Abstract
China’s defined long-term policy of pursuing socialist construction involves economic reform aimed at more open external contact and brisk internal economic activity. Following important changes and developments in the economic situation since 1979, China’s economic legislation, including that involving foreign elements, has also shown significant changes from its originally incomplete state to its presently more complete and systematic state.
This article was first published in Willamette Law Review, Vol. 23, No. 3, USA, 1987. The citation of and commentary on legal provisions in this article were based upon the related laws and regulations effective during that time. It is hereby suggested to check and compare them with the further development of these legal provisions since 1987, so as to better understand their historical, gradual maturity and obtain most recent information.
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Notes
- 1.
See the Economic Contract Law, Art. 1.
- 2.
Id., Art. 6.
- 3.
Id., Art. 4.
- 4.
Id., Art. 7.
- 5.
See the Foreign Economic Contract Law, Art. 1.
- 6.
Id., Art. 16.
- 7.
Id., Arts. 4, 9, and 10.
- 8.
For example, the French Civil Code of 1803 (Code de Napoleone), which has had a wide and significant effect on continental law and the legal history of many countries, states that “lawfully made contracts will bind the contracting parties legally” (Art. 1134) and includes “legal purpose” as one of the “necessary conditions for the formation of a contract” (Id., Art. 1108). Article 1133 states that if the contracting purposes “are being prohibited by law, or the purposes are against public decency or order, then such purposes are illegal.” Article 1131 emphasizes that “obligations based on… illegal purposes will not bind.” Finally, Article 6 of the “Principle” of this code generalizes the above points by stating that “the laws of public order and decency should not be offended by any special agreements.”
In Western countries, whether by common law or statutory law, these same fundamental principles are included. See Gao Ershen [1].
- 9.
The true names of individuals and companies in the case examples have been omitted or altered, except in some of the more famous criminal cases.
- 10.
The eel produced along the Fujian coast is both tasty and nutritious and is an internationally recognized gourmet sea food. It has always been a hot trading item in the international fish breeding industry. The foreign exchange derived from the export of eel fry alone represents half of the total foreign exchange earned from seafood products exported by Fujian Province. It is an important resource of the fishing industry along the Chinese coast. However, there is only an optimal production period of about 3 months per year.
- 11.
The official exchange rate at that time was about one US dollar to RMB 2.8 yuan.
- 12.
At that time, the official state purchase price for one catty of eel fry was approximately RMB 1,000 yuan. Smith raised it to RMB 1,500–1,800 yuan. On the Hong Kong international market, each catty of eel fry would fetch a price of 900 US dollars. The privately agreed exchange rate of 1∶5 would give a profit of at least (900 × 5) − 1800 = RMB 2,700 yuan for the transfer of one catty.
- 13.
The Marine Resources Production Protection Regulations of the People’s Republic of China were promulgated by the State Council in February 1979.
- 14.
See Working Manual of Fishery Administration, Fujian Marine Products Bureau, vol. 2, p. 5.
In the Fishery Law of the People’s Republic of China (promulgated in January 1986), Article 21 states: “Catch of the young and fry of marine animals of substantial economic value is prohibited. For breeding or other purposes, such catches require approval from the Department of Fishery Administration of the State Council and the Departments of Fishery Administration of the Provinces, autonomous regions or municipalities under the direct administration of the Central Government. Approval will be for a limited quota at a specified time and place only.”
This law places the power to approve or refuse permission only in the fishery administration authority at or above provincial level and defines the penalty for catches without or in violation of permits. Serious offences constitute criminal liability according to Article 129 of the Criminal Law of the People’s Republic of China. See Fishery Law, Arts. 28–33.
- 15.
“No organization or individual can have the privilege of being above the Constitution or the law” Constitution of the People’s Republic of China, Art. 5, Par. 4.
- 16.
The Provisional Customs Law of the People’s Republic of China states that all import and export goods should be declared to the Customs Office together with submission of the permits from the foreign trade administration (Art. 104) and that “all import and export goods shall be taxed according to the customs duty rules promulgated by the People’s Central Government” (Art. 113). “Transporting or carrying goods, currency, gold, silver and other materials into or out of the country, without passing through the Customs Office, or by avoiding the officers in-charge when passing through such office” will be deemed a smuggling activity (Art. 175. Par. 1 (1) & (10)). If a person violates Art. 175, the customs officials shall confiscate the smuggled goods and also may fine the smuggler an amount up to or equal to the value of the smuggled goods. Lesser offenders may be fined or let off without penalty (Art. 177).
- 17.
See Provisional Regulations on Export Permit System, promulgated by the Chinese Import and Export Management Committee and the Ministry of Foreign Trade on 6 March 1980, Arts. 4, 6, and 8.
- 18.
Clause 2, Point 3 of that instruction states that in all coastal regions, all ships, including fishing ships, that secretly transport goods, currency, or other materials avoid the import and export administration or make illegal sales onshore or at sea are engaged in smuggling activities and will be strictly dealt with.
- 19.
Provisional Regulations of the People’s Republic of China Governing Foreign Exchange Control, Art. 4, Par. 2.
- 20.
The Detailed Rules for the Implementation of Penalties for Violation of Foreign Exchange Control was promulgated on 5 April 1985 by the State Foreign Exchange Control Administration.
- 21.
Id., Art. 2.
- 22.
Id., Art. 6.
- 23.
Id., Art. 3.
- 24.
Id., Art. 7.
- 25.
The State Council’s Regulations for Registration and Administration of Industrial and Commercial Enterprises, promulgated in July 1982, was enacted to protect lawful business and maintain the socialist economic order by suppressing unlawful activities.
- 26.
Regulations for Registration and Administration of Industrial and Commercial Enterprises, Arts. 2, 5, 17, and 18. Depending on the severity of the violation, the penalties in Article 18 include warnings, fines, termination or cancellation of the business, and confiscation of illegal profits. Based upon the fundamental principles of, and the practical experiences with these regulations, the State Administration for Industry and Commerce promulgated the Provisional Rules for Company Registration and Administration on 25 August 1985, making important supplements to these regulations.
- 27.
Provisional Regulations for Import Permit System, Art. 2. Further, the Ministry of Foreign Economic Relations and Trade (“MOFERT”) has centralized the issue of import permits. Foreign economic relations and trade departments at provincial levels can issue import permits separately to the provinces, autonomous regions, and municipalities within MOFERT guidelines. See Id., Art. 3.
- 28.
Id., Art. 4, par. 3.
- 29.
Foreign Economic Contract Law, Art. 6.
- 30.
Id.
- 31.
Because of the varying rules in different countries, the capacity of foreign parties in Sino-foreign economic contracts will not be discussed in this article.
- 32.
Editor’s note: Other commonly used English translations of the title of this law are the “Basic Rules of Civil Law of the People’s Republic of China,” the “Basic Principles of Civil Law of the People’s Republic of China,” and the “General Principles of Civil Law of the People’s Republic of China.”
- 33.
Civil Law, Art. 11.
- 34.
Id., Art. 36, at 2.
- 35.
Id., Art. 41.
- 36.
Id., Art. 50.
- 37.
See supra note 26 and accompanying text.
- 38.
Civil Law, Art. 42.
- 39.
Id., Art. 49, at 1.
- 40.
See supra note 28 and accompanying text.
- 41.
Report on Implementing Export Permit Management Concerning Export to Hong Kong of Cotton Yarn and Cotton Polyester Fibers, State Council Notice of Approval on the MOFERT’s (January 19, 1985).
- 42.
Regulations of the People’s Republic of China on the Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises (adopted on January 12, 1982), Art. 5.
- 43.
The Law of the People’s Republic of China on Chinese-Foreign Joint Ventures. Art. 1.
- 44.
Can Chinese citizens enter into joint ventures with foreign businessmen? Democracy and the Legal System, vol. 8, p. 48, 1985.
- 45.
Regulations of the People’s Republic of China on Contracts Concerning the Import of Technology, Art. 5(2) (C).
- 46.
See Reports by New China News Agency: “China will continue to develop individual economy”, People’s Daily (overseas), January 23, 1986. See also “Explanation of the General Rules of Civil Law of the People’s Republic of China (Draft)”, by Wang Hanbin, Director, the Working Commission for Legislation of the Standing Committee of the National People’s Congress, The Third Point, Journal of China’s Legal System, April 4, 1986.
- 47.
Civil Law, Art. 28.
- 48.
Constitution of the People’s Republic of China, Art. 11.
- 49.
Foreign Economic Contract Law, Arts. 4, 10.
- 50.
Art. 55 of the Civil Law provides that one of the necessary conditions of a civil legal act is that it is not contrary to law or to the social and public interest. Article 58 provides that all civil acts contrary to law or the social and public interest shall be invalid and invalid civil acts have no legally binding force ab initio.
- 51.
Bulletin of the Supreme People’s Court of the People’s Republic of China, 34–36 (1986).
- 52.
Article 9(1) of the Foreign Economic Contract Law provides: “A contract shall be void if it is contrary to the laws or the social and public interest of the People’s Republic of China.” Article 10 provides: “A contract shall be void if it is concluded by means of fraud or under duress.” Article 58 of the Civil Law reiterates the above principle and further provides that any civil act (including the conclusion of contracts) that injures the interest of the state, the collective, or the individual through malicious conspiracy, or any civil act which covers up its illegal objects by legal formality, shall be void.
- 53.
Civil Law, Art. 58(1) (g).
- 54.
Article 170 of the Criminal Law of the People’s Republic of China provides: “Any person engaged in the production or sale of pornographic books and pictures with a view to profit may be sentenced to imprisonment, custody or restriction for not more than 3 years, and may also be fined.”
The Regulations Concerning the Prohibition of Pornographic Materials promulgated by the State Council on 17 April 1985 clearly states: “Any of the 14 categories below: video tape, recording tape, motion picture, TV picture, slides, photographs, printings, books, newspapers and magazines, etc., which depict sexual behavior or openly create erotic images are pornographic materials.” It directs the whole country: “Any pornographic material, whether with a view to profit or not, must not be allowed to be imported, produced (including reproduction), sold, or broadcasted” (Article I); “Any pornographic materials brought, mailed, or smuggled into China shall be confiscated by the Customs Authority, and the person involved may be fined. Serious cases will be dealt with by the public security and judicial authorities (Article 4). The Ministry of Public Security promulgated on 26 April 1985 a notice concerning the implementation of the above regulations made by the State Council. It asks local public security authorities in the country to “hit hard at the criminal activities of smuggling, producing, selling, and organizing the broadcast of pornographic materials” and commands them to “investigate and deal with the criminal liability according to the law.” It also elaborates on the meaning of the phrase “serious cases” mentioned above (see Article 3 of the “Notice”). The General Administration of the Customs also promulgated on 5 June 1985 rules for the implementation of a prohibition on the import and export of pornographic materials. One of the rules provides that “any person importing or exporting pornographic materials by making use of goods shipment may be fined a sum of between RMB 5,000 Yuan and RMB 50,000 Yuan.” Whoever covers up the truth or refuses to report to the customs, an act that constitutes smuggling, shall be fined double the amount. The Foreign Economic Contract Law, Art. 9.
- 55.
There is a similar provision in the Economic Contract Law which provides: “If an economic contract is confirmed to be void in part, and this does not affect the validity of the remaining parts, the remainder will remain valid.” Article 60 of the Civil Law also provides: “If a civil act is invalid in a part that does not affect the validity of other parts, then these other parts shall remain valid.”
- 56.
See the Civil Law, Art. 80; see also The Law of the People’s Republic of China on Land Administration, adopted on 25 June 25 1986. The Land Administration Law provides that “land owned by the State and the collective may be legally given to individuals for use” (Article 7); “The right to own and use land is protected by law and cannot be encroached upon by any unit or individual” (Article 11). The law also provides that any person who buys and sells, leases, or illegally transfers land in any way will have his illegal spoils forfeited, or the structure on the land will be demolished or forfeited within a certain period. The persons involved may also be fined (Article 47).
- 57.
Regulations on Use of Land in Xiamen Special Economic Zone, Art. 9 (July 14, 1984); Provisional Regulations on Use of Land in Shenzhen Special Economic Zone (June 17, 1981), Art. 5.
- 58.
“Illegal Sale of Cultivated Land in Liu Jiang County, Guangxi Province”, People’s Daily (overseas edition), June 2, 1986.
- 59.
Article 18 of the Regulations on the Requisition of Land for State Construction promulgated by the State Council on 14 May 1982 provides that the People’s Government at the county level has limited power to approve requisition of cultivated land of only 3 mu or less. If the land requisitioned is more than 3 mu of cultivated land, or more than 10 mu of forest land or grass land, or more than 20 mu of any other types of land, the county government can only have the power to scrutinize but not to approve the application. After scrutiny, the application must be submitted to the People’s Government at the provincial level for approval. Requisition of cultivated land of more than 1,000 mu must be approved directly by the State Council. The leadership in Liu Jiang had seriously violated the law by requisition of land which was beyond their power and by the illegal sale of it at a large profit.
The Law of the People’s Republic of China on Land Administration mentioned above contains a similar rule concerning the question of the authority to approve the requisition of land. See Art. 25. The law also stresses that “any document of approval shall be void if it illegally approves the occupation of land ultra vires. Any director of units or individuals will be subject to executive punishment by their units or superior authorities if they have illegally approved the occupation of land. If they have received bribes, their criminal liability will be looked into in accordance with the relevant provisions of the Criminal Law. Land for which illegal approval has been given for occupation will be dealt with as land illegally occupied.” See Art. 48.
- 60.
Detailed Rules for the Implementation of Penalties for Violations of Foreign Exchange Control, Art. 2(1).
- 61.
Provisional Regulations of the People’s Republic of China Governing Foreign Exchange Control, Art. 4(2). See also supra note 60.
- 62.
See infra text accompanying notes 77–86.
- 63.
The Income Tax Law of the People’s Republic of China Concerning Foreign Enterprises, Art. 3.
- 64.
Item 1, Decision on the Amendment of the Income Tax Law of the People’s Republic of China Concerning Chinese-Foreign Joint Ventures, adopted by the Standing Committee of the National People’s Congress on September 2, 1983.
- 65.
The Individual Income Tax Law of the People’s Republic of China provides that income from wages and salaries of individuals shall be taxed at progressive rates; income exceeding RMB 800 yuan per month shall be taxed at progressive rates ranging from 5 % to 45 % of the excess amount. The rate is 20 % for income from remuneration for personal services, dividends, interest, royalties, etc. (Art. 3 and the Table of Tax Rates annexed thereto).
It was reported that in negotiating with Hong Kong businessmen on the topic of joint ventures, the Main Petrochemical Factory of Shanghai faced the problem of attempts by the Hong Kong side to evade payment of individual income tax. The Hong Kong businessmen had suggested that the salaries of the senior staff on both sides should be paid out of the profits of each side. The legal advisers of the factory promptly and sharply pointed out that doing so would be evading and contrary to China’s Individual Income Tax Law. They persuaded the Hong Kong side to act according to the law, so as to avoid any subsequent unfavorable situations into which both sides might fall. See Democracy and the Legal System 8 (1986).
- 66.
As the contract of a joint venture restaurant in Canton provides, corporate income tax will be payable only after the whole of the capital invested by the Hong Kong businessmen and interest thereon have been repaid. This is of course contrary to the provisions of the tax law in effect at the time. See supra note 64 and accompanying text.
- 67.
See Journal of China’s Legal System, May 7, 1986.
- 68.
Regulations of the People’s Republic of China on Contracts Concerning Import of Technology, Art. 9.
- 69.
The Economic Contract Law, Art. 7(2), and the Foreign Economic Contract Law, Art. 10. Article 58(3) of the Civil Law expressly provides that any civil act by a party contrary to its real intention shall be void if the act results from another party’s fraudulent means or duress.
- 70.
Private International Law, ed. Han Depei, 1983, p. 50.
- 71.
Id., p. 51.
- 72.
Id., pp. 120–21.
- 73.
Id., p. 51.
- 74.
The Civil Law contains one special chapter called “The Applicable Law in Sino-Foreign Civil Affairs.” Article 145 provides: “The parties to a Sino-foreign contract can choose the applicable law for the resolution of contractual disputes, unless the law otherwise provides.” Article 150 provides: “The foreign law or international custom chosen according to this chapter must not undermine the common social interests of the People’s Republic of China.” Thus, the right of the parties to choose the applicable law is subject to certain limitations. These limitations likewise appear in the relevant stipulations of the Foreign Economic Contract Law, Articles 4 and 5(2).
- 75.
There is a broad and a narrow meaning to the phrase “autonomy of will.” Narrowly interpreted, the phrase refers to the freedom of the parties to choose the law applicable to the contracts. This is the usage in Private International Law. Broadly interpreted, the phrase refers to the freedom of the parties to make contracts—that is, the principle of “freedom of contract” or “autonomy of contract.” Such is the usage in Civil Law. The latter meaning is that adopted here. But the earlier references made in the context of choice of laws are used in the narrow sense. See Chinese Encyclopaedia, Volume on Law 95, 464 (1984).
- 76.
See supra note 70, p. 123.
- 77.
Economic Contract Law, Art. 7(3).
- 78.
See Provisional Regulations on the Ascertainment and Handling of Invalid Economic Contracts, State Administration for Industry and Commerce, Art. 1.
- 79.
Id., Art. 3.
- 80.
Id., Art. 2.
- 81.
Id., The basis of these detailed Regulations is the Economic Contract Law, Art. 16. The same basic spirit is reflected in the Civil Law, Arts. 92, 111–13, and 117.
- 82.
Provisional Regulations on Verification of Economic Contracts, State Administration for Industry and Commerce, Arts. 1 and 2.
- 83.
Id., Art. 3.
- 84.
Id., Art. 4.
- 85.
Id., Art. 7.
- 86.
Id., Art. 9.
Reference
Gao Ershen. (1984). Fundamentals of Anglo-American contract law (pp. 36–47). Tianjin: Nankai University Press.
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CHEN, A. (2013). Why Some Sino-foreign Economic Contracts Are Void and How Voidness Can Be Prevented. In: The Voice from China. Understanding China. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-40817-5_17
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