The Laws of the People's Republic of China: An Introduction for International Investors

I. INTRODUCTION China's growth is well documented. Much of this growth has been fueled by seemingly unceasing investment from the developed world, particularly the United States and Western European nations. As a practitioner based in China and advising foreign investors, I have observed a trend resulting from China's growth: the increasing use of Chinese law and Chinese dispute resolution organs to govern investments. The euphoria and after-glow experienced by foreign investors at the close of a deal is often quickly replaced by the realization that the relative certainty of law and judicial processes prevailing in the investors' home states may not exactly be replicated in the People's Republic of China ("PRC"). The purpose of this Article is to provide foreign investors with a basic understanding of the laws and institutions that are most likely to have an impact on their investments in China. It does not attempt to be academic in its approach, as I believe that a useful introduction to the legal regime requires a blend of a textual understanding of the law as well as lessons learned from practical experience. As China's economy continues to integrate with the rest of the world, and as Chinese law increasingly gains recognition, it seems inevitable that an understanding of Chinese business law will become a basic requirement for international lawyers. In this Article, I will focus on the following topics that I believe are "live" issues, both for the Chinese government and foreign investors: the Chinese judicial system and its reform, alternative dispute resolution mechanisms, the protection of intellectual property rights, employment law, and bankruptcy reform. II. THE JUDICIAL SYSTEM OF THE PRC AND JUDICIAL REFORM China is in transition from a state-controlled system of administrative fiat to one that respects the rule of law. The Chinese judicial system is being reformed slowly, which often makes foreign investors resort to alternative dispute resolution procedures to solve disputes. Since the early 1990s, China has put into effect measures both to reform its judicial system and to increase transparency. This section aims to provide an understanding of the Chinese judicial system, particularly the aspects that affect the settlement and outcome of commercial disputes. A. THE HIERARCHY OF THE CHINESE COURTS Chinese courts are established pursuant to the Constitution of the PRC1 and the People's Courts Law of the PRC,2 and exercise judicial power on behalf of the state. There are four levels in the judicial hierarchy-the Supreme People's Court and the following three levels found in each province, autonomous region, or municipality directly under the central government:3 the Higher People's Courts, the Intermediate People's Courts, and the Basic People's Courts. These are the courts that are most likely to have impact on daily or business life. In addition to these courts, there are also courts with jurisdiction over specialized matters, such as maritime and railway transportation issues. The Supreme People's Court is the highest judicial organ in China, and it is responsible for interpretation of the law, administration of the judicial system beneath it, and the hearing of cases (although, as with appellate bodies in other countries, it hears only a limited number of cases). The Higher People's Courts and the Intermediate People's Courts are, in essence, appellate courts in the provinces, though they also have first-instance jurisdiction over matters that meet certain substantive requirements, such as when the amount in dispute is high. The amount that will confer original jurisdiction is decided by both the Supreme People's Court as well as the Higher People's Courts of each province and can differ from province to province. B. COURT INSTITUTIONS At first instance, most cases in China are heard by a collegial panel of three judges-a presiding judge and two other judges or "judicial assessors. …