entities and individuals to report suspected criminals or incriminating facts to law enforcement authorities.[i] Logically, lawyers have the duty to report any incriminating facts gathered in the course of representing their criminal defendants unless the Chinese Criminal Procedure Law provides them an exemption. Unfortunately, neither the Amendments nor the Chinese Criminal Procedure Law explicitly exempt lawyers from the crime-reporting duty. Paradoxically, a representative from the Ministry of Justice stated, in a press conference subsequent to the adoption of the Amendments, that the Amendments have accomplished major statutory safeguards for lawyers: better protection for lawyers’ bodily safety, exemption from liability for viewpoints expressed in professional representation, and lawyers’ right to non-disclosure of clients’ confidential information.[ii] Furthermore, these accomplishments laid a firm foundation for improving the overall professional environment for lawyers, according to the representative. Nonetheless, without an express provision of immunity from the Chinese Criminal Procedure Law,[iii] Chinese lawyers might not be able to share the same kind of optimism as expressed by the representative in the press conference mentioned above.

THE ABSENCE OF RULES ON IN-HOUSE LAWYERS

Unlike the ABA Model Rules, the Amendments do not contain any provisions on in-house lawyers. In the context of lawyers’ duties of confidentiality under Rule 1.6, ABA Model Rule 1.13 clarifies the duties and responsibilities of in-house counsel whose client is the organization itself. In the best interest of the organization, an in-house lawyer must “report up” to the management when he or she knows a corporate insider intends to act or refuse to act in a certain way which will likely injure the interests of the organization. Moreover, a lawyer for an organization may “report out” to shareholders and/or prospective investors relying on the lawyer’s previous legal opinions for the organization if “reporting up” did not resolve the relevant issues and he or she is “reasonably certain” that the organization will suffer substantial injury due to the unresolved issues. This rule provides additional guidance for in-house lawyers with respect to confidentiality, and is designed to protect the best interests of the organization as a whole. As more lawyers in China join the ranks of in-house counsel, a similar rule is warranted in China to protect organizational clients. As of yet, both the Amendments and the China Rules of Legal Ethics have no provisions or rules on in-house lawyers.

[The rest of the article is omitted.]

[i] See Zhonghua Renmin Gongheguo Xingshi Susongfa (1996 Xiuzheng) [Criminal Procedure Law of the People’s Republic of China (1996 Amendments)] (amended by the National People’s Congress, March 17 1996, effective January 1 1997), available in Chinese at: http://vip.chinalawinfo.com/NewLaw2002/SLC/SLC.asp?Db=chl&Gid=13912 (last visited January 2 2008) hereinafter Chinese Criminal Procedure Law].
[ii] See Ministry of Justice Press Conference Question and Answers Regarding the Revised Lawyer’s Law, available in Chinese at: http://www.npc.gov.cn/zgrdw/common/zw.jsp?label=WXZLK&id=374005&pdmc=1541 (last visited January 2 2008).
[iii] The Chinese Criminal Procedure Law is currently undergoing intense debate before its next round of amendments. See Amendments to the Criminal Procedure Law: from Divergent Ideas to Common Understanding, available in Chinese at: http://www.legaldaily.com.cn/2007fxy/2007-11/18/content_743015.htm (last visited November 18 2007) (one area of concerns in the debates involves coordinating the Criminal Procedure with the Lawyer’s Law to protect lawyer’s rights to keep clients’ confidential information).
[i] See Law Revised to Solve Three Difficulties in the Legal Profession, available in Chinese at: http://www.npc.gov.cn/zgrdw/common/zw.jsp?label=WXZLK&id=374001&pdmc=1541 (last visited January 2 2008).
[i] See China Rules of Legal Ethics, supra note 4, Articles 39, 44, 77-83.
[ii] See id., Article 76.
[i] The Amendments do not contain any provision as to protecting former clients’ confidential information. However, Article 59 of the China Rules of Legal Ethics does provide such protection for former clients. Whether the China All Lawyers Association will revise the China Rules of Legal Ethics to address confidentiality relative to prospective clients is uncertain.
[ii] See American Bar Association Model Rules of Professional Conduct, Rules 1.6, 1.9(c)(1), 1.18 (2006) (Hereinafter ABA Model Rules).
[iii] See id., 1.6(a).
[iv] See id., 1.18(a).
[v] See id., 1.6, comment [2].
[i] See Zhonghua Renmin Gongheguo Liushifa (2001 Xiuzheng) [Law on Lawyers of the People’s Republic of China (2001 Amendments) ] (amended by the National People’s Congress, December 29 2001, effective January 1 2002), available in Chinese at: http://www.law-lib.com/law/law_view.asp?id=16820 (last visited January 2 2008) [hereinafter Lawyer’s Law 2001 Amendments]., Article 33.[ii] The added provision in effect codifies relevant requirements in the current version of the Rules of Professional Ethics and Conduct (Provisional) (2004), available in Chinese at: http://www.law-lib.com/law/law_view.asp?id=82747, (last visited January 2 2008)[hereinafter China Rules of Legal Ethics], Article 56.

Enforcement of Judgments in China: Pretty Good in Urban Areas

Contrary to the popular view that enforcement of judgments is poor in China, Professor Randall Peerenboom stated in his recent article that:

While enforcement is often portrayed as difficult in China, recent studies have found significant improvements in urban areas, where more than half of creditor-plaintiffs receive 100 per cent of the amount owed, and three quarters are able to receive partial enforcement, a situation explored in more detail [citation omitted]. Moreover, the main reason for non-enforcement is that defendants are judgment proof: they are insolvent or their assets are encumbered. No legal system is able to enforce judgments in such circumstances.

Although cross-country comparisons can be misleading, it would appear that enforcement in China may be less problematic than in many jurisdictions, including in rich countries such as the United States, the United Kingdom, or Russia [citation omitted]. In the World Bank’s ‘Doing Business 2008’ survey, China ranked twentieth out of 178 economies in enforcement of contracts. The survey measures the time, cost, and number of procedures involved from the moment a suit is filed until payment is made.

Looking into the reasons behind the improvement in enforcement of judgments, Peerenboom found that:

The main reasons for the improvement in enforcement are changes in the nature of the economy; general judicial reforms aiming at institution building and increasing the professionalism of the judiciary; and specific measures to strengthen enforcement (citation omitted). The economy in many urban areas is now more diversified, with the private sector playing a dominant role. The fate of a single company is less important to the local government, which has a broader interest in protecting its reputation as an attractive investment environment. As a result, the incentive for governments to engage in local protectionism has diminished (citation omitted).

According to Peerenboom, enforcement in less developed areas, i.e. rural China, remains a dire problem for a host of reasons. Competency and quality of judges are still less than satisfactory. Local economy still depend on a few sources; thus, the incentive for non enforcement of judicial judgments remain.

Improving enforcement of judgments in rural areas is likely to be a difficult task as it is not simply a judicial problem. Lax enforcement, as can be inferred from the experience of urban areas, is a complicated institutional issue, linked to economic development, availability of well-educated, professional judges, and very significantly a thriving private business sector. Given the reality in the vast rural areas, better enforcement in these areas probably won’t come any time soon, short of drastic changes to local conditions.

Importers of Poisonous Chinese Toothpaste Indicted

Four exectives of of two Californian import companies have been indicted by the city of Los Angeles, reported by the NY Times.

The Los Angeles city attorney, Rocky Delgadillo, working with the Food and Drug Administration, filed a criminal complaint against two Los Angeles-based importers, Vernon Sales Inc. and the Selective Imports Corporation.

At Selective, Frahad Nazarian, the president, and Yones Ghermezi, the vice president, were charged with two counts of receiving, selling and delivering the tainted products.At Vernon Sales, Kamyab Toofer, the president, and Pejman Mossayi, the vice president, were charged with 14 counts of receiving, selling and delivering an adulterated drug.

The case is the first instance of criminal charges being filed in the United States against any party in the toothpaste scare and comes after a suit filed in Missouri against an American company that had imported tainted ingredients used in pet food.

This is not the first instance of criminal indictment, and it won’t be the last one either. Importing from China has become a little more costly to some who have not been practicing due diligence and caution. An investigative trip to Chinese exporters is a lot more pleasant than being charged with a crime.

Debunking the Myths about Doing Business in China

Debunking the Myths about Doing Business in China

Business Week came out with an article titled, China: Debunking the Myths. The authors, Charles Bien and Brian Renwick, lay out eight common myths, and shed light on them. Very interest stuff.


MYTH ONE: "Western companies should view the rapid development of the Chinese economy as a competitive threat to which they are vulnerable."

[As globalization increasingly link all nations and markets, i.e. U.S. subprime problems, this view seems quite simplisti. But, in an election year in the U.S., this view might generate good will among some voters.]

MYTH TWO: "The position of Asian superpower can be won by either China or India, not both."

[A Chinese saying has it that “there can be only one tiger in a mountain.” Will that be a self fulfilling prophesy?]
MYTH THREE: "China is a huge, single market with weak local competition."
[If investors get beyond the big first-tier cities, this myth will probably disappear real quick.]

MYTH FOUR: "China has a consistent management culture, which is ripe for introducing human-resource best practices."

MYTH FIVE: "Multinationals wishing to establish operations in China should hire Chinese 'returnees' who have valuable international experience, a non-Chinese perspective, and non-Chinese business education."

[Not all “sea-turtles” d/b/a “returnees” are born equal. An Asian appearance does not make you Chinese, I guess.]

MYTH SIX: "The 'war for talent' is a Western phenomenon. No such war for talent exists in China where supply of talent outstrips demand among leading firms."

[What kind of talent are ye talkin’ about? So, it depends.]

MYTH SEVEN: "Since the reunification of Hong Kong and the People's Republic of China, the administrative and business relationships are seamless."

MYTH EIGHT: "China is a low-cost manufacturer, not a platform for product and service innovation and the development of its own intellectual property."

[Change the “is” into “was.”]

Read the full article here.