China's Jury System

"I consider trial by jury as the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution."

--Thomas Jefferson

Two days ago, I had the pleasure of talking to Hon. Duan, a senior justice on the Supreme People's Court of China, who is currently on administrative leave to study American administrative laws here at SMU Law School. In our two hour long conversation, we talked about many different topics regarding the Chinese and American legal and judicial systems. One of the most interesting discussions concerns the jury systems in both countries. The United States has a very unique jury system that is often vilified and glorified by people of different philosophies. However, many people probably do not know that China actually has its own jury system, at least on the books. So, I think the importance of this subject deserves a little discussion on this blog.

A. History of the Chinese Jury System:

My cursory research reveals that a rudimentary jury system existed even during the early days of the communist revolution. The idea was that common people would be selected to participate in rendering justice. However, the jury system formally established in the 1954 Constitution, along with the entire justice system, came to a halt during the horrific Cultural Revolution. The end of the Cultural Revolution gave the Chinese jury system a second chance. In 2004, the Standing Committee of the National People's Congress promulgated the Resolution/Decision Regarding Improving the People's Jury System ( 关于完善人民陪审制度的决定) ("Jury System Decision"), which came into effect on May 1, 2005. Currently, the Chinese jury system theoratically operates under this piece of legislation.

B. The Criteria for Selecting Jurors:

Pursuant to Articles 4-6 of the Jury System Decision, a candidate for the people's juror must meet the following requirements:

a. must uphold the Chinese Constitution;

b. must be older than 23 years of age;

c. must be of good moral character;

d. must be physically fit and healthy;

e. must have a minimum of a junior college degree (大学专科文凭);

f. must not be a lawyer, a member of the National's People of Congress, employee of the Public Security Bureau, People's courts, People's procuratorate, or National Security;

g. must not have committed a crime;

h. must not have been terminated from public office.

C. Method of Selection:

Assuming that candidates meet the above-criteria, they can be nominated by their work units (Danwei) to the local people's court for consideration. After nomination, the local people's court and the justice department of local government coorporate to evaluate such individuals before they could be recommended to the chief judge of the local court, who can then petition the local people's congress to officially appoint the recommended individuals as jurors.

The number of jurors is determined by the local people's courts on a as-needed basis.

D. Working Procedures:

First of all, Chinese jurors, unlike American jurors, have the same authority as other judges who serve on the presiding panel. They could ask questions during court proceedings, and can cast votes regarding the final decision and outcome of cases. In fact, Chinese trial courts, much like appellate courts, decide cases based on the principle of majority rule. In other words, if the juror vote is in accordance with the vote of another judge panelist, then the majority votes determine the outcome of the case.

Second, jurors can participate in cases of varying nature. Except for summary judge proceedings (简易程序审理) and other cases provided for by law, jurors could hear, along with his/her judge panelists, the following types of cases:

a. criminal, civil and administrative cases of significant social impact;

b. criminal, civil and administrative cases where criminal defendant or plaintiff in administrative case requests juror presence.

Third, the law requires that where jurors participate, there must be at least one juror for every two judges.

Fourth, the normal term for jurors is five (5) years.

Fifth, jurors, like judges, must avoid conflicts of interest during legal proceedings, and must undergo professinal training regarding procedures and substantive law.

E. Compensation for Jurors:

Chinese jurors, like their American counterparts, are entitled to monetary compensation for their service. However, much like their American counterparts, their compensation is minimal. The source of such compensation lies in the budget of the local courts and governments.

F. The Reality of the Jury System in China:

While I applaud the jury system as established by Chinese law, I have to say that the system exists largely on paper. Based on the facts above, it is obvious that severe impediments exist for the actual functionaity of the Chinese jury system. First, the selection criteria post a high bar for many Chinese people. The intent behind such criteria is that only people with good education and connections could possibly be nominated, not to mention being appointed. Second, because of budgetary limitations, courts and local governments are not going to fork out more money to conduct jury trials. Third, I doubt that litigants in China actually prefer to have jurors serving on their presiding panel (this is to be debated and researched.). As a result, the jury system does not play a significant part in the Chinese justice system.

G. Future of the Chinese Jury System:

One thing is certain--the Chinese government obivously thinks that jurors do have a role to play in the justice system, given the relatively long history of the system in Communist China. The question is how the jury system can actually be implemented or reformed to function. On that note, Justice Duan thinks that the American jury system appears to guarantee procedural fairness, while the Chinese system appears to strive for substantive fairness by imposing high standards on juror candadates. She believes that China can actually borrow the spirit of the American system to ensure procedural fairness in Chinese legal proceedings. How the Chinese jury system be fashioned in the future remains to be seen.

Economic Crisis Tests China's Enterprise Bankruptcy Law

The Economic Crisis is a Test of Character.

路遥知马力，日久见人心。(As distance tests a horse's strength, so time reveals' a person's heart.)

China's Enterprise Bankruptcy Law (EBL) came out after more than one decade of debates and compromises, and it was applauded for advancing China's efforts in establishing a truly market-oriented economy. More than two years after its promulgation, it has been tested in Chinese courts. For example, the Chinese company, Sanlu Group that manufactured tainted milk, went through an seemingly orderly liquidation process under the new Enterprise Bankruptcy Law.

Besides Sanlu, the law is also undergoing public tests in the context of massive failures experienced by small to miedium sized business in Guangdong Province due to the economic crisis. Like other bankruptcy regimes in many countries, the EBL was designed to provide orderly and effective means to sort out debtor-creditor relationships during difficult times. To accomplish that, the EBL allows liquidation (Chapter 7/13 under U.S. Bankruptcy law), reorganization (Chapter 11 under U.S. Bankruptcy law), or reconciliation (informal workouts). The law also contains detailed provisions governing the relationships, behaviors, and obligations of courts, creditors, debtors, creditors' committee, and the bankruptcy administrator. Overall, the law is a very comprehensive piece of legislation, and if enforced properly, it could be a effective tool to regulate market behaviors.

But, how is the law fairing in these difficult times? According to this report, the EBL is experiencing some significant growing pain.

As the global recession slams China, bankrupt business owners are shutting factories overnight. Often, they leave the mainland, afraid of angry suppliers and workers and uncertain about legal protections. Dongguan alone last year recorded 673 cases—up 24%—of owners fleeing their factories, leaving behind 113,000 unemployed workers owed $44.1 million. Labor disputes almost doubled, to nearly 80,000.

Many foreign investors, due to falling demands from the West, had no choice but shut down their businesses in order to stop the bleeding. One would think that most foreign investors who decried China's lack of legal institutions would throw their arms into the relatively well-developed and interests-neutral courts in Guangdong Province. The reason being that the EBL is an excellent way out in case of business failures, and that the EBL is not unfriendly to investors. Further, courts and judicial enforcements in costal areas, according to Professor Peerenboom, are in comparison better than those in interior China.

However, that is not the case. Many investors fled China, like those New Yorker debtors who escaped their debtors to populate the great State of Texas because New York law could not reach them in the early days of frontier history in the American west. In the case of debtors in China, they led to Taiwan, Korea, or wherever the "sword" of Chinese law cannot follow.

The excuse, as reported is:

But few judges have received the necessary training to understand the complex measure, so local officials often discourage hard-pressed owners from filing for bankruptcy. And by compensating creditors before employees, the law undercuts Beijing's desire to minimize labor unrest....

Putting aside the validity of the argument that local officials discourage the filing of bankruptcy, I think the excuse for not using EBL is a weak argument. True, many judges in China are not trained and versed in the EBL, but the fact is that Chinese courts set up special tribunals to handle special litigation. Those judges assigned to the speical bankruptcy tribunals are more qualified to handle liquidation cases. Further, this aversion and fear of the incompetency in Chinese courts and judges have got to stop at some point. Yes, the qualification of judges in all cases play a crucial role in the outcome of cases, and qualifications of judges vary widely from court to court. There is no exception even here in the U.S. But, because of China's recent efforts in moderninzing its judiciary by imposing strict requirements on qualifying judges, for example, law license, judges are getting more and more better trained and educated. In addition, because of the vast number of businesses and disputes in southern China in Guangdong Province, many judges are actually very experienced in economic disputes. I'd submit that many are more versed in such disputes than some in East Texas. Therefore, to use Chinese judge's perceived lack of qualification as an excuse for fleeing China instead of initiating bankruptcy proceedings under the EBL is an ancient and weak argument.

In sum, the EBL is flunking the test because it is not doing what it was intended to do.

Five Years Holding Period, Is it Fair?

China Banking Regulatory Commission (CBRC)'s chairman, Liu Mingkang announced that rules will change for foreign invesors who invest in Chinese commercial banks.

Remember the blockbuster IPOs of Chinese state-owned banks? Bank of China, China Construction Bank, China Industry and Commerce Bank all had their IPO a few years ago when the market was good. Many foreign investors bought shares of those banks, riding the wave of the bull market. When they bought into those shares, they agreed to holding those investment/shares for a period of three (3) years before they could sell because the CBRC required such a lock-up period.

The market situation has changed dramatically in recent months. Many of those foreign investors that bought shares in Chinese banks found themselves in urgent need of liquidity due to the severe finanical crisis worldwide. For example, according to reports, Bank of America sold its shares in the China Construction Bank; Royal Bank of Scotland got rid of its shares in the Bank of China. Foreign investors in Chinese banks' stocks also sold their shares for speculation purposes, based on the same report.

To combat the above phenomena, the CBRC has announced that the rules of the game shall change--the lock-up period for foreigner investors in Chinese banks' stocks will be lengthened from three (3) years to five (5) years.

It appears that this rule change is not meant to be retroactive, and it is effective only against future "strategic investors" in Chinese banks' shares.

The change from three years to five years seems arbitrary. Why would a five-year lock up period be more effective in reducing speculation on the part of foreign investors? I don't know if the CBRC made its rule/policy change based on solid research or just a a matter of course. Chinese government appears in many instances to like the number "five" in its macro-level planning. I sure hope the former is the case.

The change further illustrates the difficulties that foreign investors face in China in terms of uncertainties in the Chinese legal environment. When foreigners just got used to the three- year holding period for their investments in Chinese banks, suddenly, the Chinese government decided that a longer holding period is more desirable from a regulatory standpoint. For any reasonable investor, the question to pose is--what is prevent the CBRC from modifying the holding period in the furture again?

It is understandable for the Chinese government to make policy changes in accordance with circumstances and the country's corresponding regulatory needs. However, any policy changes must be based on sound reasoning by balancing the needs of investors and those of the public/nation at large. Without a balanced approach to adjustments in policy changes, China will be in actuality doing itself a disservice in creating unnecessary uncertainty in its capital markets.