In Creating a Legal System For a Market Economy, China Must Mind the Gaps.

China business

Professor Donald C. Clarke of George Washington University Law School (of Chinese Law Prof Blog fame) recently had his paper published, entitled, China: Creating a Legal System for a Market Economy.

The abstract describes the paper as follows:

Since the early 1990s, China has come a long way in legislating the foundational rules for its reformed economy. Virtually all of the important areas-contracts, business organizations, securities, bankruptcy, and secured transactions, to name a few – are now covered by national legislation as well as lower-level regulations. Yet an important feature of a legal structure suited to a market economy is missing: the ability of the system to generate from below solutions to problems not adequately dealt with by existing legislation. The top-down model that has dominated Chinese law reform efforts to date can only do so much. What is needed now is a more welcoming attitude to market-generated solutions to the gaps and other problems that will invariably exist in legislation. The state’s distrust of civil-society institutions and other bottom-up initiatives suggests, however, that this different approach will not come easily.

Professor Clarke is absolutely right. China has come a long way by passing a whole slew of really well crafted business laws, but once these laws get enacted, Beijing often becomes paralyzed and cannot seem to come out with regulations fast enough to tell China lawyers how its clients can work within the “big laws.” So instead of businesses knowing exactly what they need to do to comply, they are oftentimes left wondering when the regulations will come out and what exactly they will say. This is absolutely typical of nearly every law referenced in the abstract above and is true of the China’s new employment law as well. In other words, “what is needed now is a more welcoming attitude to market-generated solutions to the gaps and other problems that will invariably exist in legislation.”

3 responses to “In Creating a Legal System For a Market Economy, China Must Mind the Gaps.”

  1. What’s the use of all sorts of law and regulations if you don’t have the institutions to put them into effect? There’s no clear evidence that legitimate rule of law is emerging in China, though those who profit by advising otherwise would surely disagree.

  2. Since legislation must serve the revolution, not the market economy, don’t hold your breath. All legislation are aimed at improving the support by party members of the current leaders, any legislation that will reduce the benefits of the current party membership and government officials can derive from their positions will not be successful, or will not be enforced, or will have enough loopholes in it for a truck to go through, or with contradicting legislation that will make the law powerless.
    The looseness, loopholes, etc. in Chinese laws are not due to lack of experience in legislation, or carelessness. They are all planned and intentional, to give full discretion to the judiciary and the administration.

  3. In nearly all developing countries and in particular in those which are so called “economies in transition” (though “societies in transition” would be more accurate) there is often a very significant gap between policies and laws and the implementation or enforcement of those same policies and laws. The missing link is always “institutions”. (and weak civil society)
    And when the status and capacities of the needed implementation institutions (central or decentralized) are finally examined (usually only a long time after the policy and legal failures become evident, even though they should have been examined from the outset as an integral part of the policy formulation or legislative processes) they are found to be weak or non-existent or co-opted, or corrupted.
    At that point typically people then go back to thinking about “market solutions” instead of “state” solutions. But markets too cannot work properly without properly functioning public institutions. And so then one tends to come full circle.
    And because of this there are then of course reams of both general and sector or industry-specific literature and analyses of the topic both from academia and from multilateral development institutions.
    But in general terms the hard to accept reality is that it takes a long time to build either well functioning institutions or well functioning markets (or both) and until that happens policies and laws will always work sub-optimally no matter how well designed.

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