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.