Tag Archives: Legal System

Bo A Boost To The Rule Of Law?

One unintended consequence of the Bo Xilai affair may be a huge boost for the rule of law in China. This Bystander acknowledges that that statement requires a leap of faith. While there has been a steady improvement in the quality of China’s legal system in recent years, particularly on the civil side, it remains an instrument of the state in a country where state, government and Party are one.

China’s leaders are long accustomed to using the courts for political ends. Now they are trying to use the rule of law to contain a potentially corrosive case of murder, extortion, money laundering, possibly sex and certainly corruption, financial and political, on a large scale. That, in itself, is a political end, of course. Reports that Zhou Yongkang, the Party’s security head and considered a Bo ally, is now under investigation will reinforce the suspicion that the Bo case is more political show trial than the execution of the due process of law, a suspicion readily nurtured by the opaqueness of the leadership succession battle underway in Zhongnanhai, the leaders’ compound in Beijing.

One way of looking at what is happening is that the Hu-Wen leadership has turned to the courts because the institutions of accountability within the Party are inadequate to offset the power of the political, family and business networks of senior Party members. Party discipline has been imposed individually, just as the country has been run by a federation of individual leaders. If the Party’s security head is on the wrong side, so to speak, as may or may not now be the case, that creates a gaping hole in Party governance.

As we noted earlier, the emerging official narrative of the Bo case emphasizes that no Party member, their spouse or family is above the law, even if that family is one of princelings. That has been the Party line for some years, even if not one backed by precedent setting action. Once the Bo case is done, and the leadership succession settled, it is quite possible that China’s new leaders will slip back into the old ways, and the rule of law returned to the shelf, its purpose served. Yet even if a credible investigation and conviction is carried out, the leadership still faces awkward questions. Why wasn’t the Party holding one of its rising senior figures more accountable? Is Bo a unique case, or does the Party have a systemic problem with its governance? Will Bo’s case be followed by others, leading to a prolonged and destabilizing power struggle, as has happened at other times of leadership transition?

In a country where connections fuse into corruption in a systemic way, the precedent of a Bo conviction would be threatening to all top leaders. Yet, many Chinese may like what they see in such a precedent being set. With the inevitable slowing of the economic growth on which the Party has based its legitimacy to monopoly rule, rising concerns about the threat to social stability posed by growing wealth inequality and increasing popular discontent at the perceived corruption of local officials, the leadership will need new props for their legitimacy. Once out of its bottle, the rule-of-law genie may prove hard to put back.

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Corporate Arm-Twisting Through The Courts

The arrest of a Chinese-born Australian citizen for alleged illegal business activities immediately triggers memories of the arrests earlier this year of Stern Hu and his three Rio Tinto colleagues. The case of Matthew Ng, founder and chief executive of Et-China, a travel agency based in Guangzhou and listed on London’s Alternative Investment Market, is not on the same scale but does raise some potential red flags for foreign companies on the acquisition trail in China.

Ng was detained on Nov. 10  and is being held in Guangzhou’s No. 3 Detention Center. According to a company statement on Nov. 22, Ng is being held

as a suspect of the crime of misappropriation of company assets. At present Et-china has no further information about the cause of his detention. As far as Et-china is aware at present Matthew Ng has not been charged with any offense.

Australian foreign ministry officials have since said that Ng has been charged with embezzlement. If convicted, the executive faces up to 20 years in jail.

We aren’t aware of any further details being made public by the authorities, but we understand that the case revolves around Et-China’s $10 million acquisition in 2007 of a majority stake in GZL, one of the largest travel businesses in southern China. Lingnan, a Guangzhou-owned enterprise, is the other main shareholder along with three other state-owned enterprises. GZL’s value has since increased eightfold. Lingnan feels it was underpaid for the shares it sold to Et-China and wants GZL back. Lingnan is also said to be unhappy that the Swiss travel group Kuoni, which already owns a third of Et-China, is in the process of taking Ng’s company over fully in a deal would value Et-China at $125 million. Lingnan has told Kuomi that Et-China bought GZL illegally, a move that has held up the completion of the sale.

We don’t know where the truth lies, but if local shareholders are resorting to a legal system not designed to settle corporate disputes to do just that it risks dragging more deals in to that murky world of  business, political connections and a legal process that detains first and asks questions later.

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The 10 Worst Laws In China

Props to Foreign Policy for its list of the 10 Worst Chinese Laws: A reminder that the legal system in China remains an agent of the state, not one of its checks and balances.

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