Wednesday, February 18, 2009

Enforcements of Judgments in China: Pretty Good in Urban Areas (Republish)

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 [elsewhere]. 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 (He policy brief 3). 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 theprofessionalism 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

Yellow Cranes, Will You Return? (Republish)


The Yellow Crane Tower

Forefathers departed on yellow cranes,The Yellow Crane Tower

leaving this spectacular tower empty.

Yellow cranes will not return,

leaving the white clouds for millennia without companion.

–by Cui Hao (704-754 A.D.), Tang Dynasty

This poem has remained one of my favorites, throughout my education in China. In college in the city of Wuhan, I passed by the truly spectacular Yellow Crane Tower hundreds of times while commuting to and fro Hankou, marveling at its beauty and historical significance. It looks beautiful when you observe it on the First Bridge over theYangtze River (Chang Jiang, for Chinese readers), as it sits on the Snake Hill, stretching into the clouds over the ever grand Wuhan stretch of the Yangtze. Before I get carried away with nostalgia and poetry, I’d better move on to Chinese business law.Luckily, I get to return to the “Yellow CraneTower” for this post on cybersquatting law inChina.

As reported,Yellow Crane Tower Tobacco Company (“TCTTC”) is one of the most famed tobacco companies in Wuhan and throughoutHubei Province. And when it sought to register the www.YellowCraneTowerTobacco.cndomain name in Chinese (Huanghelou) in June 2005, it found, to its dismay, that domain name had been registered by a certain Mr. Deng, a restaurant owner in Jiangxi Province.TCTTC further found that Mr. Deng also had registered a slew of domain names using the core words “Yellow Crane Towner,” such,, etc.

Naturally, TCTTC took Mr. Deng to court, in the Wuhan Intermediate People’s Court.

TCTTC sued Deng for trademark infringement in the form of cybersquatting. Since the central issue here is whether Deng’s registration of the domain names using the TCTTC’s registeredword mark constitutes trademark infringement, the 2001 Several Explanations on Domain Name Civil Disputes (“Domain Name Explanations”) issued by the China Supreme People’s Court apply in this instance. The Domain Name Explanations expressly provide that a mark owner can ask a court of competent jurisdiction to determine whether its mark is famous, and the court may order the cancellation of the infringing domain name if it finds unfair competition, and monetary damages are also available to the victorious plaintiff. Upon request, the Court may also order the transfer of such infringing domain name to the plaintiff. See Arts. 4-8.

To prevail, TCTTC must prove that its marks were infringed and they were famous prior to Defendant’s use. The Court found TCTTC’s marks well known, the “Yellow Crane Tower” word mark and the “Yellow Crane Tower” design mark, both of which were used by Defendant in his website. In finding these marks well-known, the Court looked to the scope and expenses of advertisement for the marks, and it cited the reputation of products bearing the marks.

Upon finding the marks in question well-known, which is the prerequisite to prevail in a domain name cancellation dispute, the Court also found infringement in Defendant’s unauthorized use of the marks in question. It reasoned that both domain names and trademarks have the quality to help consumers relate to the source of goods and services.Given that shared quality of trademarks and domain names, Defendant’s use of TCTTC’s word mark could confuse consumers, despite the unrelated nature of the parties’ trades, one in restaurant while the other in tobacco.Further, the Court disagreed with Defendant’s argument that he did not have the intent to ride on TCTTC’s trademarks to gain economic advantages, because, as the Court stated it is obvious that Defendant’s use of a well-known mark as the core for his domain names was to obtain more economic opportunities, and such use was marked with commercial intentions.

This is easy win for TCTTC here. Of course, Plaintiff had an obvious home court advantage. The “Yellow Crane Tower” brand is very well-known in Wuhan, because it is a local trademark. Even though I am not a smoker, I knew that brand while I lived inWuhan. There was advertisement everywhere in the city. Though the Court may be suspected of local protectionism, I still think it just applied the black letter law. I do not see the Court straining to protect a local player while “screwing” an outsider. Another thing noteworthy here is that Plaintiff can get either the infringing domain names canceled or transferred. I would want a transfer.

So, with a win for the local player, the “Yellow Cranes” should be able to return toWuhan upon a transfer. And that should make TCTTC happy.

But, will the “real” yellow cranes return after millennia of absence? Poets wait on…

Minimum Wages; Big Differences (Republish)

On my blog, I see a lot of searches for minimum wage standards in China, and I have been waiting for a compiled chart, detailing the wage standards. Given the size of China and the huge variance of economic development, minimum wage standards vary considerably. I need to wait no more as China Herald just posted a piece, in which Fons Tuinstra stated that a team from the Renmin University of China had prepared and made available minimum wage standards of all the provinces and regions. And this work resulted from China’s joining the Global Wage Indicator.

With respect to minimum wage variance, the standards range pretty wildly. For example,

Beijing———– 730.00 Yuan/month; 8.7 Yuan/hour

Shanghai——– 840.00 Yuan/month; 7.5 Yuan/hour

Shaanxi——— 540.00 Yuan/month for Xi’an CBD, and wage standards decrease gradually for less developed areas. In my home town (Chenggu County), the minimum wage is 460.00 Yuan/month.

This is just a sampling of the significant differences in minimum wage standards in China. So, to those who want to know the “minimum wage standard in China,” I will remind them that there is no uniform minimum wage. Luckily, they can go here to view all of the minimum wage standards, broken down to provinces, cities/districts, and counties (in some instances).

Amount in Controversy and Jurisdiction Redefined by the SPC (Republish)

On March 31, 2008, the Supreme People promulgated a new set of judicial rules, redefining first-instance jurisdiction of higher and intermediate people’s courts in civil matters across the country.

In these extremely detailed rules, the SPC lays out the required amount in controversy in order for higher or intermediate people’s courts to exercise first-instance jurisdiction over civil cases. What is really amazing is that the rules do not generalize; rather, they detail the exact minimum amount required for each province, autonomous region, and municipality.

For example:

A. Beijing

Beijing Higher People Court as first instance court:

The amount in controversy must exceed 2,000,000,000.00 200,000,000.00 Yuan, or

the amount in controversy must exceed 1,000,000,000.00 100,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

Beijing intermediate courts (including Railway Intermediate) as first instance courts:

The amount in controversy must exceed 50,000,000.00 Yuan, or

the amount in controversy must exceed 50,000,000.00 20,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

B. Shanghai

Same as Beijing

C. Guangdong Province

Higher People’s Court as first instance court:

The amount in controversy must exceed 3,000,000,000.00 300,000,000.00 Yuan;

the amount in controversy must exceed 2,000,000,000.00 200,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries);

Cases with substantial impact on the entire province; or

Any cases that the Court deems it should exercise first-instance jurisdiction.

Intermediate courts:

1. Guangzhou, Shenzhen, Foshan, and Dongguan Intermediate courts:

The amount in controversy should be between 3,000,000,000.00300,000,000.00 and 50,000,000.00 Yuan; or

The amount in controversy should be between 2,000,000,000.00200,000,000.00 and 40,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

2. Zhuhai, Zhongshan, Jiangmen, and Huizhou intermediate courts:

The amount in controversy should be between 3,000,000,000.00300,000,000.00 and 30,000,000.00 Yuan; or

The amount in controversy should be between 2,000,000,000.00200,000,000.00 and 20,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

3. All of the rest intermediate courts in Guangdong:

The amount in controversy should be between 3,000,000,000.00300,000,000.00 and 20,000,000.00 Yuan; or

The amount in controversy should be between 2,000,000,000.00200,000,000.00 and 10,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

As indicated above, these rules cover all the higher and intermediate courts inChina with like details on amount in controversy. And the amounts vary significantly from province to province, city to city, district to district in some instances. Parties in dispute should refer to these rules to find the court of competent jurisdiction.

Personally, I am very surprised to see rules that detailed on jurisdiction inChina since many rules are intentionally vague for civil law jurisdictions. As a result of these rules, there would be, presumably, less uncertainty with respect to finding the right court to sue in China. But, I am wondering what prompted the promulgation of these rules. I also wonder what these rules would have on forum shopping in China. Does anyone out there know?

Go here for the entirety of the rules in Chinese.

Summary Judgment/Procedure in China (Republish)

Having been working on summary judgment motions at work for three consecutive weeks, I kept thinking whetherChina has something similar to summary judgment in its civil trials. With limited knowledge on Chinese procedural laws, I disclaim that what I write here is really subject to future corrections from readers.

In the United States, summary judgments are available in federal and state courts. The purpose of summary judgments is to “eliminate patently unmeritorious claims and untenable defenses, not to deny a party its right to a full hearing on the merits of any real issue of fact.”Ramirez v. The Pecan Deluxe Candy Co., 839 S.W.2d 101, 105 (Tex. App.-Dallas 1992, writ denied). As to federal rules, the Federal Rules of Civil Procedure, Rule 56, governs. In the State of Texas, parties can file a conventional motion for summary judgment under Tex. R. Civ. P. 166a or a no-evidence motion for summary judgment under Tex. R. Civ. P. 166a(i).

In a traditional summary judgment motion, in order to prevail, the movant must present enough evidence to show that there are no issues of material fact, and that no reasonable jury would find for the non-movant. The key is that the movant must present evidence showing that the other party could not possibly win. On the other hand, in a no-evidence motion for summary judgment under 166 a(i), the movant does not need to submit summary judgment evidence; instead it only needs to raise specifically the issues for which the non-movant lacks supporting evidence, and argue that no reasonable jury would find for the non-movant.

In response to a traditional motion for summary judgment, the non-movant does not have the burden of proof. It only needs to present evidence contradicting the movant’s evidence, showing that issues of material fact exist.

Responding to a no-evidence motion for summary judgment, the non-movant, however, has the burden of proof; as such, it must present summary judgment evidence on each issue raised by the movant. If the non-movant in its response, presents more than a scintilla of evidence on the elements challenged by the movant, the court should deny the movant’s motion and the nonmovant is entitled to a trial on merits.

Summary judgment practice is a routine in many courts.As far as I know, it is very much alive in DallasCounty. Due to shifting political winds, the landscape of summary judgment changes with election results. Pro-plaintiff judges will probably not grant a summary judgment for anything; however, pro-defendant judges will do it more frequently. So, summary judgment is both technical and politically volatile (in Texas, at least).

After consulting a Chinese lawyer, here is what I got from an e-mail response on summary judgment, or the lack there of in China:

The concept in Chinese legal system most similar to summary judgment in the common law system is called “Summary Procedure” in Chinese civil procedural law. I attach the bilingual law for your information, as well as the excerpt below:

Chapter 13 Summary Procedure

Article 142 When adjudicating simple civil cases in which facts are clear, the relations of rights and obligations are definite, and disputes are minor, the basic people’s courts or their dispatched tribunals may apply the summary procedure stipulated in this Chapter.

Article 143 For simple civil cases, their plaintiffs may file their complaints orally.
Both parties may appear at the same time in a basic people’s court or its dispatched tribunal for a solution of their dispute. The basic people’s court or its dispatched tribunal may adjudicate the case immediately or set a date for the trial.

Article 144 When adjudicating a simple civil case, the basic people’s court or its dispatched tribunal may, at any time, use simplified methods to summon the parties and witnesses.

Article 145 A simple civil case shall be tried by one judge alone and the trial of such cases shall not be restricted by the provisions of Articles 123, 125, and 128 of this Law.

Article 146 The people’s court shall complete the adjudication of a case to which the summary procedure is applied within three months after the case is accepted.

Without real trial experience in China, I can only say that “summary Procedure” practice seems very different from summary judgment in the United States. Summary judgment, as a pre-trial practice, is a pretty evolved creature, with features like voluminous motions, persuasive affidavits, piles of records sometimes, and a hearing in a court room. I wonder how a summary procedure is played out in China.

Sichuan Earthquake (Republish)

Closely following the news in and outside China on the Sichuan earthquake, I elected to avoid blogging about it as I thought any writing from me will be, largely, irrelevant to the suffering of the victims and China in general. In addition, other China law bloggers, such as the CLB and China Esquire, have provided information on how to donate for the disaster relief in China. However, after my arrival in China on May 16, 2008, I have experienced first hand the blanketing media coverage of the events and stories unfolding constantly in the worst hit areas in Southwestern China. With the information that I have been exposed to and gathered, I feel that I could offer some of my observations and impressions without trivializing the gravity of the tragedy.

Since May 12, 2008, earthquakes have sent shock waves of destruction, grief, honor, hope and courage across China and around the world. Both Chinese and international media have intensely covered the disaster relief work, and if any of my impressions mirror what readers have already heard or read, please accept my apologies.

1. People’s Response is unprecedented. China is prone to disasters, natural and man-made. In the past, disaster relief was a matter of governmental concern, so the common man usually stayed on the sidelines, watching how the government took care of business. This quake changed that. Everyone seems genuinely impacted and concerned, and they have turned that concern into real action. The first comment I got at the Shanghai Pudong Int’l Airportwas—“Be sure to donate for the quake victims.” My father, with whom I have not talked inside China for about eight years, posed his first question to me upon my arrival—“Have you donated?”

Along side corporate and international donors, the average Chinese people at least in the cities are contributing as well. This is, in my opinion, a healthy and monumental development. After all, in a country with so many present and potential issues, a growing sense of civil/social responsibility and personal engagement could play a very positive role in solving problems that the government could not easily do alone.

2. The Chinese media coverage is less monotonous and a bit more colorful. In the past and usually, media coverage of disaster relief in Chinacharacteristically focused on which leader/official went where, said what, and brought whatever assistance…This time around, expectantly, there is still lot of that. But, I am often quite moved by stories of the average relief workers and amazing survivors. Reportedly, a mother died with her body firmly arched over her baby, who survived unscathed with a parting text message from the mother saying something to the effect of –“Dear baby, if you survive this, please forever remember that I love you.” In addition, stories about courage and sacrifice of students and teachers abound. Many victims gave up critical moments of survival so that others could escape collapsing buildings.Undoubtedly, officials and leaders sacrificed as well in a disaster of such magnitude, but, it is the tales of raw courage, love, and hope demonstrated by the common man/woman that lift people up in a difficult time such as this.

3. Tax Relief. The Chinese treasury and Central taxation authority have jointly issued guidance on tax breaks for recipients and donors of disaster-relief funds. Victims will not be taxed on their gift/relief income and donors will receive, in return, tax deductions. This quick, policy-driven response reflects the government’s flexibility, which will hopefully sustain the generous flow of donations.

4. Housing Challenges. With millions of people rendered homeless by the earthquake, the enormous problem of housing these displaced and homeless people looms. In a few months, the media coverage will soon turn its attention to the Beijing Olympic Games and other news-worthy events, but the quake victims will still be living in their tents. Similarly, businesses have also been hit or destroyed. Without a stable income, the victims must live at the mercy of the government and donors, and they must face the daunting task of rebuilding their homes and lives. How can that be done? Will the government subsidize the entire reconstruction of all the disaster areas? Even if the government does, how can corruption be avoided in allotting funds and rebuilt apartments? These are indeed challenging issues for the victims, local governments and Beijing.

5. Existing Mortgages of Destroyed Housing. What will happen to them?Assuming that most homeowners (quake victims) did not purchase mortgage insurance, which is likely to be the case given the relatively less developed economy of these areas, will they still be obligated to pay off their mortgage absent some kind of administrative exemption? Creditors, especially secured ones, want their debts paid, but victims of this quake have neither a home nor stable income. Therefore, I don’t see them having the ability nor the willingness to pay.

6. Liability for Shoddy Buildings (Schools, especially). I see a lot of tort claims arising from the shattering of the school buildings. Policy-wise, how will the courts/government (looking from a common law tort law perspective) analyze the foreseeability and causation issues? As we all know, current technology is not sophisticated enough yet to provide advanced warning of earthquakes, so the tort feasors would argue that such events are unforeseeable, thus escaping liability. But, victims could argue on the theory of negligence per se since they might be able to prove construction code violations with some expert testimonies. In addition, it is not entirely impossible for the Chinese tort law to adopt a strict liability stance on the building of school houses, in light of the disproportionately large number of schools demolished by the quake. So, I think that this powerful earthquake could potentially have a long-lasting impact on liability law in China, and that is not necessarily a bad thing.

The Case for Individual Bankruptcy in China (Republish)

Some stories rattle you so much that you cannot stop thinking about’em for a long time, and the story of Mr. Chen Si did just that to me.

Chen Si, as reported by the LA Times in its story titledOn His Weekends, Chinese Samaritan Saves Lives, is a manager of a shipping company in the city of Nanjing. On weekends, he patrols the Nanjing Changjiang Bridge, known as the “bridge of death.” For almost four years, he has appointed himself as the “guarding angel” of people in despair because many individuals come to this spectacular bridge to end their misery and lives.Usually, he tries to spot people bent on committing suicide, and runs over to rescue them from the brink of despair and death. To date, he has saved one hundred forty four (144) lives. That is an amazing number, considering that he has been pretty much on his own, without government or civilian assistance. He wants to continue saving lives and families.

At a first glance, Chen’s story warms your heart because it is good to know that there are people like him who care and act to prevent tragedies from happening. It is good to know that there are people out there in Chinawho do not worship money. And it surely is good to know that those saved by him might have a second chance at life no matter how tough it is to live on.

Yet, this story is sad at the same time. Chen is a lone “ranger,” trying to save an ever increasing number of despaired and hopeless people in China. Chen can only patrol the Nanjing Bridge. Chen can only patrol theNanjing Bridge on weekends. What about the Wuhanbridges, the Jiujiang Bridge, the numerous bridges and cliffs around the country? What about those people who commit suicide by taking poison pills? Chen saved 144 lives in four years, and “by official estimates, as many as 288,000 Chinese commit suicide each year…” The exact number of suicide in China is probably greater, and what Chen can do is so limited. What the Chens, Lis, and Wangs can do is also limited because of the size and extent of the problem.

What exactly is causing the rising suicide rate? I’m not a sociologist, nor a psychologist. And I don’t claim to know the exact answer to this question. However, I do think that people’s inability to pay their debt has something to do with it. At least some people who could not pay their debt would probably end up killing themselves, just to be over with the shame, frustration, and debt. If you read Chen’s story, you might find that a lot of people that he saved wanted to commit suicide due to their “hopeless” financial situation.

Taking this presumption that inability to pay debt, in part, contributes to the rising suicide rate, I would argue that China should seriously consider making bankruptcy available to individuals, thus creating an institutional structure to abate the massive problem that Chen could never accomplish by himself in his life time.

Bankruptcy is about giving the debtor a second chance, a fresh start. It gives those individuals in financial trouble another chance(s) to reorganize or restart by discharging certain creditors’ claims. At the same time, bankruptcy also has to balance the interest of the debtor with those of the creditors. After all, all creditors want their money back at a minimum. Therefore, reaching the right balance between creditors and the debtor in bankruptcy has always been a huge issue, and continues to be an intriguing phenomenon in the states of the U.S. For example, some states are extremely pro-creditor, like New YorkDelaware; while others, likeTexas and Florida are very pro-debtor. Hence goes the popular saying: “Debtors either go to Texas or die.”Despite the inconsistencies and differences among the states in America, personal bankruptcies do accomplish a great deal by giving people in financial trouble a fresh start. Of course, bankruptcy abuses have occurred.Nonetheless, Congress has addressed that issue by amending the Bankruptcy Code to make Chapter 7 liquidation less accessible while pushing more individual bankrupt debtors to Chapter 13 proceedings.

Could personal bankruptcy work in China?

Currently, individuals are not eligible for bankruptcy under China’s new Enterprise Bankruptcy Law effective since June 1, 2007. One of the reasons cited for foreclosing individuals from bankruptcy is that Chinadoes not have a credit system like other developed countries. Of course, there is the argument that Chinashould not transplant all Western legal concepts into Chinese law.

I would give credit to both arguments, but would also argue that personal bankruptcy should be made available as soon as possible. A credit system is an important element in that it allows creditors to reasonably assess the level of risks in handing out credits. It is a simple, quick and cost-effective way to do business, and it lowers the transaction cost of moving capital from place to place. But, is it an absolute prerequisite to making bankruptcy available to individuals? Are there alternative ways to reduce creditors risks yet keep the transaction cost down? A credit system in the U.S.played an important rule in making personal bankruptcy a reality, but Americans were, are and will probably for a long time be more mobile than the Chinese. With less mobility, tracking down or discovering a person’s credit history is arguably easier, thus the transaction cost can indeed be kept low. In contrast to Americans, the Chinese are more community oriented, living in close-knit social units; therefore, the social structure also makes it a lot easier to track a person’s credit history. On account of the stated differences, the necessity of a credit system as a prerequisite for personal bankruptcy is doubtful.

With respect to the second argument, I agree that Chinashould not at any time blindly transplant legal concepts. Nonetheless, that does not mean China cannot borrow and remodel certain concepts like personal bankruptcy. The fear of introducing individual bankruptcy, I assume, is that it would encourage irresponsible spending, promote consumerism. First of all, consumerism is already there, so forget about keeping it out. Second, the Chinese believes in saving, practices saving, and loves saving. In fact, Chinaprobably has very high saving rates among its citizens, if not the highest. The introduction of a foreign legal concept is unlikely to reverse virtues passed down from thousands of years ago. And the conservative thinking that “the son shall pay the father’s debts” is still pretty prevalent,” which could help keeping abuses down.

So, individual bankruptcy could work in China.Traditional views about paying debts will act as a filter against irresponsible spending and bankruptcy abuse. Even if that fails, the NPC and/or the State Council can always step in and stem abuses by creating higher legal barriers (as it was done in the U.S.). A credit system, crucial to establishing individual bankruptcy, might be not so crucial to China because the social, geographical and cultural conditions are very different from those in the U.S. Third, allowing fictional persons, corporations, to avail themselves of the benefits of bankruptcy (a second chance) is a great move, but keeping real people, with emotions, despair, families, from have a fresh start via bankruptcy simply does not contribute to social harmony. In short, Chinashould allow individual bankruptcies as soon as possible.

Until then, Chen Si will continue to be a lone hero and savior, patrolling the Nanjing Bridge.