Opportunities and Risks of Fintech-Bank Partnerships in China’s Credit Market

15. March 2023
A new paper by Robin Hui Huang and Christine Menglu Wang
Shoppers in Shenzhen Photo by Chris via Flickr

A regulatory crackdown on China’s Big Tech in the past years has drawn attention to a blossoming business model: Micro loans extended on a massive scale through collaborations between banks and fintech firms such as Alibaba’s Ant Financial. The application of information technology has disrupted the traditional way of providing financial services and products in recent years. In China, a pioneer in developing new models for credit business based on fintech-bank partnerships, two main forms evolved, namely the model of loan facilitation and the model of co-lending (see figures below). The model of loan facilitation refers to the practices of fintech firms providing financial institutions with technical support and credit-related services. Under the model of co-lending, apart from the provision of ancillary services, fintech firms also contribute some funds to extend loans together with their partner financial institutions. This paper observes the FinVolution Group and Ant Group as examples to illustrate the two business models of FinTech-bank partnership.

By establishing business partnerships, fintech firms can leverage massive customer data and innovative platform technology to provide important assistance for financial institutions at some key junctures of the credit extension process, thus improving access to finance for more customers. The collaboration with fintech firms enables financial institutions to concentrate on their core business by outsourcing certain work and serve their customers with greater efficiency. Fintech firms can take advantage of the funds, expertise and resources of financial institutions to engage in credit-related business without applying for a separate license. The partnership with financial institutions can bring reputational benefits for fintech firms and strengthen their brand image in the credit market.

While fintech-bank partnerships may bring many benefits to China’s credit business, they also pose serious risks and problems. Firstly, the collaboration with fintech firms increases the operational complexity of financial institutions. Due to regulatory arbitrage, fintech firms are not subject to strict financial regulations. A challenge for financial institutions lies in dealing with outsourcing risks arising from misconduct of their partner fintech firms. Secondly, the exclusive control of data and technology on the part of fintech firms is likely to reinforce their monopolistic practices, thus leading to a vendor lock-in problem for their partner financial institutions and customers. Thirdly, as fintech-bank partnerships involve the processing and sharing of vast amounts of customer information, concerns regarding data security and privacy issues grow. Further, algorithms and other data-processing technologies are applied to conduct creditworthiness assessments of customers. Fintech firms risk extending loans to customers based on credit assessments that are inaccurate due to the input of biased data and a defective design of assessment technologies. Last but not the least, the risks that financial institutions face when outsourcing data security services and assessment are even greater due to the fact that a small number of fintech firms dominate the provision of such services. The operational failure of or cybersecurity incidents at dominant fintech firms can easily give rise to financial contagion and systemic events in the market.

In response, China’s government has endeavoured to address the above problems by strengthening laws in related areas, such as anti-monopoly law, data protection law and financial law. Specifically, antitrust regulators have issued guidelines for the platform economy to prevent monopolistic practices and safeguard customer interests. China has further consolidated its regulatory regime for data security and privacy protection to tighten oversight of fintech firms’ business. The formulation of industry standards for algorithmic applications has also improved compliance with requirements for financial innovations. These regulatory responses have both strengths and weaknesses. This paper focuses on the particular issue of regulatory arbitrage arising from outsourcing activities.

Our study suggests that in case of the co-lending business model, there is a regulatory loophole that allows some fintech firms to circumvent licensing requirements and carry out credit business in an indirect way. The loophole may be closed by clarifying that relevant requirements apply equally to indirect participation in co-lending business. In the loan facilitation model, under the current framework, fintech firms do not need to hold a credit business license but can rather ride along on the license of their partnering financial institutions. This gives rise to challenges since reliance is unduly placed on financial institutions who have to oversee their partnering fintech firms and are ultimately responsible for the performance of outsourced services.

Drawing upon the experiences of overseas jurisdictions, including the US, the UK, the Netherlands, Luxembourg and Switzerland, this paper argues that China can adopt a staged and differentiated approach to regulate fintech-bank partnership. The UK initiated the regulatory sandbox regime in November 2015, which allows fintech firms to develop and test innovative products and services in a controlled environment. It sets out plans for implementing the regulatory sandbox, including the entry and exit criteria, a tailored authorization process for different firms and appropriate safeguards for customers. A similar model, adjusted to local circumstances, would be suitable in China. As fintech firms need time and resources to meet relevant sandbox requirements, China may also create a special test environment for start-ups by introducing an umbrella regime. It allows fintech firms to conduct innovative business under the shelter of an umbrella entity. The sandbox umbrella, as a regulated entity, will provide ample experimental space and ensure better customer protection, because fintech firms can use its license for trial services and products under the actual circumstances.

After fintech firms complete the sandbox process and proceed to operation, the key issue becomes the continuous supervision of their partnership with financial institutions. Switzerland has introduced a new fintech license with relaxed requirements to promote innovation. The licensing process depends on the quality of each application and the complexity of the fintech business. Based on that model, China is advised to implement a sophisticated licensing regime to set out differentiated rules for fintech firms according to the nature and types of services they engage in. In this regard, more categories of special licenses can be created as ‘limited licenses’ as distinct from the traditional ‘full licenses’ to address the problem of regulatory arbitrage. Further, it is worth experimenting with a mentorship scheme, under which the monitoring responsibility of financial institutions is limited to compliance violations of their partnering fintech firm and emphasis is placed on helping start-ups.

The paper FinTech‑Bank Partnership in China’s Credit Market: Models, Risks and Regulatory Responses was published in European Business Organization Law Review. Robin Hui Huang 黃輝 is Chair Professor at the Faculty of Law, Chinese University of Hong Kong. Prior to joining CUHK, Professor Huang was a tenured staff member in the Faculty of Law at the University of New South Wales, where he now holds a position of Adjunct Professor. He is also Li Ka Shing Visiting Professor in McGill Law School and Honorary Professor at East China University of Political Science and Law. Christine Menglu Wang 汪夢露 is a Post-doctoral Fellow in the Department of Law, the University of Hong Kong.

Due Process in China? Developments in Administrative Law since 2013

8. February 2023
A new paper by Björn Ahl
“Sign the (compensation) contract early, select a house early, improve early, benefit early” Largely proportional to the total number of administrative cases, most of the cases invoking the due process principle concern compensation claims for the expropriation of land and other coercive measures in the name of urban development. Photo by makzhou

While administrative law in China developed slowly, starting from the 1990s, the importance of administrative procedure law to fight corruption and foster society’s trust in the public administration became apparent. However, China’s legislation did not firmly establish the due process principle in the law. Rather, administrative law scholars as well as courts in China moved forward and developed the notion of due process. For instance, the Intermediate People’s Court of Suqian City in Jiangsu has in 2004 found that the local urban development bureau should have given inhabitants of buildings they demolished the chance to make statements and defend themselves, despite respective provisions being absent from the law. Meanwhile, legal scholars argue that due process is an unwritten general legal principle of administrative law.

Earlier investigations have pointed out that while judges have made use of due process in their adjudication work, such cases, even if designated representative by the SPC, do not suffice to fully establish the principle in administrative procedure law (Haibo He 2008). The post-2013 era in China is generally characterized by developments pointing to a regression of the rule of law. In this paper, administrative cases decided by Chinese courts from 2014 to 2019 are analysed to determine whether or not courts have further expanded the application of the due process principle. During that period, the High People’s Courts and the Supreme People’s Court published 321 decisions that mentioned the due process principle. About 70 percent of the court decisions dealt with rights relating to immovable property, including land use rights of state-owned land and the ownership of collectively owned land.

When an institution of higher learning makes a decision against a student who violates school rules and disciplines that affects his/her basic rights, it must allow the student to defend him/herself, and it must deliver the decision in a timely manner after it is made; otherwise, it will be deemed a violation of due process.

The due process principle finds its expression for instance in the famous case of student Tian Yong 田永, who was denied his graduation certificate by a university. Beijing Intermediate People’s Court decided in 1999 that the university’s decision was unlawful, arguing that due process was not being observed by the school. (指导案例38号,最高人民法院公报 2015 (8))

While a general administrative procedure law is absent at the national level, some laws such as the Administrative Penalty Law, the Administrative Enforcement Law and the Administrative Licensing Law include several due process requirements. The Administrative Penalty Law for instance, amended in 2021, includes the requirement for administrative agencies to notify in advance and consider any objections from persons against whom an administrative penalty is taken, among others. Some of the changes in the new Administrative Penalty Law were inspired by experimental legislation at the local level: Provincial legislators such as in Hunan (in 2008) and Jiangsu (in 2015) had already passed Administrative Procedure Regulations with a wide range of due process requirements. Apart from local legislation, policy documents adopted by the State Council emphasize the importance of due process rights and while they are not legally binding, do indicate a general trend for future legislation.

The study of court decisions undertaken here demonstrates that indeed, courts have continued to expand the application of due process after 2013. Due process rights are applied across different fields of substantive administrative law, and to different forms of administrative actions, including administrative penalty decisions as well as physical acts such as the demolishing of buildings. Courts however rarely elaborate on specific requirements the due process principle contains. Among others, notification rights, rights to a hearing and the right to ‘adequate participation’ for adressees of administrative acts have been held to be part of due process.

However, these developments are not always directed towards a general strengthening of administrative procedure to provide effective pre-judicial remedies. In several cases, courts use the reference to the due process principle as a catch-all clause for administrative injustices including for instance the requirement that belongings of former inhabitants of a building must be appropriately stored before demolition. Courts further do not always attach legal consequences, such as the revocation of the administrative act, where they find a violation of due process. We find that applying the due process principle helps courts avoid deciding on the substantive legality of the administrative acts in question, potentially interfering in the conflict between different administrative agencies.

Björn Ahl is Professor and Chair of Cologne University’s Chinese Legal Culture. Before joining the University of Cologne in 2012, he was Visiting Professor of Chinese Law, Comparative Public Law and International Law in the China EU School of Law at the Chinese University of Political Science and Law in Beijing. Prior to that he held a position as Assistant Professor of Law in the City University of Hong Kong. He has also worked as Associate Director and Lecturer in the Sino German Institute of Legal Studies of Nanjing University and as a Researcher at the Max Planck Institute of Comparative Public Law and International Law in Heidelberg. Find him on LinkedIn.

Call for papers: ECLS Annual Conference in Helsinki

9. January 2023
Photo by gari.baldi, licensed under CC BY-NC-ND 2.0.

The European China Law Studies Association is welcoming paper abstracts for its 17th Annual Conference. The Call for Papers is available here. The Conference will be held in Helsinki, Finland, from 20 to 22 September 2023. It will be hosted and organized by the Faculty of Law, University of Helsinki in cooperation with the Finnish Center of Chinese Law and Chinese Legal Culture.

Confirmed keynote speakers at this year’s conference are Eva Pils, Professor of Law, King’s College London; and Teemu Ruskola, Professor of Law & Professor of East Asian Languages and Civilizations, Department of East Asian Languages and Civilizations and Professor of Law, Penn Carey Law School University of Pennsylvania.

This year, we invite submissions on legal issues relating to the topics below. Please note that submissions are not necessarily limited to the listed topics.

  • Legal Issues of EU-China Relations
  • China in the International Legal Order
  • Legal Culture, Legal Traditions and Rule of Law Development
  • Legal Aspects of the Belt and Road Initiative
  • Criminal Law and Criminal Procedure
  • Gender Equality in China
  • International Human Rights Protection and the Chinese Legal System
  • Chinese Law, COVID and the Emergency/Pandemic Preparedness
  • Chinese Policy and Presence in the Arctic
  • Sustainable Development and the Role of Regulation
  • Legal and Economic Issues of International Investment
  • Developments in Corporate and Commercial Law
  • Cyber Security, Data Privacy and Personal Information Protection
  • Artificial Intelligence and Ethics, Big Data and Intellectual Property Law
  • Social Credit and the Law, Judicial Reforms and Smart Courts
  • Labour Law Developments, Decent Work and Fundamental Labour Rights
  • Administrative Law and Administrative Procedure
  • China’s Environment, Climate Change and Air Pollution Laws and Policies

The conference invites submissions of paper abstracts and panel proposals by 19 March 2023, noting that all submissions will be peer-reviewed. Notification of acceptance will be given by 19 April 2023. Full papers should not exceed 8,000 words, and be submitted by 18 June 2023.

Submissions should be entered via the submission page.

Paper Abstracts and Panel Proposals

Abstracts should be limited to 300 words for a paper and panel proposals should be limited to 1,000 words for a panel session. The submissions should include: 1) the title of the paper or panel; 2) name, institution and email address of the author(s); 3) up to five keywords.

Young Scholars Roundtable

The conference welcomes abstracts and proposals from young researchers (PhD candidates, MA students, etc.). Young scholars’ sessions will be organized as roundtables to be moderated by senior researchers.

Find updates on the program and keynote speakers at 17th Annual Conference of the European China Law Studies Association | University of Helsinki. For enquiries regarding submissions, please contact Professor Björn Ahl (bjoern.ahl@me.com). Other enquiries concerning visa issues or logistics are to be addressed to Ms. Ngoc Pham (ngoc.pham@helsinki.fi).

Merger Control with Chinese Characteristics?

28. December 2022
A paper by Alexandr Svetlicinii
The headquarters of Tencent Holdings, which has seen several attempted mergers blocked by antitrust regulators in recent years. Photo by laboratoriolinux

Besides its significant role in international trade and investment flows as an economic powerhouse, China has also become an important jurisdiction in terms of competition law enforcement. While application of the Anti-Monopoly Law (AML) to commercial activities of domestic companies has important repercussions for their market conduct abroad, the enforcement of merger control directly affects multinational companies, which, due to their business presence in China, have to notify their mergers and acquisitions for clearance by China’s competition authorities.

Like numerous other jurisdictions, China applies its merger control to those transactions by multinational companies where the parties have substantial business presence on the Chinese markets expressed in terms of the realized turnover. It embraces the “effects doctrine”, meaning that it applies merger control extraterritorially “to monopolistic conducts outside the territory of the People’s Republic of China, which serve to eliminate or restrict competition on the domestic market of China.” As a result, even a merger of two foreign companies would have to obtain clearance from the Chinese competition authorities provided the turnover-based notification thresholds are reached.

In competition law scholarship, the narrative is strong that China’s merger control converges with that in Western jurisdictions, as it, too, applies economic analysis as a core basis for merger review and enhances procedural safeguards to protect the rights of the merging parties, increasing legal certainty of merger assessment. The Chinese merger control authorities have been frequently labelled as “young,” “unexperienced” or lacking necessary human resources to achieve a more technocratic enforcement of merger control rules. Despite the intentional choices of China’s legislators and regulators to design and implement its merger control regime with “Chinese characteristics”, Western academic literature is abound with hopes for further international convergence.

One of these “Chinese characteristics” was the initial distribution of the AML enforcement competences among three institutions: the National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM), and the State Administration for Industry and Commerce (SAIC). This distribution of AML enforcement powers renders China’s competition law system unique as in most jurisdictions, competition enforcement powers are entrusted to a single competition authority. The NDRC was authorized to enforce the AML against price-related anti-competitive practices, SAIC was responsible for prosecuting non-price-related infringements, while MOFCOM assumed the responsibility for merger control. Despite its extensive expertise on matters related to international trade and foreign investment, MOFCOM had considerably less knowledge and experience with the functioning of the Chinese domestic markets, compared to the other two anti-monopoly enforcement authorities. MOFCOM was relieved of its responsibility for enforcing merger control under the AML in 2018, when the State Council moved to centralize AML enforcement under a single institutional roof by establishing the State Administration of Market Regulation (SAMR). The Anti-Monopoly Bureau of the MOFCOM subsequently moved to SAMR. Finally, in 2021, China separated its competition authority into an independent Anti-Monopoly Bureau (AMB) that was elevated from the rank of a department within SAMR to a deputy ministerial-level agency. The AMB fully absorbed the merger control department of the SAMR.

While national competition authorities in many jurisdictions have to ensure that their merger decisions contain sufficient reasoning in order to allow for a meaningful judicial review, that is not the case in China. Practitioners frequently note the lack of transparency on the part of the MOFCOM and consider the published decisions of little instructive value for the legal and business strategies of the merging parties. The lack of clarity appears intentional since it increases the de facto discretion of the competition authorities in identifying their concerns and encourages merging parties to engage in negotiations to find the acceptable remedies. Furthermore, unlike other areas of AML enforcement, courts have virtually not played a role in clarifying merger control concepts. As a result, the interpretation of merger rules has been entirely in the hands of the enforcement authorities.

During 2008-2013, out of 750 notifications by AML enforcement agencies, only 57 (8%) concerned transactions involving exclusively domestic companies. This led to the impression that China’s competition authorities intentionally target foreign companies in their merger review. However, instead of focusing on whether China’s merger control deliberately discriminates foreign firms, it would be more relevant to discuss how effective or relevant merger review is for domestic enterprises. One of the reasons for the absence of domestic-to-domestic mergers from the “problematic” cases where mergers were prohibited or cleared with conditions has to do with China’s market structures. In those markets where there is no monopolistic or dominant state-owned enterprise (SOE), the market shares of the parties tend to be rather small, concentration ratios are relatively low, and intended concentrations won’t have significant effects on competition. Due to their importance for the Chinese economy, although the consolidations of the Chinese SOEs were regarded as concentrations of undertakings and fell within the scope of merger control, once the government announces the reorganization of the relevant SOEs, the respective merger clearance of MOFCOM/SAMR remained a formality. While several high-profile SOE mergers passed the merger review, there are numerous instances where SOEs have omitted to submit their merger notifications and were fined with a penalty of up to CNY 500,000. This fine however is unlikely to serve as a sufficient deterrence. Therefore, although formally the merger control rules under the AML are applicable to foreign and domestic companies alike, the merger review was used more assertively in relation to foreign companies as such entities are not state-owned or regulated by means which the Chinese authorities normally use in relation to domestic market players.

Our study of China’s merger control enforcement is based primarily on conditional clearances and prohibition decisions since the AML does not require publication of unconditional clearances. Attempts to screen conditional merger decisions for factors that have been actually considered by MOFCOM/SAMR during the merger assessment process produced only anecdotal evidence. On the other hand, the formulation of merger remedies can serve as a litmus test for assessing the convergence, or lack thereof, between the Western-style, primarily economics-based merger control regimes and China’s sui generis merger control system.

It was widely noted that the most apparent divergence with Western jurisdictions consists in China’s competition authorities’ preference for behavioural remedies. Unlike the structural remedies that preserve market structures by separating certain business units from the control of the merging parties (mainly through divestitures), behavioural remedies allow the competition authorities to shape the specific commercial practices (price levels, sales volumes, market expansions, supply to certain customers, etc.) of the merging parties even after the merger is completed. Behavioural remedies (purely behavioural remedies) were imposed in 40% of cases and hybrid (structural and behavioural) remedies in 25% of cases. The maintenance of behavioural remedies represents a significant interference in the merging parties’ business activities.

For example, in the 2014 Microsoft/Nokia case, MOFCOM used behavioural remedies to ensure that the standard essential patents held by the merging parties would be licensed on FRAND (fair, reasonable, and non-discriminatory) terms. The competition authority has justified its decision by the prevention of possible abuses of patents that may occur post-merger. In another 2014 case, Thermo Fisher/Lifei, the acquiring company was required to lower the China market list prices for its products in the next ten years and not to reduce the discount offered to Chinese customers. Another example of a behavioural remedy is the requirement to notify and ask for permission the competition authority in China about any further expansion of the merging parties’ business.

The present study of China’s merger control legislation and enforcement records demonstrates that while formally following the widely accepted competition harm theories, the significant discretion of the merger control authorities results in a limited degree of predictability in merger assessment. With regard to the nationality of the merging parties subjected to prohibitions or imposition of remedies, enforcement statistics suggest that China’s merger control enforcement is applied more assertively in relation to foreign companies.

The paper China’s Merger Control: Competition Assessment or Foreign Investment Screening? was published in the KLRI Journal of Law and Legislation. Alexandr Svetlicinii is Associate Professor at the University of Macau, Faculty of Law where he also serves as the Programme Coordinator of Master of Law in International Business Law. He is the author of the monograph Chinese State-Owned Enterprises and EU Merger Control.

Conjuring up Equality Rights? How China’s Statist Approach Fosters in an Emerging Global Regulatory Patchwork of Online Hate Speech

3. December 2022
A paper by Ge Chen
Definition by Chenchen Zhang (2017). Censorship on the Chinese internet often stops short of regulating the slander of those labelled as Baizuo.

Hate speech has almost never been a major legal issue in China. It is not until very recently that the need to regulate online hate speech as a criminal offence attracted more attention from legal scholars. On the plane of governance, the problem of potential tensions between different nationalities, religions, genders and perhaps regions is a politically sensitive item, albeit far from being the most sensitive one that triggers the nerve of the ruling party. In most cases, such potential tensions are glossed over either by the work of the “United Front” or by media censorship. Due to the prevalence of the authoritarian, Confucianist, and Great-Han culture, those tensions are likewise often ignored by many ordinary Chinese: in their eyes, such issues range from being petty and unimportant to non-existent. After all, highlighting those issues marks profound deviation from a “harmonious” society in Confucianist illusion.

Yet those tensions do exist as in any other society. And speech expressive of hatred and resentment of anything in those categories is ubiquitous in China – online or offline. The reason why hate speech is neither a legally defined term nor anywhere properly regulated in Chinese law is that hate speech is simply ranked very low among various types of political speech in a highly authoritarian system of speech regulation. Where political speech lacks real constitutional protection, hate speech will not even be recognised as such. However, speech regulation is real and, by its very definition, hate speech does fall sometimes into the purview of such regulation. One of the main legal sources that captures hate speech regulation is China’s Criminal Code (Arts. 249 & 250). Other recent sources include numerous administrative regulations on publication as well as the new Civil Code (Art. 1183).

The reason why hate speech is neither a legally defined term nor anywhere properly regulated in Chinese law is that hate speech is simply ranked very low among various types of political speech in a highly authoritarian system of speech regulation.

Importantly, this emerging patchwork of hate speech regulation looms large amid a bunch of new online hate speech regulations in liberal democracies, where the constitutional protection of free speech is sacrosanct but may be circumscribed by equally important priorities. The constitutional and legal contours of speech protection and regulation, however, are at variance among those countries, and distinctly so between the US and Europe. At any rate, equality concerns are a rising factor that could puzzle even lawmakers and courts when it comes to a potential conflict between freedom and equality. So far the regulation of online hate speech has been a topic of controversy among politicians, lawyers, activists and media. While many are zealous followers of, say, minority protection and gender equality, others cast doubt on the overemphasis on equality-related considerations that could buttress authoritarians’ “benevolent violation” of personal freedom – here, in particular, freedom of expression.

Thus, it is highly interesting to look into the regulatory area of online hate speech through a comparative lens. Can those rising equalitarian considerations in the constitutional regulation of hate speech lend a hand to an authoritarian regime in legitimising its legal technique of restricting political speech in a more nuanced, less noticeable manner? At least, the notice and takedown regime is highly identical to that in western hate speech laws such as the German Network Enforcement Act (‘NetzDG’). But there are more advanced restrictive measures of political speech such as a manipulated campaign of unleashing hateful speech against liberalism itself. A leading example is the online, public disparagement of “White Left” (baizuo) which has had impingement on any liberal-minded speakers that may articulate their criticism of the mainstream ideologies or governance models.

This paper explores this unique pattern of regulating online hate speech in alignment with the prevailing regulatory framework in Europe and the US. The paper analyses the emerging regulatory patchwork of hate speech regulation in China which builds on the regulation of political speech in China and addresses the ways in which European and US approaches have informed Chinese law, though the latter are used in different ways within an authoritarian constitutional order characterised by demoralised pragmatism and interest-driven administrative law. The paper develops a case study of the disregulation of “white-left” commentators (deemed to represent Western liberalism), which raises questions about the connection between support for particular modes of regulation against the background of a particular political system, with differing roles for the state, private actors, and media organisations.

The paper “How equalitarian regulation of online hate speech turns authoritarian: a Chinese perspectivewas published in the Journal of Media Law. Ge Chen is Assistant Professor in Global Media & Information Law at Durham Law School. His main research interest is free speech in international and comparative perspectives. He was postdoctoral research associate and remains associate of the Centre for Intellectual Property and Information Law at the University of Cambridge. He was resident fellow (Fulbright nominee) and remains affiliated fellow of the Information Society Project at Yale Law School. He was Visiting Academic of the Programme for Comparative Media Law and Policy at the University of Oxford. He is the author of Copyright and International Negotiations: An Engine of Free Expression in China? (CUP 2017), a research monograph featured in Harvard Law Review.

China’s Constitutions: Past and Present

6. November 2022
A paper by Leigha Crout
The 1954 Constitution was drafted under the leadership of Mao Zedong in this house near the West Lake in Hangzhou. Today it hosts China’s first Constitution-themed museum and is a popular “red tourism” destination. Photo by Siyuwj, licensed under CC BY-SA 4.0

The Constitution in the People’s Republic of China (the PRC or China) has experienced a modern revival under the Xi administration. Both the Communist Party of China (the CCP or the Party) and state leaders have called upon the nation to rely upon the guiding force of the Constitution and its laws in recent years and to adopt Xi Jinping Thought on the Rule of Law (习近平法治思想) in enforcing legal mandates. However, it is also clear that this new emphasis on constitutional law – and by extension, constitutionalism – excludes some of the ideas traditionally associated with a constitutionalist state.

Core facets of constitutionalism, including judicial independence and the separation of powers, are notably absent in its new and contextualised version in China. This is best represented in the adoption of the 2018 Constitutional amendments, which eliminated term limits for the state’s highest offices (one of few procedural limitations consistently enforced by China’s leadership), equated the ‘leadership of the Communist Party of China’ with the founding ideology of the nation, and further blurred the boundaries between Party and state governance. Now, it seems China’s leadership has embraced a political-style constitutionalism that relies on the leadership of the Party as the real or ‘living constitution’ of the nation.

Adopting a historical perspective, this paper analyses the development and progressive implementation of China’s four constitutions, using three interrelated frames – ideology, text, and judicial implementation – as a metric for determining how the theoretical footholds of this new ‘constitutionalism’ within China developed over time.

This work begins with an overview of the competing legal philosophies that influenced dynastic China and preceded the development of the state’s first constitution. Two polarised conceptions of law predominated – Confucianism, which emphasizes social rules and the maintenance of harmony, and Legalism, an ideology that presupposes humankind to be cruel and generally unlawful. Whereas Confucianism would eschew formal institutions for the resolution of conflict as disruptive to social order, Legalists preferred a strong administration, detailed edicts and harsh penalties for violations of the law. Both philosophies, though seemingly contrary, continue to exert great influence on governance in modern China; for example, Xi Jinping is well known to cite the Confucian classics in his speeches, while encouraging the development of a ‘legalistic’ administration.

The form and content of most of these documents traced the historical political trajectory of the state. The 1954 Constitution, for instance, was a product of the Communist Party’s victory in the Chinese civil war and the nation’s then-strong alliance with the USSR. The text supported the supremacy of the vanguard party and included a stronger program for collective entitlements and responsibilities of citizens. In terms of judicial enforcement, this text was explicitly excluded from the courtroom in a communication from the nation’s highest court (the Supreme People’s Court) to a lower court, in confirming that the Constitution could not be cited in criminal matters.

The short-lived 1975 Constitution reflected a turn within the Mao Zedong era – the Cultural Revolution, a national movement which endeavoured to ‘cleanse’ the nation of its traditionalist past and Western influence to form a new Communist revolution for its people. Alongside many of the nation’s historical relics, the legal system was fundamentally hollowed out during this time as lawyers and judges were detained, disappeared and sent to labour camps or re-education facilities. Judges held court on limited matters, primarily on divorces or important criminal cases. In many ways, China is still recovering from this generational loss of its legal profession. In its text, the Constitution reserved absolute authority for the CCP. While different branches of the government were maintained, all were required to express deference to the Party. Rights were also condensed to merely four articles, leaving little room for enforcement. Fundamentally, the 1975 Constitution represented a legitimation of the power already subsumed by the Communist Party and proved to be an unsustainable model that was reformed upon Mao’s descent from power.

The 1978 Constitution was also transitional – taking the state out of the Cultural Revolution and paving a path for the modern era. This text was an amalgamation of elements originating from the 1954 draft and its immediate predecessor; it once more expanded the number of constitutional rights, while also maintaining the structure of deference to the Party. Ultimately, reformists within the state resistance were successful in calling for a new text in 1982 that reflected the contemporary era of constitution building and economic globalisation. This current Constitution in many ways mirrors the common programs of democratic nations. It includes traditional principles of a constitutionalist state, like judicial independence and provisions for the separation of powers. It also adopts a robust commitment to rights, improved by the 2004 amendments’ addition of an explicit state obligation to respect human rights.

Since its adoption, the Constitution has been amended five times, and most subsequent modifications brought China closer to constitutionalism in its organic sense. In 2001, the Constitution was judicialized for the first time when the nation’s highest court relied on the text to vindicate a plaintiff’s constitutional right to education (though this ruling was later vacated).

However, the 2018 amendments brought the state’s Constitution reformation period to an abrupt halt, introducing a ‘New Era’ of constitutionalism with old roots. As a result, this historical perspective is particularly relevant and instructive in today’s China. Human rights and traditional constitutionalist principles within China’s Constitutional text now seem to rival the revived citizen obligations and commitment to Party leadership of the Mao period. These developments are not incidental but represent an intentional reversion to specific historical mandates.

With precepts found in the dynastic and Communist states, this constitutionalism appeals to several key elements of China’s constitutional past. Intentional efforts from the Party to create law ‘suitable for China’ tend to focus on constitutional language from the Mao era, which laid precedent in situating the Party at the helm of the Constitution. Constitutional concepts such as Mao’s People’s Democratic Dictatorship, or the idea that China is a democracy for its friends and a dictatorship for its enemies, have generated fresh debates within state media and domestic literature. Moreover, the state’s efforts towards administrative centralization have echoed within China’s legalist traditions. Taken together, it is clear that the PRC’s legal history plays a newly significant role in the present.

While China’s constitutional future remains unclear, the modern revival of these elements and others signifies a departure from its era of reform. However, many protest a return to the past. While suppression of dissent has become commonplace, activists nevertheless persist in advocating to vitalize their constitutional rights. As resistance efforts continue, it may be that this New Era of constitutionalism has the same transitional nature as its predecessors.

The paper The Evolution of Constitutionalism in the People’s Republic of China: Past and Present was published with the Indiana International and Comparative Law Review. Leigha Cout is a William H. Hastie Fellow at the University of Wisconsin Law School, a PhD Candidate in Law at King’s College London and a Research Associate with the China, Law and Development Research Project at Oxford University. Her current research focuses on constitutional law and change in the People’s Republic of China.

Green Finance as an Institutional Mechanism to Direct the BRI towards Sustainability

9. October 2022
A new paper by Meihui Zhang, Chi Zhang, Fenghua Li and Ziyu Liu
A Tapanuli orangutan female in the North Sumatran Province, Indonesia. A BRI-funded hydropower dam has been under attack for demolishing this endangered species’ habitat. Photo by Tim Laman.

The construction projects realized through the Belt and Road Initiative (BRI) globally have come under attack for causing severe damage to the environment. China’s regulators have responded by issuing green finance rules. In our article we ask: Is the current framework of laws and regulations really a strong guarantee for more sustainable BRI investment projects?

In 2013, President Xi announced the BRI, an investment program to construct infrastructure and power plants in countries that join the initiative, during an official visit to Kazakhstan. At the present time, the BRI extends to more than 140 countries on three continents. Constructing mega projects requires considerable investments, an overwhelming majority of which are made by Chinese enterprises under the official policy of ‘going out’ 企业走出去. The projects are mainly financed by loans from Chinese state-owned and state-controlled banks.

While the BRI is an ambitious plan (and is sometimes compared to the Marshall Plan after the Second World War), its prospects are ostensibly dimmed in view of a number of challenges. Since the Covid-19 pandemic, China’s banks have allocated more resources to lending in the domestic market. For a resilient recovery, the halted BRI projects require more investments, however, it is unclear where such funding will come from. It appears that China’s banks are unlikely to be able to continue to provide for foreign loans on such a large scale.

The BRI faces an additional (and perhaps a more profound) challenge: Building roads and powerplants, if not well-managed, damages local environments. Several news outlets have already reported how the mega projects threaten environmental sustainability. For example, approximate 800 Tapanuli orangutans lost their treetop home in Indonesia’s Batang Toru rainforest because of the construction of a hydropower project partly financed by the Bank of China. If China and countries along the BRI fail to address these threats to the environment, the BRI cannot achieve the long-term sustainability.

One means to increase the sustainability of BRI investment projects are green finance tools. Banks can raise funds by issuance of ‘BRI theme’ green bonds and lend the proceeds to green projects in BRI host countries. Thus, at least in theory, both the constraint of funding as well as the concern over environmental sustainability can be alleviated. Utilising green finance tools, however, is only possible if domestic and international ESG investors are convinced that the ‘green projects’ are truly environmentally friendly. This requires, among others, banking and securities offerings regulations to incorporate ‘green finance’ rules so that greenwashing problems are avoided. Furthermore, the issuer of the green bond must adhere to a reputable ‘green bond standard’, and mandate that issuers of green bonds disclose information concerning the use of bond proceeds and label the bond with a third-party certification. 

China’s regulatory authorities have recently issued related rules. Our in-depth examination of these rules in our recent research paper, we discovered that despite significant achievements, there remain a number of deficiencies in China’s green finance regulations. These deficiencies include a lack of legally binding force of applicable green overseas lending guidelines, insufficient environmental disclosure requirements, and fragmented rules regarding the use of green bond proceeds. Realising the deficiencies entrenched in China’s green finance regulations, the paper presents a number of policy recommendations. This study contributes to future research in the area of green finance and the BRI, particularly in terms of Chinese law and regulations.

Our paper Green Finance as an Institutional Mechanism to Direct the Belt and Road Initiative towards Sustainability: The Case of China is published in Sustainability and can be accessed here.

Meihui Zhang is a lecturer in financial law at School of Law, Tianjin University of Finance and Economics. Prior to joining TUFE, she was a lecturer (2016‐2022) at the School of Finance, Nankai University. She holds a PhD in law from University of Glasgow, an LLM and LLB degree from Renmin University of China.

Chi Zhang is a lecturer in commercial law at School of Law, University of Glasgow. He holds a PhD in law from University of Glasgow, and MPhil in Law and LLB from Tsinghua University. He is a member of the Society of Law Scholars (UK).

Fenghua Li is an associate professor at Law School, University of International Business and Economics. He received a first PhD from China University of Political Science and Law, and a second PhD from University of Glasgow. He is the Secretary-Gernaral of the UIBE Centre for BRI Legal Study affiliated to the China Law Society.

Ziyu Liu is a lecturer at Department of International Law, China Foreign Affairs University. She received her LLB degree from Renmin University of China, LLM degree from National University of Singapore, and PhD degree from University of Hong Kong.

Understanding the Authority upon China’s International Lawyers

7. September 2022
A think piece by Michael Liu
In Spring 2019, the People’s Republic’s government selected Dr. Xu Hong as the new top envoy to the Netherlands

More than one year ago, China’s former Ambassador to the Netherlands, Dr. Xu Hong (徐宏) passed away in Beijing at the age of 57. Xu was diagnosed with a malicious cancer a year before and returned to China for treatment shortly after. Xu is a well-known figure among China’s international lawyers. Given the rather late stage of the illness, his death came as less of a surprise than the diagnosis itself. Yet immediately, social media was flooded with memorial notes and tributes to him. The amount of regret for his departure went beyond the common respect for a senior authoritative figure. He was in a high and powerful position (位高权重), but what struck me most was his unusual sincerity.

While saddened by abruptly losing a well-respected figure, I am also intrigued by the question why he is held with such high esteem by China’s international lawyers. Why is he so much missed, and what makes him different? To answer these questions, I interviewed a dozen people in the circle of international law who knew him. Some of them were his colleagues, superiors and subordinates, or “comrades” in the bureaucratic system, some were opponents who didn’t share his views, some were ordinary friends, or just people who had observed him closely, some inside China and its information great firewall (防火墙) and some outside.

Who is Xu?

Xu is better known to China’s international lawyers as Director Xu or Xu Si (徐司) than Ambassador Xu. Prior to the post of Ambassador Extraordinary and Plenipotentiary to the Kingdom of the Netherlands, Xu served Director-General of the Department of Treaty and Law of the PRC’s Foreign Ministry (外交部条法司) from 2013 to 2019, which is the top authority on matters of international law in China[1].

For what we know, he is a career diplomat. The Foreign Ministry was his first job upon graduating from Wuhan University in 1985 and only employer in his short-lived life. Xu held several different positions, regularly rotating back to his base, the Department of Treaty and Law, each time on a higher rank. With some pride, he described it as a place with overcrowded and rustic offices, but many important figures in international law when he first joined: “When seeing these senior figurers, I am immensely in awe and felt I am in a sacred palace.” [2]

The State and its lawyers

For a long time, Chinese authorities have been ambivalent and anxious about lawyers’ role in state affairs. Legal professionals are perceived to be influenced by liberalism .[3] Occasionally, the state orchestrated campaigns against “hard core litigant lawyers”(死磕律师). Those who invoke international rules for their cause are also unwelcomed with situations sometimes escalating to a diplomatic crisis for the State.[4] 

While the “sticks” in the hands of Chinese authorities have been better studied, recent research also shed light on the “carrots” side of the mission to create a rank of state-adjacent lawyers. Stern and Liu (2019) found that the state uses different channels to celebrate “the good lawyer”, those who are willing to work closely with the authorities and urge critical colleagues to separate private beliefs from public behavior. Essentially, by curating an appealing state strand of legal professionalism rather than relying on coercion alone, lawyers can participate in politics without opposing the regime.[5] Answering Stern and Liu’s call to examine this further with “varieties of legal professionalism” and different segments of the Chinese bar, this essay looks into how among China’s international lawyers an authoritative figure is established.

To help understand the context, I will use Matthew Erie’s (2021) framing on the exchange between the Party-State and Chinese legal academia, “a relationship that lies at the heart of understanding why and how Chinese scholarship on international law assumes the forms it does”:

“Party-State and international law scholars mutually assist each other for their own benefit. The former obtains expert commentary which is aligned with its political and geostrategic aims. The latter earns access to data and government funding, a phenomenon which I will now turn to”.

For example, in a well observed event among Chinese international lawyers, Xi Jinping made a high-profile visit to the China University of Political Science and Law (CUPL) on its sixty-fifth anniversary in 2017. He met with senior legal academics from different universities and made a speech during which he exhorted the students to contribute to building “global rule of law” (世界法治). Reciprocally, Professor Huang Jin, President of CUPL, has proposed that international law be elevated to a “first-level academic discipline” (一级学科) in China, effectively calling for a greater standing of international law scholars in Chinese academia. Professor Huang is also an advocate of applying Xi Jinping Thought to international law. The message that emerged from this exchange is that the Party-State and international law scholars mutually assist each other for their own benefit: The former obtains expert commentary which is aligned with its political and geostrategic aims. The latter earns access to data and government funding.

My interviews confirm that Xu played an important role in both processes: the government’s encouragement for international law academics to strategically use research funding, study areas of international economic law and the law of the sea to best protect China’s interest, as well as enabling access to data for researchers. For instance, Xu’s Department of Treaty and Law has continuously recruited mid-level international law academics to join the rank with temporary affiliations. Institution-wise, the same Department also established a Consultative Committee on International Law during Xu’s tenure, consisting of mostly academic experts.[7]

These efforts pay off. When Chinese legal academics who specialize in the study of international law have rallied to Beijing’s cause when faced with adverse arbitral award in the South China Sea Arbitration Case. In Ku’s (2016) account,

State broadcaster China Central Television America recently reported that “300 Chinese legal experts” reached a “unanimous” opinion that “China should abstain from participating in the case, because the arbitration panel has no jurisdiction over the dispute [and] China has legitimate rights under international law to reject the arbitration.” State news agency Xinhua noted that the China Law Society, an organization which represents all academic lawyers in China, released a similarly unanimous and supportive statement of China’s legal position. Xinhua also recently touted an open letter endorsing China’s legal position signed by hundreds of young Chinese international law scholars studying overseas. And leading Chinese scholars have written essays defending the government’s position.[8]

A year later, the Chinese Journal of International Law, an Oxford University Press journal headed by Professor Yee, a member of Xu’s Consultative Committee on International Law, published an extraordinary 500 page “Critical Study” of the arbitral award by the Chinese Society of International Law (CSIL). The study was hailed as unbalanced,[9] and the Working Report of the Board of Chinese Society of International Law (2013-18) openly reported that it was carried out “under the supervision and leadership of the Foreign Ministry”.[10]

Ku finds that scholars within the Chinese legal establishment have indeed either expressed support for Beijing’s position or have kept silent. Reasons, he argues, are censorship, retribution, and nationalism. My interviews also show in addition to material encouragement and disencouragement, Xu’s personal charisma or mianzi (面子) might have contributed to the standing of Chinese legal establishment in this case.

Schachter described international lawyers as a professional community which, though dispersed throughout the world and engaged in diverse occupations, constitute a kind of invisible college dedicated to a common intellectual enterprise.[11] It seems while China is eager to bolster its standing in this “invisible college”, it is also raising its very own national not so invisible college. Xu is the central figure of these two parallel efforts.  

How did Xu win the respect of China’s international lawyers?

Many interviewees told me that the situation should be de-romanticized before this question can be answered, especially in the Chinese society which emphasizes relationships. There are a lot of pragmatic and realistic aspects behind Xu’s high esteem. All of the interviewees seemed to have their own understanding of this point. A professor with a great deal of practical experience succinctly summed up what he had observed:

First of all, I don’t know him well, but as far as I know, he has a very good reputation in the academic community, and it’s normal for people to think well of him; Second, he is the Director of the Department of Treaty and Law of MFA, and for Chinese international law scholars, he is the biggest owner and distributor of resources, and everyone must say good things about him; third, he is from Wuhan University, and the Chinese international law circle, in a sense, is the alumni circle of Wuhan University.

This was also indirectly confirmed by a former colleague. When I asked him to explain the extraordinarily high number of tributes on WeChat, this former colleague said that Xu was well-connected and had long-standing connections to many because he held this pivotal position for a long period of time. His sudden death shocked many.

But what seems natural to this former colleague may have another dimension. Among Chinese officials, being able to put down their “officialism” and communicate with ordinary people is unusual, especially against the background of the almost insurmountable barriers between those inside and those outside the official system 体制内外. Few pivotal officials are accessible. In contrast, as almost all interviewees stated, Xu was a very humane and good person, had no airs, and was always helping others. This reminds me of how retired Chinese president Jiang Zeming is being affectionally remembered in China. One young interviewee added that Xu drew a strict line between personal time and work time. This made people around him think that he was a humane person (“of flesh-and-blood” 有血有肉的人). Many mentioned that Xu cared about his subordinates and colleagues, respected young people and gave them chances to grow.

His willingness to help others despite his high position surprised people who came into contact with him for the first time. A recent graduate recalled that when she sought advice from him, “not only did he immediately reply to my message, he also immediately introduced me to his colleagues and asked them to follow up. I was dumbfounded at that time. I have never seen such a good person”. A professor who worked briefly with him and his colleagues said that “working with them gave you the feeling that they were there to serve, not to command.”

Another character that sets Xu apart from others is that he is portrayed differently than his diplomatic peers. As many Chinese diplomats as well as the MFA’s spokesperson adopted aggressive language and dogmatism and were therefore dubbed “wolf diplomats”, Xu remained comparably moderate. One interviewed researcher, who is known for his critical stance towards the Chinese government, observed that Xu “speaks with reason, unlike other ambassadors.” In his opinion, Xu’s handling of the South China Sea arbitration shows that although while he must stick to the official political line, he makes efforts to support his position with legal language. The same is true of the document issued later under his leadership regarding the Sino-British Communique concerning Hong Kong. Chinese and foreign observers note that they understand his position and respect his effort to represent it.

It is a sign of Xu’s professionalism that people with different positions appreciate him. But, with the exception of one former colleague, to those who have worked with him, the most memorable traits are is humane attitude and willingness to help others.

Epilogue: Xu in my own eye

Xu and I are members of the same community, but although working on the different front lines of international law, I only had one direct contact with Xu and caught a glimpse of his personality.

In the summer of 2019, I organized the ICC Chinese Moot Court Competition and took around 100 Chinese students and teachers to the Netherlands. Through a friend, I was able to arrange a visit to the Chinese Embassy for our group. It was nice to see the students cheerfully taking photos with Ambassador Xu. Although Chinese embassies often proclaim to be “the home to the overseas Chinese nationals”, those of us who needed to work with them from time to time certainly don’t feel that way. This time, not only did Xu come out himself, he also thoughtfully arranged for the young diplomats in the embassy to come out and meet with students.

On the same day, I spoke to Xu for the first time. Xu knew about the moot court competition before as parts of his team would participate as judges. I expressed my gratitude to him as the organizer of the competition. I will always remember his response. After a brief exchange on the particulars of the competition, he told me that he was concerned that recently the Philippines had been trying to use the court to stir up attention, and asked whether I had noticed. Initially, I did not understand what this had to do with our moot court or my engagement with the Court. Later, I realized that he used our informal channel, the non-governmental organization I represented, to convey his government’s “concern” on Philippines’ move. I then understood better the diplomatic term “concern” and how it works in a multilateral setting with different stakeholders involved. The impression I gathered is Xu might be a sophisticated diplomat who thinks about work all the time.

I am glad I got it half right and half wrong, and I deeply regret that was my only lesson from him in this invisible college.

Michael Liu is a lawyer and civil society activist from China. The NGO that he founded in 2012, “Chinese Initiative on International Law” (CIIL) has been actively engaged in rule of law training, refugee relief and gay rights advocacy in and out of China. The organization has also been granted a consultative status with the United Nations (ECOSOC). Previously, Michael was a victims’ counsel at the Extraordinary Chambers in the Courts of Cambodia (Khmer Rouge Tribunal) and worked at the International Criminal Court, the International Committee of Red Cross and a private law firm (Fangda Partners) under various capacities. His PhD project at Leiden University is about the rise of China as a norm shaping force in the global human rights discourse

[1] In addition to the Department of Treaty and Law, the Department of Boundary and Ocean Affairs (边海司) and the Department of International Organizations and Conferences (国际司) also deal with issues of international law.  

[2] Interview with Xu Hong at the 40th anniversary of international law institute of Wuhan University (武大国际法所四十周年所庆之“校友风云榜”,徐宏大使访谈录:漫漫外交路 拳拳珞珈情) https://mp.weixin.qq.com/s/aXs0OiuGUoIQ3aXoZyAFWg accessed 24 March 2022.

[3] See Eva Pils (2018) Human Rights in China: A Social Practice in the Shadows of Authoritarianism, Wiley; Di Wang and Sida Liu (2020) Performing Artivism: Feminists, Lawyers, and Online Legal Mobilization in China’, Law and Social Inquiry 45(3), pp. 678 – 705 678.

[4] Yaxue Cao (2014) The Life and Death of Cao Shunli (1961 — 2014), China Change, 18 March 2014, https://chinachange.org/2014/03/18/the-life-and-death-of-cao-shunli-1961-2014/, accessed 1 April 2022.

[5] Rachel E Stern and Lawrence J Liu (2020) The Good Lawyer: State-Led Professional Socialization in Contemporary China, Law and Social Inquiry 45(1), pp. 226 – 248.

[7] The Editors (2021) In Memoriam: XU Hong (1963-2021), Chinese Journal of International Law 20(1), 217.

[8] Julian G Ku (2016) China’s Legal Scholars Are Less Credible After South China Sea Ruling, Foreign Policy, 14 July 2016, https://foreignpolicy.com/2016/07/14/south-china-sea-lawyers-unclos-beijing-legal-tribunal/, accessed 24 March 2022.

[9] Douglas Guilfoyle (2018) A New Twist in the South China Sea Arbitration: The Chinese Society of International Law’s Critical Study, EJIL: Talk!, 25 May 2018, https://www.ejiltalk.org/a-new-twist-in-the-south-china-sea-arbitration-the-chinese-society-of-international-laws-critical-study/, accessed 24 March 2022.

[10] Work Report by CSIL(中国国际法学会理事会工作报告) on May 22, 2018 https://mp.weixin.qq.com/s/Xv8Kij_bDuqMETULvUfMqg

[11] Swethaa S Ballakrishnen and Sara Dezalay (eds.) (2020) Invisible Institutionalisms: Collective Reflections on the Shadows of Legal Globalisation, Hart Publishing, an imprint of Bloomsbury Publishing.

Cultural Issues in International Arbitration

8. August 2022
Shahla Ali and Chinwe Alli
Nick Youngson CC BY-SA 3.0

As the world economy continues to globalize, business transactions increasingly involve multiple countries and cultures. This development fostered an exchange of cultural thought, perceptions and beliefs, thus making individuals more aware of the areas where their culture converges with others and also areas where it differs. This phenomenon is present in all kinds of relationships and international arbitration is not an exception. In our article “Cultural Issues in International Arbitration”, we compare the cases of the Hong Kong Special Administrative Region and mainland China to address cultural differences in the conduct of international arbitration proceedings as well as some areas in international arbitration where there exists some form of convergence.

In the field of international arbitration, constant networking among major parties and players (this includes regulators, legal practitioners, disputants and arbitrators) from countries with diverse cultures and legal systems who are involved in the entire arbitration process has promoted the unification of legal procedures, thus leading to legal convergence. With the adoption of the 1985 UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), a suggested pattern for the conduct of arbitration proceedings is created. It was adopted (in full or in part) by lawmakers in 85 states out of 118, and incorporated into their domestic legislation on arbitration proceedings.

However, despite this level of legal convergence in international arbitration, there remain notable differences, largely relating to the cultures of the parties involved. The differences highlighted in this article between international arbitration conducted in Mainland China and Hong Kong Special Administrative Region (SAR) relate most strongly to the difference in legal traditions. Based on the principle of “one country two systems”, Hong Kong SAR operates a common law system modelled after the English common law, while Mainland China on the other hand mainly operates a civil law system. Differences include the presentation of witness testimony, as well as the involvement of arbitrators in the arbitral proceeding, among others.

With respect to the arbitrator’s involvement in the arbitral proceedings, we find that arbitrators in Mainland China tend to actively participate in the settlement of dispute, thus playing a dual role of mediator and arbitrator. This may be attributed to the Confucian culture of mediation that stresses social relations as well as the Chinese legal structure which recognizes and gives legal protection to such med-arb arbitral awards. On the contrary, arbitration conducted in Hong Kong SAR takes a more technical legal approach, stressing due process and neutrality, thus preserving the legal boundaries of arbitrators in arbitral proceedings.

We further find that arbitrators in Hong Kong SAR attach more importance to witness testimonies and cross-examination than their counterparts in mainland China who give priority to documentary evidence. This strong reliance on documentary evidence in arbitration has its roots in the legal culture of Mainland China, as Chinese courts attach significant importance to documentary evidence. In addition to the notion that relying on documentary evidence makes litigation faster, courts believe that testimonial evidence can be manipulated and has a likelihood of change when put to test. This litigation practice therefore influenced how evidence is obtained and evaluated in arbitration conducted in Mainland China.

We conclude by pointing out the significant role that culture plays in arbitral proceedings, especially in transnational arbitration which involves disputants, litigants, law makers and arbitration from two or more diverse jurisdictions. Hence, in order to have a smooth and effective arbitral process, it is necessary to further identify and study the areas of convergence and difference in various legal cultures across the globe.

Find a free version of the chapter here.

Shahla Ali is Professor of Law and Associate Dean at the University of Hong Kong Faculty of Law and Director of the LLM Program in Arbitration and Dispute Resolution. Her work centers on questions of governance, sustainable development and cross-border dispute resolution in the Asia Pacific region. She also serves as a bilingual arbitrator (English/Chinese) with CIETAC, HKIAC, KCAB and SIAC.

Chinwe Alli is the Project Manager for the global team of Jumia Group and also a mentee of the WIA program of the HKIAC. She is a Lawyer licensed to practice law as a Barrister and Solicitor in Nigeria and she holds a master’s degree in international law from Peking University. She is currently based in China and engages in global compliance, legal advisory, contract management, business development and international arbitration. 

The Quota Reform in Chinese Courts and Its Implications

13. July 2022
A new paper by Ying Sun and Hualing Fu
Haikou Intermediate People’s Court. Photo by Anna Frodesiak

From the year 2014 a new round of judicial reform was launched in Chinese courts all over the country. For Chinese judges, the most significant change is the “quota reform”(员额制改革). The quota reform aims to professionalize the ranks of adjudicators: by edging out a given percentage of judges, only the better qualified judges would be re-appointed. The background of the quota reform is the plan to reduce the level and the intensity of both political and bureaucratic control over judges in adjudication and to decentralize judicial power to the rank and file judges only, restoring individualized judging while enhancing judicial accountability.

A keen interest in the details of the quota reform drew the author (Ying Sun) to conducting interviews and observations in Guangdong province, Henan province and other places. She gained first-hand insights into how the quota reform is implemented and how the judges saw it.

Before the reform, the number of judges in Chinese courts were calculated in three groups:

  1. the overall size of the judiciary, including judges, but also political and managerial staff and supporting personnel;
  2. the number of judges, i.e. those with proper judicial qualification and, importantly, the percentage of judges in the overall established judicial size; and
  3. the number of so-called “frontline judges” (yixian faguan一线法官), i.e. judges who actually adjudicate cases as judges and their percentage among judges excluding judges holding management positions who are assigned to non-judicial posts.

In 2002, nationwide, there were approximately 210,000 judges and 150,000 of them were frontliners. [1] The number and percentage of the frontline judges had remained stable (211,990 judges in 2014) prior to the reforms. A remaining three types of judges did little or no judging. The first group involved judges in management positions, including presidents, vice presidents and chief judges in professional chambers and their deputies; the second, judges who had transferred from professional chambers to political and administrative departments within the courts; the third, judges whose sole responsibility was to execute judgments. The long term objective of quota reform was to limit judgeship to judges whose principal job was to judge.

The reform caused a significant shake-up in the overall profile of the judiciary, with a large number of former judges ceasing to be judges. The court at hand however was able to absorb and neutralize the reform impact throughout its implementation.

First, the quota reform’s ambition to separate judges from administrators forced judges holding political and administrative offices to make a choice. And their choices were clear: the majority of them decided to stay in the administrative departments, while predictably few were willing to give up their status and ranking, especially those holding key positions.

Second, the quota reform unintentionally gave rise to a renewed exodus of middle career judges who left for law firms or other private sector employment. The trend of able judges leaving the judiciary for other careers was well-known, and the quota reform was intended to reign in the problem. However, by reducing the size of the judiciary and creating uncertainty among judges, the reform triggered another miniature exodus – judges, fearful of being left out and worried about the future prospect in an uncertain environment, seized the opportunity to leave the judiciary.

Third, the quota reform posed a significant challenge to courts as they had to contend with a sizeable group of judges who participated in the quota selection but failed and as a result were demoted to the rank of judicial assistants. They did so by offering a transition period, or grace period, during which some of the disqualified judges were allowed, de facto, to adjudicate as judges.

The centre-piece of judge quota reform was to free frontline judges from bureaucratic control in judicial decision that they used to be subjected to, and to abolish the vetting system that required judges to submit their draft opinions to leaders for approval, all to facilitate and promote individualised judging. And indeed, gradually, judging started to shift away from a collective endeavour with decisions subject to multiple layers of vetting and approval. The quota system was successful in placing individualised judging and accountability at the centre of adjudication in the vast majority of cases and in shifting the focus of judicial decisions from a fixation on the social impact of a decision to emphasis on its internal legal quality within an increasingly self-referencing judicial universe. With the new focus on the court-centric and rules-based dimension of judging, as the reforms require, judges do increasingly look for legal guidance to craft a decision. On the other hand, while the rise of individualised judging has created space for judges to deliberate individual cases, it does not reduce judicial accountability. Rather, it created an opportunity for reconfiguration of the control system. Riding on the tide of standardisation, a higher court is filling the gap that the reforms created at the local level and exercising real leadership.

Notwithstanding the fanfare, self-contradictions and tensions, the reforms have been muddled through to create a more identifiable, distinct judiciary. It is now well established that judges are those who judge, excluding political and administrative officers from holding the title of judgeship. The quota reform reflects the contradictions of judicial reform in a party-state. As the quota reform story testifies, the judiciary within a political system can explore spaces for its professionalization project – judges can judge on their own most of the time and in most of the cases. In that process, the Party could be both a helping and a restraining hand, and the bureaucratic system in which the court is an integral part creates both positive and negative incentives for the reform.

Ying Sun and Hualing Fu’s paper was published with The China Quarterly, find it here.

Dr. Ying Sun is an associate professor at the School of Law, Sun Yat-sen University, China. She teaches constitutional law and comparative legislatures. Her research interests include election process, the Chinese people’s congress system, judicial reform and law-making politics in China.  Hualing Fu is the dean and the Warren Chan professor in human rights and responsibilities at the Faculty of Law of the University of Hong Kong. He specializes in public law and criminal law, with a focus on China, and cross-border legal relations in the Greater China region. His other research areas include the constitutional status of Hong Kong, in particular central–local relationships in the Hong Kong context and national security legislation.

[1] Xiao, Yang. 2002. “在全国法院队伍建设工作会议上的讲话” (Speech at the national conference on court personnel construction project), ChinaCourt.org, 8 July, https://www.chinacourt.org/article/detail/2002/07/id/7829.shtml. Accessed 16 September 2018.