Rethinking Law and Development
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Rethinking Law and Development

The Chinese experience

Guanghua Yu, Guanghua Yu

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eBook - ePub

Rethinking Law and Development

The Chinese experience

Guanghua Yu, Guanghua Yu

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About This Book

This book is the result of the collective effort of some of the foremost experts and scholars of Chinese law, Asian law, and Chinese economics and carefully examines the relationship between law and China's economic development. Serious inquiries and candid opinions of the contributors have made for stimulating discussion and debate in many controversial areas. This book is likely to result in further research into factors affecting China's economic development, political change, and China's interaction with the international community.

The book explores the development of the Chinese legal system from both China's historical perspective, taking into account the specific political and socioeconomic factors that are shaping Chinese law, and from a comparative perspective exploring the interaction between China and the rest of the world. The book brings together key international scholars of Chinese law and economics including Hualing Fu, Roda Mushkat, Randall Peerenboom, Zhigang Tao and Frank Upham. The first part of the book focuses on the linkages between the formal law and China's economic development, looking at Chinese courts, economic institutions and firm behaviour as well as contract enforcement and property rights. Part two deals with issues of law, human rights, and social justice as they relate to economic and human development. Taken as a whole, the book offers a unique discourse on the interaction between law and economic and human development in China.

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Information

Publisher
Routledge
Year
2013
ISBN
9781136667411
Edition
1
Part I
Law and Economic Development
1
A Tale of Two Chinese Courts: Economic Development and Contract Enforcement
Xin He*
1.1 Introduction
While contract enforcement by Chinese courts has been regarded as notoriously difficult,1 several recent studies have challenged this long-held belief. Drawing on the national statistics for three types of formal contract transactions, Yu and Zhang,2 for example, argue that commercial parties are able to use formal legal enforcement mechanisms to provide contract protection. Empirical studies based on randomly selected cases also suggest many positive developments of enforcement.3 Whiting, for instance, finds ‘the courts play a moderately important role in the strategies firms employ’,4 and ‘courts are not as completely flawed as they have been portrayed’ and ‘are an increasingly important element in the process of dispute resolution’.5 A study on property and commercial litigation contends that ‘Shanghai courts appear to be performing relatively well in that the final outcome matches most corporate litigants’ expectations of a subjectively fair and positive outcome’.6 Another researcher suggests ‘the enforcement situation … seems fairly good; and local protectionism … seems to be contained within legal rules’.7
As the evidence suggesting these positive developments continues to emerge, less explored, however, are the mechanisms behind these developments. Michelson and Read,8 in asserting the powerful influence economic development has on the legal system, admit that their survey data does not allow them to identify concrete mechanisms behind the association. Whiting9 only mentions the issue in passing – she speculates that the reasons for the increasing importance of the courts in dispute resolutions are because ‘contracts are often not grounded in social networks, but rather occur more at arm’s length. Institutional alternatives to courts … appear to be unavailable … The role of the government bureaucracy in directly supervising contracts has declined markedly’. While changes inside and outside the courts may affect their performance in enforcing contracts,10 little is known about the dynamics among them. Nor do we know much about the driving forces behind these changes.
These mechanisms and dynamics are critical because they are directly related to what reform measures are appropriate in a given context, and how the quality of legal institutions can be enhanced, a central issue in the law and development literature.11 But as North asserts, ‘[T]he problems of achieving third-party enforcement of agreements via an effective judicial system … are only imperfectly understood and are a major dilemma in the study of institutional evolution’.12 Generations of scholars have documented the impact of a series of variables that may affect the strength of formal contract enforcement13 and, only until recently, the literature seems to agree that economic development plays a crucial role in improving the quality of legal institutions.14 While they provide important top-level data, the mechanisms behind this association have still not been identified and micro-level studies on the evolution of legal institutions remain rare.15
Against this backdrop, China constitutes an invaluable case to study. In its rapid economic development, it has made concerted efforts to reform its court system. Drawing on the author’s field investigations and complemented by secondary materials, this chapter compares the performance of contract enforcement of two basic-level courts – one in a richer, and the other in a poorer, area of China. These courts were chosen because the lower courts have the most contact with the man in the street and handle by far the larger volume of contract enforcement. Two courts in regions at different levels of economic development have been chosen to show the impact of this distinction. The chapter argues that economic growth has a direct link to both the demand and supply sides affecting the performance of contract enforcement. Factors on the demand side include the development and diversification of the local economy, while factors on the supply side are institution building and staff professionalism of the courts. While the same judicial reform measures have been launched in both courts, the extent of economic development has significant implications for contract enforcement.
This chapter will begin by describing the reform measures of China’s judiciary in improving contract enforcement. It will then introduce the two courts – the fieldwork sites – and method of data collection. After presenting the empirical evidence, the chapter explores the theoretical implications for the relationship between formal contract enforcement and economic development.
1.2 Judicial Reforms in Improving Enforcement
As a response to economic liberalisation and reforms, the Supreme People’s Court (SPC) has issued three five-year reform outlines since 1999; these are intended to improve the performance of the judiciary. Of the measures, many have been designed specifically to pacify widespread complaints against its poor enforcement record. While the ideological emphasis of mediation has shifted back and forth, these reforms have steadily taken place at both institutional and personnel levels.16
Institutionally, the foremost measure in enforcement is to set up a separate and relatively independent enforcement bureau within the courts. Until the 1990s, enforcement was not separate from the adjudications and was conducted by the adjudication staff.17 After the separation, it became equal in the administrative hierarchy to other divisions. In the last decade, the enforcement division has been elevated to the rank of a bureau, where the director usually has the same rank as a vice-director of the courts. This means that more resources are available for enforcement.
The courts have also implemented the civil adjudicating procedure reform, separating adjudication from petition filing and judgment enforcement in a way which standardises and streamlines the civil procedure.18 The reform is intended to trace the progress of cases being enforced and also to hold individual judges accountable for their assigned cases. It also tries to limit corruption by dividing power. Furthermore, as an initiative by the SPC to promote greater judicial independence, the position of the Chief Adjudicator has been created.19 Under this initiative, the power to decide cases is to be vested in a chief adjudicator rather than in divisional heads or court presidents.
On the personnel level, the most important step toward staff professionalism is the raising of the threshold for the recruitment of entry-level judges by the National Uniform Judicial Exam. According to the requirement, passing this exam is a prerequisite for becoming an entry-level judge. In addition, current court staff who have not passed the exam are not eligible to become adjudicators. The courts have thus tried to recruit more judges from the ranks of law school graduates and experienced lawyers rather than from among discharged military personnel, which had formerly been an entrenched practice. The judiciary has also imposed strict behaviour requirements on court staff. In addition to the general requirements specified in the Judges Law,20 more detailed regulations, such as measures for holding adjudicating staff responsible for wrongfully deciding cases (
imageS
), have been issued by courts across the country.21 There are also internal requirements pertaining to the working style of court staff, some of which are quantified by the complaint and appeal rates. In many courts, the career and income of judges will be directly affected by these rates.22
1.3 The Two Courts
The urban court is located in the booming Pearl River Delta, the heart of coastal Guangdong province (Court G); the rural court is in the south of hinterland Shaanxi province (Court S), in western China. Cities G and S where the two courts are situated, are in stark contrast in terms of geographical location, population and the type and amount of economic development.
The economy of City S grew during the initial stages of the reform period, but has stagnated since the 1990s. By 2002, the GDP per capita had reached only 5,226 yuan (CNY). Agriculture has been the pillar industry, thanks to the fertile valleys formed by the Wei and Jin rivers and a climate congenial to crops such as wheat. While many state-owned enterprises (SOEs) have been restructured and privatised, they remain a major player in the local economy. Of the 22 billion yuan GDP generated by large-scale enterprises, SOEs still contributed one-third in 2002.23
Table 1.1 Basic information about Cities G and S in 2005
images
*This indicates the income of rural and urban residents respectively. No corresponding figures are available for City G.
Sources: The socio-economic information comes from local annals of the two cities; information about the courts comes from the author’s fieldwork investigation
The policy separating income and expenses (
imageS
), one of the most important policies affecting the financial relationship between the courts and local government,24 has never been implemented in this court. The fees that the court collects cannot cover its own costs, so the financial bureau of the local government has never bothered to implement the requirement. As a result, the operating expenses of the court come largely and directly from litigation fees and fines imposed on criminal defendants. These amounted to about three million yuan a year before 2007 when the new litigation fee guideline was enforced.25 The litigation fees then were 100 per cent higher than the original levels stipulated by the SPC guidelines. The court therefore had a great incentive to increase the sums it took in litigation fees, especially because it had a 7.8 million yuan bill arising from the construction of its new office building. Court staff were thus assigned a quota of litigation fees to achieve, and to meet this quota, some judges scouted around for potential cases, a phenomenon widely recorded in other less-developed regions.26
Since it was directly tied to the court’s finances, the income of court staff was quite low compared with that of their counterparts in the more developed regions. This low level of income certainly had some impact on the structure and the quality of the court staff. As of 2004, the courts, with 111 staff members, including those in two dispatched tribunals, heard more than 2,000 cases. Approximately 60 per cent of these staff members had a bachelor’s degree; around 30 per cent consisted of discharged army officers. The number two division of the court, which handled debt collection cases, had eight employees, all of whom held a bachelor’s degree. The enforcement bureau had 16 employees; eight of whom held a bachelor’s degree.
In contrast, City G has a very developed and diversified economy. It is not one of the four Special Economic Zones designated to develop economy under flexible governmental measures, but it is, historically, a near neighbour of Hong Kong and Macau and, subsequently, is China’s frontier for the ‘Reform and Opening-Up Policy’ introduced in the late 1970s. It has long enjoyed preferential treatment and polices. Most of the 1,314 kilometres of its jurisdiction have been urbanised and industrialised. The population was 960,000 in 2002, in addition to 670,000 registered internal migrants who mostly came from hinterland provinces. These migrants are certainly a cheap source of workers for all kinds of labour-intensive enterprises in City G. The regional economy has become highly diversified. Many SOEs were privatised and restructured in the 1990s and have lost their traditional dominant role. Foreign invested enterprises, including those from Hong Kong and Macau, have been distributed throughout the city. Local government revenues have come more from taxing the private sector than from SOEs and collective enterprises. With a GDP of 43,889 yuan per capita in 2003, City G is one of the most affluent regions in the country. With about 240 staff members, most of whom hold a law degree, Court G hears an estimated 20,000 cases of all kinds each year. The workload is thus quite heavy.
This research was conducted under these conditions. In each place, I randomly selected about 100 debt collection cases between economic entities,27 accord...

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