The China Venture
The China Venture The China Venture
45 40 35 30 25 20 15 10 5 0 Joint Venture Law and SEZs Begin of the Four Modernisations Rural reforms announced Approval of 14 more SEZs Set up of WFOE allowed Price reforms Tienanmen Square Incident Deng’s visit to the South Stock Exchange Opening Dual exchange rate abolished Deng‘s death Asian Crisis started 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 FIGURE 2-1: Development of Foreign Direct Investments (in Billion USD) combined with key events in China, 1976 - 2000 4 As Paul reads the China Reform Story, he could not help reflecting on his own China venture. ”Deng Xiaoping started the reforms . His reforms lived on and prospered after him. Here was my China venture. It died when Mr. Zheng left...”. Paul felt little comfort in this thought, yet he was intrigued with the China Story ... and he read on ... Dr. Loretan, a trained and practising lawyer who has chosen to further his studies in business and economies at HSG wrote: 2.2 The Legal System in China (by Dr. Michael Loretan) It has been 20 years since China opened its door to the world in 1978. China is a land of opportunities. Its potential purchasing power, especially in the long run, meets the dream of long-term investors. However, China is also a land of uncertainty for those investors who do not know much about its legal system, under which the game of investment has been, and will be played. 4 Data based on IMF, 1997a, p. 296. See also Dony, 1986, p. 52. 6
The Chinese operating legal system is a nascent system, emerging from the unique history, culture and social structure of China. All these factors should be taken into consideration in order to gather insightful understandings of the actual operation of the legal system. This paper provides a brief overview on Chinese legal history and the governmental structure of the People’s Republic of China. It also provides a short in troduction to some general aspects of Chinese law, such as the legal structure, the judicial structure and some current problems of the operating legal system, as well as a first glance at the fields of Chinese law which are of particular interest to potential investors in one of the most promising markets of the future. 2.2.1 Chinese Legal History The legal history of China is commonly divided into two parts, namely the part of traditional Chinese law spanning from the Xia Dynasty, the first dynasty in Chinese history more than 4,000 years ago, to the Qing Dynasty in the early 20 th century, and the part of modern Chinese law, starting form the legal reforms during the Qing Dynasty to the present time. 2.2.1.1 Traditional Chinese Law Traditional Chinese Law is, along with the common law family, civil law family, and the Islamic law family, considered as one of the four major law families. It has its foundations in the 21 st century BC and persisted until the beginning of this century. Despite the formal repeal of the Tradit ional Chinese Law in the early 1900s, it continues to exert its influence on contemporary society. In this sense, traditions may serve as explanation of peculiar practices and problems of the existing legal system. The features of the Chinese Legal Tradition which are distinct from Western traditions, and thus, to a great extent, contrary to the concepts of modern law, are the following: Traditional Chinese Law was constructed on the feudal system and protected the unequal status of persons. Equality before law has never been accepted as a legal principle. Social status has been more important than legal rules. Some practices of inequality before the law in contemporary China, such as the necessity to seek approval form a higher authority before investigatin g and prosecuting high-ranking officials, may still be attributed to this legacy. Traditional Chinese Law was founded on a totalitarian system rather than on a democratic model. The emperors reigned with absolute power and control over the entire country. Therefore, the traditional Chinese legal system, in its function as a subordinate of the power structure, never tolerated the existence of legal rules other than those of the emperor. This 7
- Page 1 and 2: The China Venture: Business Environ
- Page 3 and 4: Table of Contents List of Figures .
- Page 5 and 6: 3.2.3.2 Special Funds for Setting U
- Page 7 and 8: 3.4.1.1 National Culture ..........
- Page 9 and 10: List of Tables TABLE 2-1: THE AREAS
- Page 11 and 12: GBP Pounds Sterling GDB Guangdong D
- Page 13 and 14: 1. Introduction: The China Venture
- Page 15 and 16: After a short discussion with the p
- Page 17: co-operate with other firms, especi
- Page 21 and 22: First of all, Britain’s predomina
- Page 23 and 24: democratic centralism, all governme
- Page 25 and 26: The courts are the state organs exe
- Page 27 and 28: more than three hundred intermedia
- Page 29 and 30: 2.2.8 Company Law China’s first n
- Page 31 and 32: Things seem have to become a lot cl
- Page 33 and 34: 2.3.1.1 Financial sector developmen
- Page 35 and 36: securities, trading, initial public
- Page 37 and 38: underdeveloped compared with market
- Page 39 and 40: established in January 1996 by 59 p
- Page 41 and 42: Chinese Banks Foreign Banks Financi
- Page 43 and 44: system formulation has been put on
- Page 45 and 46: The separation of production and co
- Page 47 and 48: swap centres (see also above). From
- Page 49 and 50: investors with little experience an
- Page 51 and 52: them, while a branch with a shortag
- Page 53 and 54: Loans, public offerings of shares,
- Page 55 and 56: is often to acquire foreign capital
- Page 57 and 58: 2.3.3.2 Debt financing As getting t
- Page 59 and 60: the approval of special authorities
- Page 61 and 62: control compared to national enterp
- Page 63 and 64: usiness in China and related issues
- Page 65 and 66: 3. Pre-Entry Strategic Consideratio
- Page 67 and 68: While the testing for the general r
45<br />
40<br />
35<br />
30<br />
25<br />
20<br />
15<br />
10<br />
5<br />
0<br />
Joint <strong>Venture</strong><br />
Law and SEZs<br />
Begin of the<br />
Four<br />
Modernisations<br />
Rural reforms<br />
announced<br />
Approval of 14<br />
more SEZs<br />
Set up of<br />
WFOE<br />
allowed<br />
Price<br />
reforms<br />
Tienanmen<br />
Square Incident<br />
Deng’s visit<br />
to the South<br />
Stock<br />
Exchange<br />
Opening<br />
Dual exchange<br />
rate abolished<br />
Deng‘s<br />
death<br />
Asian Crisis<br />
started<br />
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000<br />
FIGURE 2-1: Development of Foreign Direct Investments (in Billion USD) combined with<br />
key events in <strong>China</strong>, 1976 - 2000 4<br />
As Paul reads the <strong>China</strong> Reform Story, he could not help reflecting on his own <strong>China</strong> venture.<br />
”Deng Xiaoping started the reforms . His reforms lived on and prospered after him. Here was<br />
my <strong>China</strong> venture. It died when Mr. Zheng left...”. Paul felt little comfort in this thought, yet<br />
he was intrigued with the <strong>China</strong> Story ... and he read on ...<br />
Dr. Loretan, a trained and practising lawyer who has chosen to further his studies in business<br />
and economies at HSG wrote:<br />
2.2 <strong>The</strong> Legal System in <strong>China</strong> (by Dr. Michael Loretan)<br />
It has been 20 years since <strong>China</strong> opened its door to the world in 1978. <strong>China</strong> is a land of<br />
opportunities. Its potential purchasing power, especially in the long run, meets the dream of<br />
long-term investors. However, <strong>China</strong> is also a land of uncertainty for those investors who do<br />
not know much about its legal system, under which the game of investment has been, and will<br />
be played.<br />
4 Data based on IMF, 1997a, p. 296. See also Dony, 1986, p. 52.<br />
6
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