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4. Rational Dispute Resolution
4.1 Rule of Law
4.2 Enforcement of Contracts
4.3 Commercial Dispute Resolution
In-Country Assessment

Most companies that have a “big title” feel that the ownership of business properties is quite secure and they trust government institutions to uphold the law and settle disputes justly. Most companies holding a “small title” do not. Conflict resolution involves informal settlement, the legal process, or mediation. If a conflict involves the government, an administrative lawsuit is the only option and if the suit involves property taking and property demolitions by the government, the case is usually refused by the court.

Small businesses are somewhat disadvantaged in dispute resolution in comparison with larger firms. Larger firms are equipped with more funds and influence, have a larger social network and often better connections to local government, and can lobby the government more effectively for a favorable outcome.

While many feel that government compensation rates are too low and the land conversion system is unfair, there are also cases where owners abuse the system. Since compensation rates for land taking in the suburbs of major cities are quite attractive, some owners use the land taking as an opportunity to build additional levels to their buildings or add parts to the buildings so that they can receive more compensation.

 

Goal – An efficient institutional framework that balances the rights of the public, owners, lenders and borrowers in the event of a dispute or loan default

4.1 Rule of Law

Core Question: Do all market participants abide by the rule of law and have confidence in the courts and the ability of police to control crime? No – Weak, relevant regulations are not strong enough. Some judges have various kinds of connections with law firms or other private businesses. Cases of police abuse take place in every city.

Impartiality
4.1.1 What is the confidence level of the strength and impartiality of the police, courts and contract enforcement? Weak – Percentile Ranking – 44.5 Trend ↓

Source:Governance Matters 2010, World Bank, www.govindicators.org

Independent Judiciary
4.1.2 Can members of the judiciary be held accountable for their actions? No – Score 46 out of 100 – Very Weak, there is strong Party control and interference from the local administration.

Source:Global Integrity Report 2009 – http://report.globalintegrity.org/China/2009

Costs of Crime
4.1.3 What are the business costs of crime and violence? Moderate Costs – Ranking 55th out of 142 – Score 5.1 out of 7, Strong.Source:The Global Competitiveness Report 2011-2012, World Economic Forum www.weforum.org/issues/global-competitiveness

4.2 Enforcement of Contracts
Core Question: Are systems in place for timely and efficient enforcement of contracts?

Commercial – Yes – Strong, contract enforcement has improved dramatically in urban areas. However, there is strong local protectionism in the judicial branch in Chinese regions.

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4.2 Enforcement of Contracts

 

Commercial – Strong – Ranking 16th out of 183 Trend ↓; while costs are relatively low, many cases, especially dealing with land disputes, are refused by the courts.4.2.1.1 What is the number of procedures involved in resolving a commercial dispute? 34

4.2.1.2 What is the time between the filing of a lawsuit and resolution in judicial enforcements? 406 days

4.2.1.3 What is the cost of judicial enforcements as a percentage of debt value? 11.1%

Source:Doing Business 2012 – www.doingbusiness.org/data/exploreeconomies/china

4.2.2 – Summary Proceedings
SQ 10: Summary proceedings are alternative dispute resolution processes where creditors can apply for a direct court order in property disputes. What is the time between notice of intent to foreclose and loan collection in summary proceedings if available to lenders? Not available – Very Weak

SQ 11: What is the cost of summary proceeding if available to lenders as a percentage of property value? Not available – Very Weak

4.2.3 – Power-of-Sale
SQ 12: Power-of-sale agreements give creditors the power to sell properties after notice to the borrower without court intervention. What is the time between notice of intent to sell and loan collection for power-of-sale agreements if available to lenders? Weak – provided for in the Property Law (Chapter XVI, Article 191), but little used due to low volume of transactions. Also, creditor must find first alternate living space for owners.

SQ 13: What is the cost of power-of-sale agreements if available to lenders as a percentage of property value? Unknown

Source: Source: Property Rights Law of the People’s Republic of China

www.lehmanlaw.com/fileadmin/lehmanlaw_com/laws___regulations/Propoerty_Rights_Law_of_the_PRC__LLX__03162007.pdf;

Assessment of Unirule Institute of Economics, 2011.

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4.3 Commercial Dispute Resolution

 

Core Question: Can commercial disputes be resolved efficiently and fairly without exorbitant expense and delay? Yes – Strong for large companies. Most small businesses use trusted partners to avoid the court system and use alternative methods when a dispute arises.Survey Questions
Commercial Courts
SQ 14: Do specialized commercial courts exist for the handling of property disputes and foreclosures? No – Weak, commercial cases are handled in the Basic Level People’s Court, which often has an economic tribunal.

Source: www.olemiss.edu/courses/pol324/chnjudic.htm

Alternative Dispute Resolution

SQ 15: Are alternative dispute resolution mechanisms in place including commercial arbitration, private mediation and community based processes? Yes – Strong, arbitration is the preferred method of dispute resolution in China.

Source: U.S. Department of Commerce

http://export.gov/china/doingbizinchina/riskmanagement/eg_cn_028283.asp

Commercial Treaties

SQ 16: What bilateral, regional and international commercial treaties exist concerning business between countries? ASEAN, Thailand, Niger, Chile, Pakistan, New Zealand, Peru, Singapore, Costa Rica, Hong Kong; Asian-Pacific Trade Agreement; Double taxation treaties exist with more than 80 countries – Strong

Source: China FTA Network, Ministry of Finance http://fta.mofcom.gov.cn/english/index.shtml

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In-Country Assessment (as of May 2008)

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FQ18: To what extent do small businesses trust public
institutions to support contract enforcement?

Land leasers who purchased land use rights and built factories have to make great efforts in claiming their rights, in spite of the fact that they signed a use contract that refers to the compensation in the case of land taking. In some cases they do not receive any compensation from the land lessors who were given compensation by the local government. Small businesses are disadvantaged in regard to legal protection and dispute resolution in comparison with larger firms. Larger firms are equipped with more funds, influence, a larger social network, and often better connections to local government, and can lobby the government and the judiciary for favorable decisions