Legal system less arbitrary but still a work in progress

PUBLISHED : Monday, 04 April, 2011, 12:00am
UPDATED : Monday, 04 April, 2011, 12:00am


New talent and rising competition is helping to boost the transparency of the mainland's legal sector, long derided as being a Communist Party offshoot.

With foreign investors in the world's second-biggest economy demanding legal certainties for their billion-dollar projects, Chinese courts are slowly moving towards a system based more on the 'rule of law' rather than on official whim.

But there is still a long way to go. For foreign lawyers working in the country, the legal system is still a closed shop in many respects; and issues of independence, training and impartiality remain.

According to a study in 2009 by the Carnegie Endowment for International Peace, the mainland's legal system remains a 'work in progress' despite three decades of reform. The study found half of corporate litigants admitted to giving judges 'gifts or banquets' to sway legal decisions.

But it was not all bad news - only 8 per cent of litigants who lost their case thought it was due to preferential treatment.

Increasingly, Chinese lawyers educated in the common or civil law systems of the West are rising through the ranks of the legal system. Many have degrees from universities in the United States or Britain, home to two of the most respected legal systems in the world.

'It is a relatively young legal system,' says mainland-born and US-educated Howard Wu, a partner with Baker & McKenzie in Shanghai. 'But it is becoming less arbitrary and there are clearer rules and procedures that people can follow.'

Until the 1990s, legal education was not considered an important priority even as China shifted towards a market-based economy. Very few lawyers trained outside the country and most locally trained lawyers were heavily steeped in community dogma rather than legal rules and principles. Only a small minority of judges in those days had law degrees.

Young lawyers like Luke Zhang are at the coalface of a central government push to put more emphasis on legal training. In 2007, there were close to 600 law schools or law departments on the mainland, with nearly 300,000 students studying law.

A partner with Zhonglun Law Firm, Zhang majored in English rather than law, becoming a certified Chinese lawyer after just two years of preparation for examinations organised by the Ministry of Justice. In a sign of the heightened demand for legal talent in the world's secondbiggest economy, the ministry awarded licences to those who passed the exams, regardless of their educational background.

China has 190,000 lawyers, or one for every 6,977 people. That compares with one for every 303 in the United States.

Zhang, a graduate of Shanghai Jiao Tong University, the city's top engineering institute, specialised in English, science and technology. 'Through the preparations for the exams, I acquired the basic knowledge though it was just a self-study process,' Zhang said. 'I felt academic points about legislation and jurisdiction were badly needed. So I continued my self-study without tutors.'

Gong Zhenhua, a partner with Shanghai Ronghe Law Firm, is more frank about the shortfalls. 'Education for students majoring in law is far from adequate to develop them into qualified lawyers or judges,' Gong, a bachelor degree graduate from East China University of Political Science and Law, said. 'I didn't understand what the basic role of a lawyer was until after graduation. I learned how to become a true lawyer through years of working experience.'

Both lawyers said the mainland's legal system - particularly in the commercial area - had a lot of room for improvement.

'China has many laws that appear outdated,' Gong said. 'Many of the existing laws governing businesses, investment and trade were promulgated during the planned economy era and legislators failed to make proper and punctual amendments, even though we have been in a market economy for two decades.'

Wu says the mainland legal system is developing rapidly, especially in the area of commercial law. The country introduced an antitrust clearance procedure for foreign company acquisitions in China in 2003 and an anti-monopoly law in 2008.

Born in Shanghai before moving to the US when he was 11, Wu says returning to his native land in 2001 was like the difference between 'night and day'. 'I grew up in a house [in Shanghai] with American plumbing but it was circa 1948 plumbing.'

The gleaming skyscrapers of 21st century Shanghai are not the only changes in the city. The legal system has also undergone an overhaul.

For a lawyer like Wu with degrees from the prestigious University of California at Berkeley, Columbia University and Fordham University School of Law, the system can still feel foreign. Unlike lawyers in the US, Australia or Britain, Chinese lawyers cannot rely on hundreds of years of precedents - judgments from earlier cases followed in later cases that make up the body of common law.

'A client will ask whether there is a precedent for something and it is difficult to advise them as you are only looking back 15 to 20 years,' Wu says. Important rules on foreign joint ventures, for instance emerged only in the late 1970s and early 1980s, and the country did not have a company law until 1994.

Wu notes that a foreign lawyer on the mainland plays a more advisory role - on everything from cultural norms to the political environment. This is mainly because of regulatory restrictions that prevent them from giving formal advice in a legal capacity.

Andrew Tortoishell, managing partner for Greater China at Herbert Smith, says the mainland legal system presented a number of challenges for lawyers. 'The legal system in China is evolving rapidly. Situations do arise where laws are interpreted or applied differently in different provinces,' he says. 'Naturally this increases the commercial risks faced by foreign investors who seek legal certainty before they make investment decisions.'

But Tortoishell says the situation is improving as a new generation of lawyers start practising. 'Mainland law schools are producing some very talented graduates and many are also training overseas, often in the US or Britain,' he says. 'A growing number are being recruited by international firms.'

David Fleming, a partner at Baker & McKenzie in Hong Kong, says as a civil system, the Chinese state plays a different role than in a common law system. 'It involves a greater degree of interpretation, so the same law may be interpreted and applied differently between provinces,' he says.

The view of the mainland's legal system as arbitrary is outdated, Fleming says, although foreign lawyers are still restricted in what they can do.