MoFo News Item

China's Commitment to Transparency Under WTO -- Concepts of China's Law and Administrative Regulations

12/20/2001

In the wake of China's entry into the World Trade Organization (WTO), many foreign investors are excited to see China further open up its domestic sectors to foreign investment and have expressed their welcome to China into a new era of economic development. Some even say that the days will be gone when China used "internal" documents which were not available to foreigners but were actually used to govern business activities in China. Are these changes really taking place in China? This article looks at the transparency issue post-WTO and attempts to clarify the basic concepts of law in China.

When we talk about transparency in relation to the regulatory regime in China, we first need to understand the answers to the following questions:

  • What is law in China?
  • Which are the government bodies that issue laws in China?
  • Where is the line between "law" that binds your activities or "rules" that provide regulatory guidance?

Laws in China

In an effort to enforce the principles of transparency pursuant to rules of the WTO, the Chinese government recently promulgated the Law on Legislation of the People's Republic of China, which provides the process for the legislation of laws by the National People's Congress (NPC) and its Standing Committee.

Broadly speaking, laws (Fa Lu) are those basic laws that are enacted by the NPC and its Standing Committee. These basic laws can be clearly identified as laws because they contain the Chinese words for law "Fa Lu". [1]

The enactment of laws will be subject to a number of stages provided under the Law of Legislation of the PRC, which include the proposal for legislation, submission of the legislation proposal, drafting of the law, examination and review of the draft law by the Congress in session, vote and approval of the law, and publication of the law by order of the President of the PRC.

Important laws include the Criminal Law of the PRC, the General Principles of the Civil Law of the PRC, the Law of the PRC on Joint Ventures Using Chinese and Foreign Investment, and the Law of the PRC on Wholly Foreign Owned Enterprises, among others.

The power to provide interpretations of the laws is vested with the Standing Committee of the NPC. The interpretations issued by the Standing Committee of the NPC will have the same legal binding force as the laws in China.

Administrative Regulations

The State Council of the PRC, China's Cabinet, recently issued rules for the drafting and publication of administrative regulations and departmental rules in the PRC. The Procedural Rules for the Enactment of Administrative Regulations and the Procedural Rules for the Enactment of Regulatory Rules, both promulgated on November 16, 2001 and effective as of January 1, 2002, provide processes to enact the respective rules.

The concept of "administrative regulations" originates from China's Constitution, which refers to the set of rules of general application which are issued by the State Council and which carry the force of law in Chinese law. While rules in the form of "law" (Fa Lu) are enacted by the National People's Congress or its Standing Committee, administrative regulations (Xing Zheng Fa Gui) are enacted by the executive branch of the PRC government, the State Council. These administrative regulations carry the force of law under PRC law.

Under the Procedural Rules for the Enactment of Administrative Regulations, administrative regulations will be subject to a series of stages, including: project proposal, drafting, examination, decision, and publication. Each year, the State Council will develop a strategic plan for enacting administrative regulations. It will then delegate the drafting of the administrative regulations to one of its functional departments or its legal affairs department. In the course of the drafting, the drafting department will solicit opinions and views from the relevant government departments and the general public. Such solicitation will be conducted through seminars, expert meetings, hearings, and other similar forums. After the drafts are prepared, they will be sent to the legal affairs department under the State Council for review and examination. The review process will in particular aim to resolve whether the proposed administrative regulations are in conformity with the Constitution and the laws of the State. Where the administrative regulations are of general importance, the State Council will publish the draft for public opinion before it finally adopts the regulations.

The drafts will then be reviewed by the Standing Meeting of the State Council and then finally approved by the State Council. The administrative regulations are published by order of the State Council after approval and signature by the Prime Minister. They are effective 30 days after publication unless otherwise stated. Administrative regulations are required to be filed with the Standing Committee of the NPC for record. The State Council retains the power to give interpretations of the administrative regulations where necessary. Such interpretation shall carry the same force of law as the administrative regulations. Administrative regulations may take the form of "Regulations" (Tiao Li), "Rules" (Gui Ding) or "Measures" (Ban Fa), etc.

Local Laws

On the local level, provincial and municipal governments of fairly large municipalities have the power to enact local laws applicable to the geographic areas falling within the jurisdiction of the local governments. The local laws carry the force of law, provided that they do not conflict with the Constitution, national laws, and administrative regulations.

Judicial Interoperations

The Supreme People's Court has the power to issue judicial interpretations which also carry the force of law in practice. The judicial interpretations are very useful in adjudicating cases in PRC courts. A good example is the Opinion of the Supreme People's Court on Several Questions Concerning the Implementation of the General Principles of the Civil Law (issued by the Supreme People's Court on December 5, 1990).

Departmental Rules (Gui Zhang)

Corresponding with the law, administrative regulations, local laws and judicial interpretations are "departmental rules" (Xing Zheng Gui Zhang), a large body of departmental rules and administrative notices or guidance. Under the Law of the PRC on Legislation, the ministries, commissions, the People's Bank of China, the Ministry of Auditing and other regulatory agencies directly under the State Council have the authority to issue "departmental rules" (Xing Zheng Gui Zhang) within its scope of administration in accordance with the administrative regulations, decisions and orders of the State Council. Matters that fall within the scope of these departmental rules should be the subject for the purpose of implementing the administrative regulations, decisions and orders of the State Council.

While these rules are not "law" per se, they provide administrative and regulatory guidance on specific areas of the administration. They must be in line with the administrative regulations of the State Council. Otherwise, they will have no binding force. For instance, pursuant to the Administrative Litigation Law, the People's Court has the discretionary power to disregard those departmental rules that are not in line with the law and the administrative regulations in resolving specific cases. Therefore the value of the departmental rules are limited to the jurisdiction of the government department which issues the rules if they are in line with the administrative regulations of the State Council.

Under the Procedural Rules for the Enactment of Departmental Rules, a similar drafting process is required before the departmental rules are published. Departmental rules may use the word "Rules" (Gui Ding) or "Measures" (Ban Fa), but they cannot use the word "Regulations" (Tiao Li). In accordance with the Procedural Rules, any departmental rules that are enacted in violation of these Rules are invalid. Thus far, the consequences of departmental rules that do not comply with the Procedural Rules for the Enactment of Departmental Rules have not been established.

In summary, the legal framework in China consists of laws, administrative regulations, local laws, judicial interpretations and a large body of departmental rules. The "internal" documents that used to be relied upon by the government agencies usually fall within the scope of the departmental rules which provide administrative guidance in the specific area of the administration. Foreign investors need to be aware of the nature of departmental rules and learn to protect their rights and interests by looking at the laws and administrative regulations that provide the primary source of law in China.



[1] The discussion is limited to the domestic context. If one looks at the international level, there should also be the international obligations under numerous international treaties to which China accedes. Many of the international treaties are implemented in China by way of enactment of separate administrative regulations or judicial interpretations, as the case may be.

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