Tag Archives: law

China’s New Foreign Investment Law Ready-Made For A Trade Deal

THE NEW INWARD foreign direct investment law, rushed forward and freshly rubber-stamped by the National People’s Congress, ticks all the boxes that Washington would want to see ticked.

But then it has been framed to do just that.

It overtly levels the playing field between foreign and Chinese companies in that it forbids forced technology transfer as a condition of foreign investment approval and makes it a criminal offence for officials to share foreign investors’ commercially sensitive information with Chinese firms (furnishing that information remains mandatory for local subsidiaries of international firms, however). Intellectual property protection is high on the list of US negotiators’ demands in the current round of US-China trade talks.

It also holds out an olive branch on another of their demands, greater market access, by adopting a ‘negative list’ system. Any sector not explicitly restricted will be open to foreign investors. However, there will still be 48 sectors that will remain off-limits, such as gene research, religious education and news media, or only conditionally accessible, such as oil and gas exploitation, nuclear power and airlines.

Regardless, both aspects can be packaged up to mutual advantage, a ‘win’ for the US side and a ‘concession’ by the Chinese one, though in truth they are neither.

When the new law comes into force on January 1, 2020, as with all Chinese legislation, it will provide a framework that will be open to interpretation and subject to enabling rules and regulations and the rigidity and frequency with which it is implemented.

Enforcement and redress via the courts is another matter. The judiciary is subordinate to the Party. Courts, particularly the new specialist business courts have due process, but also know their place. Every foreign firm investing and operating in China needs to appreciate that, and the difference between rule of law and rule by law. China has the latter.

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Worms And Elephants In The Gu Kailai Trial

This Bystander is starting to wonder which of the few but tantalizing details revealed at Gu Kailai’s brief trial for allegedly murdering British businessman Neil Heywood will open up the can of worms on which the Party is trying to keep a tight lid.

The court heard that Heywood demanded £13 million in compensation from Gu’s son, Bo Guagua, now studying in the U.S., for a failed property investment for which he had been promised ten times that much, and threatened to “destroy” Bo if payment was not forthcoming. The court also heard that former Chongqing police chief  Wang Lijun, who triggered the outing of the affair by making the murder allegations to the U.S. consulate in Chengdu, allegedly conspired with Gu to frame Heywood with a drugs bust, and then tried to cover up the Englishman’s murder after the event.

The first detail may lay end up laying bare the web of lucrative business dealings engaged in by  the country’s powerful politically elite, and their ability to transfer large sums of money out of China. The second pushes the Haywood murder closer to Gu’s husband, disgraced Chongqing Party boss Bo Xilai, to whom Wang was right-hand man and enforcer of the politician’s crackdown on organized crime in Chongqing. Bo, who is now under disciplinary investigation and who has not been seen in public for weeks, is the elephant in the courtroom in this case.

The former would be an embarrassment to the ruling elite, if no more than what most Chinese already assume to be the case. The second is far more awkward. It risks exposing not only political corruption but also the ugly infighting that led to Bo’s ousting, a marked contrast to the veneer of unity that the Party’s top leadership likes to portray.

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Gu Kailai Trial Closes

We said it would be swift. It was. Gu Kailai’s trial for the murder of British businessman Neil Heywood opened and closed within a day. A court official, reading from a statement outside the court, said that the wife of disgraced politician Bo Xilai did not contest the charge. He also said that it was Gu who poured the fatal poison into Heywood’s mouth. Her motive was said to be that she feared for the safety of her son in a dispute between Heywood over money. State media has a detailed account of the prosecutor’s case here.

The next step will be the announcement of the date of the verdict. Gu and family employee, Zhang Xiaojun, who was also charged in connection with Heywood’s death, both potentially face the death penalty. The emergence of a protection of her son line of defense may point to some clemency.

State media also report that four police officers would go on trial on Friday, accused of trying to protect Ms Gu from prosecution. All the loose ends are being neatly tied off.

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One Law, Two Systems

The law is ruling overtime in China, and doing so under several spotlights that cast it in an uneven light.

Xie Yalong, the 56 year old former head of China’s professional football league, has just gone on trial, the most senior official to date in the corruption scandal that has engulfed the sport and captured the attention of a nation. Dozens of referees, players, officials and coaches have been arrested since an anti-corruption investigation started in 2009. Xie has been charged with taking more than 1.7 million yuan ($270 million) in bribes. His successor, Nan Yong, faces similar charges.

Xie’s defence is that he is guilty but not as guilty as charged, and that he is a victim of the legal system, having been mistreated during the investigation. It is a line that resonates with many of the public, who are familiar with local official corruption and the heavy handed treatment that can be meted out to those who run up against it. As is emerging in the case of Bo Xilai, the disgraced former Party boss of Chongqing who is now being very publicly subjected to the rule of law, that can be heavy handed in the extreme. Some of those convicted during Bo leadership in the city are now petitioning to have their convictions overturned. Meanwhile, two officials from Wukan had been expelled from the Communist Party over illegal land deals that eventually led to the social uprising that saw locals run Party officials out of their town last year. Eighteen  others are being dealt with under the Party’s disciplinary procedures, a reminder that there are parallel systems of punishment.

 

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China To Reduce Number Of Capital Offences To 55

China executes more convicted criminals every year than any other country. The exact number is a state secret but is estimated to be in the thousands.  Adding up Amnesty International’s figures, this Bystander reckons that China executes more than the rest of the world combined.

One reason is the lengthy list of crimes — 68 of them — that carry the death penalty. That list may now be culled to 55, according to Xinhua.  Some white-collar crimes may come off the list including 13 “economy-related, non-violent offences” such as fraudulent use of financial bills, letters of credit and value added tax invoices. Smuggling gold, silver and other precious metals out of the country would also be exempted. Corruption, considered an economic crime, seems to be one that will still be considered a capital offense. A draft amendment to the country’s criminal code has been submitted for a first reading to the Standing Committee of the National People’s Congress,  so there is a way to go before any change happens.

The number of executions has been falling since 2007 when the Supreme Court restarted reviewing all cases in which a lower court had imposed the death penalty. Xinhua quotes Chen Zexian, a criminal law expert at the China Law Society, as saying that death penalties are mainly imposed for only seven or eight crimes, mostly violent ones such as murder, rape and robbery, so culling the list of capital offences by 13 may not have a significant impact on the numbers, especially as they are all economic crimes.

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Xue Feng, Stern Hu, State Secrets And China’s Rule Of Law

When is publicly available information a state secret? When it is business information held by China’s state-owned firms. The sentencing of Xue Feng, a 44-year old Chinese-born American geologist, to eight years in jail in China for stealing state secrets, which in his case involved an attempting to buy data about the oil industry for the U.S. energy consultancy he worked for, follows the 10-year sentence given in March to Stern Hu, formerly of the Australian mining firm Rio Tinto, for accepting bribes and dealing in state secrets.

It doesn’t take much to draw comparisons between Xue and Hu’s cases. Both involved men who had gone abroad, gained a second nationality and then returned to work in the country of their birth as executives for a foreign company. Both have received exemplary sentences in comparison with those handed down to the Chinese nationals tried alongside them (three in both cases). Both were working in what are regarded as strategic natural resources industries (oil and steel respectively).  Both cases strained relations between Beijing and a foreign government (the U.S. and Australia) that had raised the cases at the highest levels; handing down the sentencing of Xue on the same day that the U.S. was celebrating its own Independence Day holiday was a particularly pointed rebuff, especially as Washington had not publicized Xue’s case previously in the way that Canberra had done with Hu’s.

The lessons to be drawn from all this, for foreign businesses at least, is that those competing in any of the 20 industries that China has designated as strategic and in which it is grooming national champions need to remember that the line dividing market intelligence from industrial espionage is a fine one and that the one dividing market intelligence from a state secret finer still. And while it might appear to foreign companies that the distinction is vague, it is not to Chinese law makers: draft regulations released earlier this year defined business information held by state firms as state secrets.

Second, that Chinese-born foreign nationals who return to work in China for foreign companies are seen as a special kind of threat; those operating in sensitive industries doubly so (Reuters has a list of a dozen or so examples of ethnic Chinese punished for stealing secrets and spying here). Third, that the due process of law in China — which has been applied in both these cases (more or less) — is still the application of a rule of law in which law is regarded as an agency of the state.

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The Rio 4 Case And China’s Legal Catch 22

Here is the Catch 22 for China over the Rio 4. If it wants to be regarded as a country that follows the rule of law, not one that adjudicates for reasons of political expediency or connections, then it has to prosecute the case through the courts. If it prosecutes the case through the courts, the legal system will be exposed as the arm of state administration intended to deliver a swift conviction and sentence it is rather than an exercise in justice. The constitution and legal system provide for fundamental human rights, including due legal process. In practice, both are often ignored. But then the constitution isn’t the supreme law. The people led by the Party are supreme, a Catch-22 of its own.

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