With major statutes coming into force in 2008 on issues such as tax, employment, energy conservation and competition, China is developing a body of coherent commercial laws very close to those of the leading Western systems. Whilst amendments will undoubtedly be made, the much more interesting issue is whether the Communist Party will take the necessary steps to ensure these laws are properly applied.
By this I mean that citizens can be confident the person who decides on the application of the laws to their circumstances will do so in an objective and transparent way. To do this, the decision-maker must be able to apply the law consistently and with principle and be immune to behind-the-scenes influence.
Whilst one of these points is gradually being addressed – there are an increasing number of impressive judges, some of whom are prepared to stand up to outside pressure – the systemic problems are still serious.
For a number of years now these problems have been mitigated in the commercial context by permitting companies to agree to have their disputes compulsorily ruled upon by arbitrators appointed outside the normal court system. That’s fine for commercial contracts but it’s usually not a viable solution for issues such as real estate, intellectual property, insolvency, antitrust or administrative review.
Stick or twist?
The party’s dilemma is as follows: It realizes that the proper application of the law is beneficial to economic growth and helps redress widespread concerns about social unfairness, but the idea of an independent judiciary is linked to political reforms that are inconsistent with party rule.
Can the party tolerate legal development without thereby accelerating its own collapse? Many say no, on the assumption that liberal democracy and rule of law are inextricably linked, forgetting the example of Hong Kong. I would, however, argue the contrary.
Having creditors paid off in an insolvency situation without local government officials being favored does not threaten party rule, on the contrary it helps to bolster its credibility. Likewise, permitting effective challenges to unjust real estate expropriations strengthens the system. Many other examples could be given in which the rule of law can be introduced without necessarily undermining party rule.
It is not as if anyone seriously contends that China should fast-track in a powerful judiciary based on the US model, in which rulings are made on politically controversial issues through the application of vague constitutional principles. Something more modest – honest application of duly enacted laws affecting day-to-day economic issues – is what is proposed.
The English model
Historically, England’s judiciary asserted itself and became independent in the 17th and 18th centuries, well before the advent of universal suffrage. Indeed, it can be argued that the fact the legal system emerged under such conditions was a key reason why the country’s constitution and its traditionally dominant class were able to muddle along for centuries despite their inherent conflicts.
Contrast this with certain European countries where the legal systems of the time were much worse than that of England, and the old regimes collapsed under popular pressure rather than evolved gradually.
China is not England, but I suspect that the cooler heads among the leadership will recognize that improving the rule of law would be in the party’s own interests for the reasons I have tried to suggest. Attempted maintenance of the current fudge – laws that increase expectations which the system then fails to deliver – increases the risk that party rule will ultimately collapse under its own contradictions.
I predict that if, over the next decade, China continues to become a more sophisticated society, much of it will be down to improvements in rule of law encouraged by a Communist Party in which the self-preservation instincts remain very strong.
This is not to suggest that rule of law is morally a substitute for other reforms, but I would argue that it is in the party’s own interests to see it improve. I also contend that if party rule withers, it would be helpful to have strong legal institutions in place. That would certainly be an unprecedented post-Communist state of affairs, but much in China’s “Communist” history is already unique.