Enforcing commercial judgments in the pearl river delta of china

American Journal of Comparative Law

Volumn 57, Issue 2, 2009, Pages 419-455

  Xin, H E ^a,b  

^a CITY UNIVERSITY OF HONG KONG   (Hong Kong)

^b NEW YORK UNIVERSITY SCHOOL OF LAW   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 67649604441     PISSN: 0002919X     EISSN: None     Source Type: Journal    
DOI: 10.5131/ajcl.2008.0012     Document Type: Review

References (89)

1. In contrast with the abundance of media reports and official statements, there exists little systematic empirical research on this topic. In the English-speaking world, Donald Clarke's article published more than a decade ago remains the most comprehensive treatment of judgment enforcement in China. See Power and Politics in the Chinese Court System: The Execution of Civil Judgments, 10 COLUM J. of ASIAN L. 1, 1-125 (1996). Clarke's research, however, was largely based on secondhand materials with some sporadic interviews. Other published studies include Minxin Pei's work in 2001, which was based on cases selectively published by the Chinese government. See Minxin Pei, Does Legal Reform Protect Economic Transactions? Commercial Disputes in China, in ASSESSING THE VALUE OF LAW IN TRANSITION ECO- NOMICS 180-210 (Peter Murrell ed., 2001). Though his research method is understandable given the difficulty of direct access to the courts at the moment, the researcher's selection bias is obvious. In addition, Margaret Woo and Yaxin Wang conducted research on the adjudication process of three intermediate courts. See Margaret Woo & Yaxin Wang, Civil Justice in China: An Empirical Study of Courts in Three Provinces, 53 AM. J. COMP. L. 911-40 (2005). While their research has provided useful data on who turns to the courts, the types of disputes and court procedures, they do not look beyond the case files or ask the litigants questions on such matters as enforcement results. Overall, few studies have conducted systematic interviews with litigation participants. An exception is Randall Peerenboom's research on the enforcement of arbitration decisions, in which the author conducted questionnaire surveys. See Randall Peerenboom, Seek Truth from Facts: An Empirical Study of the Enforcement of Arbitral Judgments in the People's Republic of China, 49 AM. J. COMP. L. 277-78 (2001). However, since the enforcement of arbitration decisions is a very special area, and only represents a small portion of judgments rendered in intermediate and higher courts, it differs significantly from the enforcement of ordinary contract judgments. In Chinese literature, numerous studies have focused on the enforcement of court judgments. But in these studies, the difficulty of enforcement itself is usually taken for granted. See, for example, Jing Hanchao & Lu Zijuan, The Difficulty of Enforcing the Court Judgments and Counter Strategies [zhixing nan jiqi duiche], THE JOURNAL OF LEGAL SCIENCE [FAXUE YANJIU] no. 5, 124-31 (2000). As in English literature, these studies are basically not empirical; even fewer are conducted systematically. Some studies do provide investigation results but how the investigations are conducted and what the ultimate conclusions are, remains unclear. See, for example, THE INVESTIGATION AND ANALYSIS OF CIVIL ENFORCEMENT [MINSHI ZHIXING DIAOCHA YU FENGXI] 33, 38, 48, 63, 76 (Tong Zhaohong ed., 2005).
2. "Half of China's civil court rulings remain on paper," PEOPLE'S DAILY, Mar. 13, 2004, English version. The title of the essay indicates that half of the civil court rulings remain on paper only, that is, they are not enforced. The article specifically mentions that according to official estimates, the enforcement rate for bank loans by SOEs is only 12%, http://english.people.com.cn/200403/13/eng20040313-137390. shtml (last visited Apr. 20, 2007).
3. Ge Xingjun, the director of the office of enforcement at the Supreme People's Court (SPC), contended that the enforcement rate in civil and commercial cases is 40, 50, and 60% at the basic-level, intermediate and high courts, respectively. See CHINA L. AND GOVERNANCE REV. 2004 http://www.chinareview.info/issue2/pages/ legal.htm (last visited Apr. 19, 2007). From the context, one does not know if the enforcement rate refers to full performance, nor whether the rest is only partially enforced or not at all. According to the Supreme People's Court, 2,289,566 enforcement cases were received, and 2,343,868 cases were completed, among which 45.26% were performed voluntarily or the litigants reached an accommodation during the enforcement process, and 34.97% lacked enforceable assets. See Tong Ji, The Basic Situations with Regard to Adjudication and Enforcement of Chinese Courts in 2003, RENMIN SIFA [PEOPLE'S JUDICIARY] 3, 78 (2004). But these figures still do not explain exactly what "completed" means; it could refer to the termination of enforcement, and this term itself may or may not include the suspension of enforcement.
4. Joseph Kahn, Dispute Leaves U.S. Executive in Chinese Legal Netherworld, N.Y. TIMES (Nov. 1, 2005), available at http://www.nytimes.com/2005/ll/01/interna- tional/asia/Olkidnap.ready.html (last visited Jan. 26, 2009).
5. Relevant data and related research demonstrate that the commercial cases received by the courts have been declining since the late 1990s and stabilized at 1.5 million. One of the reasons might be the dysfunction of the courts. See Xin He, Recent Decline in Chinese Economic Caseloads: Exploration of a Surprising Phenomenon, 190 THE CHINA Q. 352-70 (2007).
6. For example, The Outline of Five Years Reform and The Outline of the Second Five Years Reform promulgated by the Supreme People's Court. Reforms related to judgment enforcements include the setting up of an enforcement bureau and the separation between the adjudication and enforcement processes.
7. The other component of the puzzle of China's growth involves property rights. James Kung & Shouying Liu, Farmers' Preferences Regarding Ownership and Land Tenure in Post-Mao China: Unexpected Evidence from Eight Counties, THE CHINA J. 33-63 (1997)
8. PROPERTY RIGHTS AND ECONOMIC REFORM IN CHINA (Jean Oi & Andrew Wader eds., 1999); Donald Clarke, Economic Development and the Rights Hypothesis: The China Problem, 51 AM. J. COMP. L. 89-111 (2003).
9. MAX WEBER, MAX WEBER ON LAW IN ECONOMY AND SOCIETY (Max Rheinstein, ed., 1954)
10. DOUGLASS NORTH, INSTITUTIONS, INSTITUTIONAL CHANGE, AND ECONOMIC PERFORMANCE 54 (1990)
11. OLIVER WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM, at 2 (1985)
12. OLIVER WILLIAMSON, THE MECHANISMS OF GOVERNANCE 332 (1996)
13. ; Kevin E. Davis & Michael J. Trebilcock, Legal Reforms and Development, 22 THIRD WORLD Q. 1, 21-37 (2001)
14. ; THE ROLE OF LAW AND LEGAL INSTITUTIONS IN ASIAN ECONOMIC DEVELOPMENT 1960-1995 (K. Pistor et al. eds., 1999).
15. Thomas Carothers, The Rule of Law Revival, FOREIGN AFFAIRS 95 (Mar-Apr. 1998).
16. IN SEARCH OF PROSPERITY: ANALYTIC NARRATIVES ON ECONOMIC GROWTH 8-15, Introduction (Dani Rodrik ed., 2002). See also Kenneth Dam, China as a Test Case: Is the Rule of Law Essential to Economic Growth (University of Chicago Law School Working Paper Series No. 275, 40-42) http://www.law.uchicago.edu/Lawecon/ wp251- 300.html (last visited Apr. 12, 2007)
17. Michael Trebilcock & Jing Leng, The Role of Formal Contract Law and Enforcement in Economic Development, 92 VIR. L. REV. 1519 (2006).
18. Donald Clarke et al., The Role of Law in China's Economic Development, 51, http://papers.ssrn.com/sol3/papers.cfm?abstract-id=878672 (2006).
19. RANDALL PEERENBOOM, CHINA'S LONG MARCH TOWARD RULE OF LAW, ch. 10 (2002). See also Frank K. Upham, The Mythmaking of Orthodox Rule of Law (Carnegie Working Paper Series, No 30, 2002).
20. Clarke, supra note 1, at 91. Esp. Clarke et al., supra note 10, at 44.
21. For a brief comparison between the situation in the United States and Russia, see Kathryn Hendley, Enforcing Judgments in Russian Economic Courts, 20 POST-SOVIET AFFAIRS 1, 48 (2004).
22. See Kathryn Hendley's studies on the Russian courts, id. See also John Baldwin's research on the small claims courts in England and Wales quoted by her, SMALL CLAIMS IN THE COUNTY COURTS IN ENGLAND AND WALES: THE BARGAIN BASEMENT OF CIVIL JUSTICE? 129 (1997)
23. the small claims courts of the United States might be an exception, but their enforcement records also depend on notification by the creditors or plaintiffs who often neglect to fulfill this requirement. See Steven Weller et al., American Small Claims Courts, in SMALL CLAIMS COURTS: A COMPARATIVE STUDY 16 (C.J. Whelan ed., 1990).
24. Clarke's research has already pointed out this problem: see Clarke, supra note 1, at 28-30. In the court where I conducted my investigation, his point was largely confirmed. Since 2006, all the enforcement cases have been filed separately, but the case series numbers at this stage are not linked to the numbers at the adjudication stage. Interview with three judges of the court where this research is conducted, Apr. 20, 2007.
25. According to some experienced senior judges, it is common practice to report the enforcement suspension as enforcement termination. Enforcement suspension occurs when the debtors really do not have enforceable assets, as stated in the SPC's "Stipulations on Problems of Enforcements, article 102." When there are new clues as to the debtors' assets, the courts may reactivate the enforcement process. It is therefore dangerous to draw conclusions simply based on official statistics.
26. Su Li, The Power Resources in the Sociological Investigation, in SONGFA XIA XIANG [BRING THE LAW TO THE COUNTRYSIDE] (2000).
27. The total number of cases handled by the court reached about 15,000 in 2002. But civil cases, that is, the cases between individuals rather than institutions, numbered far more than economic/commercial cases.
28. A sample containing 60-80 cases would very likely present a picture of the normal distribution.
29. Pei, supra note 1, at 201-02. Similarly, some assert that party members are more likely to use the courts because they are more familiar with the law and local political elites but this reasoning seems dubious in economic cases which are mainly concerned with institutions than with individuals.
30. PEERENBOOM, supra note 11, at 478.
31. Some have found similar situations in the developed areas of China. For example, Whiting's research on 76 sales contract cases in Nanjing found that 34% of the plaintiffs were private enterprises, 15% were private-public mixes. The two categories comprised 49% of the total number of cases. Quoted in Clarke, et al., supra note 10, at
32. J. WILLARD HURST, LAW AND ECONOMIC GROWTH: THE LEGAL HISTORY OF THE LUMBER INDUSTRY IN WISCONSIN, 1836-1915 327 (1964).
33. THE ANNALS OF THE REGION (The Editorial Committee of the Annals ed., 1995-2005 Beijing: Fazhi Press).
34. For example, in litigation in which a collective enterprise brought a case against an SOE, the defendant refused to pay. There was no result after the plaintiff applied for enforcement, but the plaintiff knew that the debtor was not insolvent, because the debtor received a monthly rent of 3,000 yuan. The plaintiff then reached an agreement with a lawyer who had a close relationship with the court that they would share the amounts recovered through enforcement. The problem was solved without delay. The plaintiff even maintained that the so-called difficulty with judgment enforcement would vanish if the court paid the staff of the enforcement bureau in proportion with the owed amount recovered through enforcement.
35. As of 2003, one U.S. dollar was approximately 8.3 yuan.
36. See Zhang & Ke, supra note 22, at 31-43. The authors suggest that the fact that only simple cases enter the courts is an indication for the distrust of society toward the courts. This conclusion seems oversimplified because in many countries only simple and straightforward cases reach the courts, especially at trial-level. See, e.g., Lawrence M. Friedman & Robert Percival, A Tale of Two Courts, 10 L. & SOC'Y REV. 2, 267-301 (1976)
37. Robert Kagan, The Routinization of Debt Collection: An Essay on Social Change and Conflict, 18 L. & SOC'Y REV. 323-71 (1984). For a further discussion, see Xin He, Is There Really a Reverse Choice in Chinese Civil Litigation?, in Faxue [JURISPRUDENCE], No. 7, 49-56 (2005).
38. But since, in fact, most civil and commercial litigation is very straightforward and the appeals rate is very low, litigants outside the trial court jurisdiction but within the appeals court jurisdiction are unlikely to be considered local.
39. Indeed, the rate of success for non-local plaintiffs was almost the same as that for local plaintiffs. This result also emerges in other studies. See, for example, my analysis of the data collected in a Beijing-based research study. He, supra note 27.
40. One might, of course, raise the problem of selection bias, that is, the possibility that interviewees might only say what they think we want to hear. But as shown infra, the same group of interviewees also voiced a lot of complaints.
41. Peerenboom, supra note 1, at 277-78. But Peerenboom attributes the phenomenon to local governments and courts concerned about their image. See also Mei Ying Gechlik, Judicial Reform in China: Lessons from Shanghai, 19 COLUM. J. ASIAN L. 100 (2006).
42. Pei, supra note 1, at 194; Clarke, supra note 1, at 41.
43. A local government work report shows that the industry and commerce tax reached 2.63 billion yuan in 2006, while the business profit of the local SOEs was only 0.65 billion yuan. The local annals (nianjian) also indicate that the output of large private enterprises amounted to 24% of the overall industrial production, 14, see THEANNALS OF THE REGION (The Editorial Committee of the Annals ed., 2006 Beijing:Fazhi Press).
44. This policy was launched in the late 1990s, partly to diminish judicial corruption and other undue influence over judicial behavior.
45. The financial income of the local courts in this region is perhaps fifty-five times higher than that of courts in hinterland areas. See He, supra note 4.
46. In my interview with a high-ranking judge in charge of judgment enforcements, he mentioned that the director of a major SOE in the region asked him to take action to prevent the property of the SOE from being frozen by a non-local court. After some discussion, and the judge was sympathetic as to the SOE's predicament, he said, "I'm working for the CCP, and you (the director) are also working for the CCP, but there are some regulations that I cannot circumvent." This indicates that local SOEs and other litigants still can exert some pressure, but on the other hand, it also shows that the courts are by no means a passive instrument in the hands of political powers. For a detailed discussion, see Xin He, Why Do They Not Take the Disputes? Law, Power, and Politics in the Decision-Making Process of Chinese Courts, 3 INTERNATIONAL J. L. IN CONTEXT 3 (2007).
47. ERHARD BLANKENBURG, The Infrastructure for Avoiding Civil Litigation: Comparing Cultures of Legal Behavior in The Netherlands and West Germany, 28 L. & Soc'y Rev. 789-808 (1994).
48. Interview with the in-house counsel of a litigant (Apr. 2, 2007). The reason behind this distinction is that non-lawyers do not have the privilege to access the protected files.
49. But this stipulation may not always achieve its intended goal. According to several judges, when some cases could not be handled within the three months limit, the judges in charge would find ways to change the original Summary procedure into Regular procedure, so they could have a three months extension.
50. This result also appears in a study on Russian economic courts, but in my sample, not many disputes occurred during the first time litigants conducted a transaction. See Kathryn Hendley, Business Litigation in the Transition: A Portrait of Debt Collection in Russia, 38 L. & SOC'Y REV. 2, 320 (2004).
51. For an empirical study on the issue, see Xueguang Zhou et al., Embedded- nesss and Contractual Relationships in China's Transitional Economy, 68 AM. SOC. REV. 75-102 (2003).
52. Clarke, supra note 1, at 32.
53. Xin He, Court Finance and Court Reactions to Judicial Reforms: A Tale of Two Chinese Courts, 31 L. & POL'Y 3 (2009 forthcoming).
54. In the 76 Nanjing cases collected by Whiting, 29% of the plaintiffs withdrew, 21% reached a mediation agreement with the other party, and 47% were adjudicated. In the last two categories that needed enforcement, only 3.8% were performed voluntarily, while 52% of the creditors applied for compulsory enforcement. In 25 cases in which the enforcement results were recorded, 55.5% were successful and 18.5% failed. Quoted from Clarke at al., supra note 10, at 42. Whether the success or failure of enforcement referred to complete success or failure is unclear, but the results of my investigation seem similar to those of Whiting's research.
55. According to art. 102 of the Civil Procedure Law, the courts can impose a penalty including imprisonment on those who refuse to comply with judgments. Art. 123 of the advisory opinion of the Civil Procedure Law issued by the SPC states that this refers to the situation in which the debtor has the capability to pay but refuses to do so. How to interpret "has the capability to pay but refuses to pay," falls, of course, to the discretion of the courts.
56. Art. 102 of the Civil Procedure Law states explicitly that the courts can impose fines and judicial imprisonment on individuals and the legal representatives of institutions that refuse to follow the orders of a court. And the number provided by the interviewee here presumably covered all kinds of cases handled by the court.
57. Art. 26 of the Company Law of the PRC, amended in 2005.
58. Shaoguang Wang, The Problem of State Weakness, 14 J. OF DEMOCRACY 1, 36-42 (2003); He, supra note 4.
59. See Xu Xin, On Private Remedies (lun sili jiuji) (2005); Curtis J. Milhaupt & Mark D. West, The Dark Side of Private Ordering: An Institutional and Empirical Analysis of Organized Crime, 67 U. CHI. L. REV. 41 (2000).
60. Interview in Nanning, Guangxi Province, China (Feb. 20, 2007).
61. He, supra note 4.1 have discussed many reasons why litigants' impressions of the courts have become more positive, including professionalism, standardization, explanation of the court procedures to the litigants, the increased threshold of petition filing, and contrast between the experience and the relentless accusations of the media against the courts. For a similar result based on empirical surveys, see Ethan Michelson, Dispute Processing in Urban and Rural China: Findings from Two Surveys, Oxford: Oxford Foundation of Law, Justice, and Society (2008). In a Shanghai-based study, over 63% of litigants believed that judges deserved high ratings ("dignified conduct and high professional quality"). See Minxin Pei et al., A Survey with Corporate Litigants in Shanghai, in JUDICIAL INDEPENDENCE IN CHINA (Randall Peerenboom ed., forthcoming 2009).
62. Interview with a plaintiff on Oct. 10, 2005.
63. In an experiment conducted by the SPC, surveillance was installed in a court in Shandong province to supervise the staff of the enforcement bureau. This change immediately bore fruit. One result was that the enforcement rate increased noticeably; another was that the entire staff functioned like robots. Professor Xu Xin, personal comment, Apr. 8, 2007.
64. For the classic discussion on whether the cultural or the structural influences are dominant in the pending disputes, see Blankenburg, supra note 37; John Haley, The Myth of Reluctant Litigants, 4 J. OF JAPANESE STUDIES 359-89 (1978).
65. In Marc Galanter & Joel Rogers, A Transformation of AmericanBusiness Disputing? Some Preliminary Observations (Working Paper, Madison; Inst, for Legal Studies, 1991), Galanter and Rogers' examination of Stewart Macaulay's classic explanation, Non-Contractual Relations in Business, 28 AM. REV. OF SOC, 12-36 (1963) finds that the U.S. economic environment in the 1980s has made the formation of non-contractual relationships more difficult.
66. Lane Kenworthy et al., 'The More Things Change.' : Business Litigation and Governance in the American Automobile Industry, 21 L. & SOC. INQUIRY 631-78 (1996).
67. Lawrence M. Friedman & Robert Percival, A Tale of Two Courts, 10 L. & SOC'Y REV. 2, 267-301 (1976); Robert Kagan, The Routinization of Debt Collection: An Essay on Social Change and Conflict, 18 L. & SOC'Y REV. 323-71 (1984).
68. See Hendley, supra note 13, 46-82; Hendley, supra note 40.
69. Id.
70. Suzanne E. Elwell & Christopher Carlson, The Iowa Small Claims Courts: An Empirical Analysis, 75 IOWA L. REV. 2, 521 (1990).
71. Arthur Best et al, Peace, Wealth, Happiness, and Small Claim Courts: A Case Study, 28 FORDHAM URBAN L. J. 2, 365 (1994).
72. See Committee on Post-Judgment Collection Procedures in the Special Civil Part, Report to the Supreme Court of New Jersey, NEW JERSEY L. J. 2 (1993) [hereinafter Committee on Post-Judgment Collection Procedures]. Quoted from Clarke, supra note 1, at 34.
73. Xingjun, supra note 2.
74. Pei et al., supra note 51. See also Susan Whiting's Nanjing investigation. Quoted from Clarke et al., supra note 10.
75. JOHN BALDWIN, SMALL CLAIMS IN THE COUNTY COURTS IN ENGLAND AND WALES: THE BARGAIN BASEMENT OF CIVIL JUSTICE? 128 (1994). The situation in England and Wales is not very different either. According to Baldwin's investigation, six months after the execution of the court orders, only 31.9% of the creditors recovered the full amounts, at 134.
76. He, supra note 4.
77. See Committee on Post-Judgment Collection Procedures, supra note 62.
78. Marc Galanter, The Vanishing Trial: An Examination of Trials and Related Matters in Federal and State Courts, 1 J. OF EMPIRICAL LEGAL STUDIES 3, 459-570 (2004).
79. See He, supra note 36.
80. See, e.g., Susan Whiting's Nanjing investigation. Quoted from Clarke et al., supra note 10. See also Pei et al., supra note 51.
81. Numerous relevant works exist in the literature, see e.g., Xin He, Explaining the Development of Migrant Business in Beijing, 12 ASIA & PAC. MIGRATION J. 3, 385-406 (2003)
82. ; Janet Landa, A Theory of the Ethnically Homogeneous Middleman Group: An Institutional Alternative to Contract Law, 10 J. OF LEGAL STUDIES 349 (1988);
83. Linda Lim & Peter Gosling, Strengths and Weakness of Minority Status for South Asian Chinese at a Time of Economic Growth and Liberalization, in THE ESSENTIAL OUTSIDERS 285-95, 309-11 (Daniel Chirot & Anthony Reid eds., 1997);
84. Lisa Bernstein, Opting Out of the Legal System: Extralegal Contractual Relations in Diamond Industry, 21 J. OF LEGAL STUDIES 115 (1992).
85. PEERENBOOM, supra note 11, ch. 10.
86. He, supra note 4.
87. WEBER, NORTH, WILLIAMSON, supra note 7.
88. Clarke, supra note 1.
89. See supra note 7.