Common Law not so Common
Jeff LoCastro, September 15, 2011
Founder & President, NCCREA
China is a massive bureaucracy. That is unlikely to ever change. It is
difficult to wade through and sometimes feels impossible to get a handle
on which direction the bureaucratic winds will blow. One of the most
challenging aspects of business in China is its legal system. There are
some reasons why it is so convoluted and there are some very specific
things one can do to survive.
China has a Civil Law legal system inspired by Roman law and whose
primary feature is that laws are written into a collection, codified, and
ideally not subject to interpretation by judges. It holds legislation as
the primary source of law, and the court system is inquisitorial and
unbound by precedent. The principle of civil law is to provide all citizens
with an accessible and written collection of the laws/codes which apply
to them and which judges must follow.
The operative word in the above explanation is "interpret" in that
judicial officers still must administer the law based on the facts at hand,
i.e., give some meaning to the law in terms of the situation in which
they are ruling. The US and many western countries do, of course, have
civil statutes, but the interpretation of said law is typically around a
framework of common law. That is, generally judges will interpret civil
statutes or codes in the same manner as previous decisions.
Juxtaposed to the civil system is the Common Law system which is the
legal foundation dominated by the US, Canada, UK, Australia, India and a
handful of others. Inspired by ancient British tradition, common law
(also known as case law or precedent) is law developed by judges
through decisions of courts and tribunals rather than exclusively through
legislative statutes. A common law system is a legal system that gives
great precedent weight to previous decisions on the principle that it is
unfair to treat similar facts differently on different occasions.
The problem is that there is no common law in Chinese civil law. This is
where the lawyers stand up and shout, "but they are two different
systems!" That is understood. However even in civil systems, there is a
reasonable expectation of a standardization of application of basic civil
code. Not in China. As the attempted reinstitution of the rule of law
into China has only been less than 30 years, judges and a wide array
of civil servants are free to interpret civil law as they see fit. There is
no standardization(or common law precedent) in their civil law. It is a
given that the bureaucrat can and will interpret civil codes based on the
situation andnot on the code itself. Interpretations of the same code
will vary from court to court, city to city and province to province,
bureau to bureau, department to department, floor to floor, individual
to individual. As a result these individuals yield great power.
Like the bureaucracy that abounds in China, is unlikely that part of the
system will ever change as it has been the culture as far back as the
"kangaroo courts" of the magistrate era. If every civil statute is open to
unobstructed interpretations, the process of deliberation in an
entrenched bureaucracy becomes paramount. And the common law-less
civil system breeds Process. Bureaucracy is so entrenched that to give
up your authority in the process is to cede your essential value. No
amount of yelling, screaming, jumping up and down or calm reasoned
logic is remotely enough to convince them that, whatever the issue may
be, the new application of the law or code makes zero sense. This is
simply because process gives purpose in a society built by, for and on
bureaucracy. Since bureaucracy does not operate based on logic and
they need bureaucracy to provide purpose, to question "process" is to
question their very purpose. And China is long, long way away from a
collective "EST" seminar.
For example, there is the much discussed One-Child Policy in China.
(It is agreed that it doesn't have anything to do with the real estate
industry or the business world per se, but its existence is so widely
known around the world that it makes a perfect example). You would
think that in the civil system that there would be an immense amount of
clarity on a law that ostensibly exists to save China from over population. Given that, I have come into contact with exceedingly more multi-child families than I have single-child families. There was no scientific survey taken, but rather empirically based conversations with over 150 people in which the subject of families would naturally arise. When you ask the multi-child families to describe the One-Child Policy, you will receive as many different answers as you ask as many different people. All agree that there is a fine or penalty to be paid for having more than one child, but that is where any common ground begins to evaporate. One would think that in a civil system whose primary feature is that 'laws are written into a collection, codified, and ideally not subject to interpretation by judges' that with such an internationally debated policy that, at the very least, the ones with whom the policy affects the most would have a very specific idea of how it works or what it entails.
The fact is, the One-Child civil-law based policy certainly seems to be
applied differently in different situations. And this is but one example.
The businessman in in China (foreign or national) must wade through
these types of things constantly.
So how do you navigate the common law-less civil system? You will need
to first daily adjust your business "process" paradigm. For the westerner
looking to do business in China this 'adjustment' can be quite difficult.
Here are four (4) things you can do:
1. Better get Guanxi. As has been said before, it's a non-starter without
it. You will not run the gauntlet or bootstrap anything in China. You will
need those who know who will "red-stamp" your project and who will
not. If you don't have Guanxi, get it. If you can't get it, forget it.
2. Better have more than one plan. You will need more than a Plan
A & B to accomplish your mission. You will need a Plan Alphabet
(as I refer to it). You better have 26 ways to get where you want to go
as the common law-less civil system may eat you up 25 times.
3. Better change the way you think. You'll need a base-line mindset
alteration and understand and accept that nothing is a given in China;
not for the Chinese national and not for the hot-shot foreigner. Nothing.
Just because some central authority bureaucrat said you can do it in
Pingyao (and points to the code stating you can) doesn't mean they'll
say you can do it in Taigu (as they will point to the same code that
"clearly" states you can't). And just because they said you can't do it in
Taigi doesn't mean you can't do it in ____________ (as they may point to
the same code you used for your Pingyao operation and give you the
4. Better get a very good China-based lawyer. A very good lawyer will
over-protect you and not simply provide just enough to get by. That's
what you'll need in China. Never cut corners in China no matter who says
it's Okay (see Business in China: Friendship with Benefits, paragraph 7).
Your attorney should be fluent in Chinese, but western educated and
have excellent (not passable) English skills. As you must be able to speak
with your lawyer without any communication malfunctions and no
cultural communication considerations, if you are American you want
your attorney to be American educated. If you are from Europe your
attorney should at the very least be western educated and at most
European educated. If you are from other parts of the globe, take their
education venue into appropriate consideration as well. You do not want
to have to adjust your communication skills and style to fit your
attorney. A lawyer that has at least received his university degrees in
your home-country will likely have developed similar sensibilities and
can make the process much smoother and significantly more productive.
If you can't find the perfect fit for you, keep looking. There are plenty of
them in China and quite proud to show-off their foreign credentials.
A common law-less civil system can be hard to navigate. Your mindset
must fundamentally change in that every new location, every expansion,
and every new project or deal must be approached as if its the first
time you are doing it, now however with now a backlog of experience.
Because common law is not so common, it does present an frustrating
set of challenges before the professional wishing to conduct business in
China. Bureaucracy abounds and the arbiter of the codes seem not
bound by the interpretations of yesterday or last time. Bureaucracy is
entrenched and it not going anywhere as process is king. But there are
some things one can do to survive. Although common law isn't common,
one thing is a given: Chinese consumers are among the most loyal in the
world. If one can captain the process, survive interpretation, and
operate the business well, that loyalty can translate into a thriving
operation in the world's fastest growing economy. And that makes it all
COPYRIGHT 2011 JEFF LOCASTRO
DISTRIBUTED BY NCCREA
CHANGZHI, SHANXI, PRC
Contact the author at: Jeff@NCCREA.com or Jeff@CaliforniaSecured.com
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