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Judicial Reform In China And Its Impact On Foreign Investment

The PRC State Council Information Office just published a White Paper on Judicial Reform in China. The purpose of the White Paper is to provide a snapshot view of the progress of legal reform in China over the past ten years. Readers who are interested in the current state of the Chinese legal system and the projection of future trends should take a look. Even for those who do not fully agree with the assessment will benefit by seeing what the top level of the Chinese government believes is important about China’s legal system and its future development.

Four issues raised in the White Paper are of particular interest to foreign investors in China:

1.  The number of lawyers and lawsuits is rapidly increasing. This is contrary to what many foreign investors believe and the implications of this must be understood. The White Paper provides the following basic statistics:

There are currently 18,200 law firms in China, up 31.6% from 2000

There are 210,000 lawyers registered in China.

In 2011, Chinese lawyers acted as counselors for 392,000 clients, up 24.6% from 2008.

Chinese lawyers handled 2.315 million litigation cases in 2011, up 17.7% from 2008.

The White Paper does not mention that the number of judges in China has remained static at about 200,000 over this same period.  This has meant an increasing workload for the judges and has negatively affected the quality of decisions. Nonetheless, Chinese people are still making active use of the court system to resolve disputes.

Most foreign business people are unaware of the large amount of litigation that occurs in China and tend to believe that they will never be sued. They therefore do not prepare for lawsuits and, when sued, they do not take the matter seriously and often do not respond promptly and effectively. This is a mistake. As the numbers above show, there are a lot of lawyers in China and they make their money suing people. When a dispute arises, the likelihood of being sued in China is actually quite high. Far higher for example than in Japan or in Korea.

2. China has made major progress in the administration of civil justice.

The improvements fall into four areas:

1) The functions of case filing, trial and execution have been clearly separated. The major change here is in the substantial improvements in executing on judgments. Though this may sound like a purely technical issue, it actually has important practical consequences for foreign companies doing business. Criticisms of the Chinese legal system often center on the difficulty in enforcing judgments. As a result of recent reforms, most Chinese courts have a created a department that focuses exclusively on enforcement. This has resulted in substantial improvement in the enforcement of monetary awards in most major jurisdictions. In addition, pre-judgment attachment of assets has become much more effective, adding a major tool for enforcing monetary awards. For foreign investors, this change cuts both ways. It has made litigation against Chinese companies more attractive since the Chinese company now has a real fear that any judgment will be enforced against it by seizure and sale of assets. On the other hand, it means that where the foreign party is a defendant, there is now a substantial risk that an adverse decision will have a strong negative impact. We are already seeing the impact of this in the willingness of Chinese companies to settle our clients' claims against them.

2) The application of the law has been clarified through legal guidance. China is a civil law system, meaning that decided cases are not binding. This lack of case law precedent is often cited as a weakness of the Chinese system, since the laws are written in a sketchy and often vague manner. The Chinese themselves have recognized that weakness and have filled the gap in two ways. First, the Supreme People’s Court regularly issues binding guidelines on the interpretation of important statutes. Second, the SPC and local high courts regularly publish authoritative cases with extensive commentary. These measures have been well received by Chinese lawyers and judges and have substantially improved clarity in the interpretation of Chinese laws. This too has led to Chinese companies focusing on settling claims so as to avoid being sued and losing.

3) Standardization in awards.

The Supreme Court has worked to achieve greater certainty and predictability in damage awards in civil cases. This removes much uncertainty in the litigation process and it also decreases opportunities for local judges to engage in bribery or other unacceptable practices.

4). Case management has been improved.

China’s major courts have installed modern case management systems. Many courts now use an on-line management system that allows parties to independently monitor the progress of a case. In many jurisdictions, streamlined case systems have been adopted that allow for quickly resolving simple matters and small claim matters. The result of all this is that Chinese lawsuits proceed to trial much faster than is common elsewhere in the world. This speed can take foreign parties very much by surprise. A Chinese lawsuit can be filed and tried in the time it takes merely to provide an answer in North American and European courts. From my experience, Chinese courts are not concerned about the thorough preparation of a case. They are more concerned that a case be heard quickly. The Chinese court motto seems to be “Justice delayed is justice denied.” Foreign investors need to take this into account. When service of a lawsuit is received, the defendant must respond immediately. There is no room for delay.

In part two, we will discuss the impact of China’s legal reforms on criminal cases.

Source: China law Blog


New administrative measures allow for accelerated patent examination

On June 19 2012 the State Intellectual Property Office (SIPO) issued the Administrative Measures for the Priority Examination of Invention Patent Applications, which came into force on August 1 2012. Through these measures, a fast-track system for the examination of patent applications has been formalized and made workable in China.

The administrative measures provide that upon an applicant's request, the SIPO will give priority to the examination of invention patent applications that satisfy certain conditions, in which case the examination will be concluded within one year of approval of the applicant's priority examination request.

These measures do not provide for priority examination to be conducted in accordance with relevant provisions of bilateral or multilateral agreements concluded between the SIPO and patent examination organizations of other jurisdictions.

Invention patent applications that are eligible for priority examination include:

Applications for important patents involving technologies related to:

Energy conservation;

Environmental protection;

New generation information technology;


High-end equipment manufacturing;

New energy;

New materials; and

New energy vehicles;

Applications for important patents conducive to environment-friendly development, such as those related to low-carbon technologies and resource conservation;

Initial applications filed in China related to the above-mentioned fields that have also been filed in other jurisdictions; and other patent applications that are of significant national or public interest, in which case priority examinations are required.

The implementation of the measures not only serves to encourage high and new technology innovation, but also accelerates the transformation and industrialization of new scientific and technological findings.

For applications that claim priority in other jurisdictions, if the jurisdiction of first filing has an agreement with the SIPO under the pilot Patent Prosecution Highway scheme (eg, Japan, Korea, United States, Germany and Russia), the applicant may request accelerated examination under the agreements.

China vows to curb soil pollution

BEIJING - The Chinese government has pledged to launch a national program on soil protection and to speed up efforts to establish a mechanism for soil protection in an effort to improve the country's soil environment in a step-by-step manner.

The pledge came out of an executive meeting of the State Council, China's Cabinet, on Wednesday. The meeting, held to review soil protection, was chaired by Premier Wen Jiabao.

A six-year study conducted by relevant government departments has alarmed the Cabinet. The study found that the country's soil has been vastly polluted by human activities in the industrial, mining and farming sectors, according to the meeting.

Those attending the meeting agreed that efforts should be made both now and within a specified time frame to protect the soil environment, prevent and reduce soil pollution, ensure the quality and safety of farm products and build a sound living environment.

At the meeting, the Cabinet decided to strictly protect the soil of cultivated land and sources of drinking water, bring pollutants threatening soil under control, strictly monitor and control risks threatening the soil environment, carry out programs to control and rehabilitate polluted soil and improve abilities to supervise the soil environment.

The public, including enterprises and individuals, will be guided and encouraged to participate in the environmental efforts, it said.

The meeting also discussed and approved a draft on the amendment of the Trademark Law.

What Has Been the Impact of the Trademark Law on Trademark Litigation

Since China’s WTO accession, trademark litigation has boomed along with nearly other IPR-related statistics. From 2002 to 2011, all levels of court accept the trademark civil disputes over 45,706 cases, with an average annual growth rate reached 39.8%. Litigation involving trademark validity at the Beijing No. 1 Intermediate Court grew even quicker from 2007 to 2011, to 5383 cases, and the annual average growth rate reached 57.2%. Trademark criminal cases numbered 8194 during this period, with an average annual growth rate of 27.9%. In sum, administrative validity cases have grown the quickest by far – due in part to the rapid growth in TM filings. Administrative cases were followed by civil cases and then criminal cases, and all of them showed double digit growth.

However, civil cases are still a fraction of administrative trademark enforcement cases, and the above data suggests that the relatively low level of civil trademark litigation in absolute numbers may be due to the high level of SAIC administrative actions. There were 68,836 reported administrative trademark enforcement actions last year alone or over 20,000 more than the total number of civil cases for the period from 2002-2011. Moreover, 17,022 of these cases were taken on behalf of foreigners — nearly 14 times the number of all foreign-related civil litigation involving all types of IP rights that were disposed of by the China courts in 2011 (1,321)

Investors hail draft fund laws

Revision seeks to halt illegal fundraising, insider trading

Venture capital and private equity fund managers have welcomed a draft amendment to the Law on Securities Investment Funds, aimed at protecting investors' interests and reducing financial risks by imposing new regulations on privately offered funds.

A second review of the amendment started on Tuesday at the opening session of the bimonthly meeting of the National People's Congress Standing Committee. The first review was in June.

The draft document specifies regulations for private equity funds, including its contracts, investment scope and rules for fund managers.

The revision is aimed at preventing illegal fundraising activities and insider trading.

Detailed rules for the managers of privately offered funds will be also introduced by the China Securities Regulatory Commission, according to the draft document.

The draft amendment said that the managers of privately offered funds should register with the fund industry association, and that the association should report private equity funds that meet a certain scale to the CSRC.

"We're glad that the private equity sector will be under increased supervision for a healthy and steady development of the sector, and we do hope that the CSRC will introduce detailed rules based on the market," said Liu Gang, general manager of the North China Region at Shenzhen Capital Group, a Chinese leading equity investment firm.

Liu said that he hopes the privately offered fund sector doesn't become the target of excessive regulations — as was the case for public funds — which might prevent the introduction of new financial products and lead to a lackluster performance.

"We hope that the fundraising and investment activities of private equity funds can be made according to the market. Investors can then choose fund managers with sound investment records," Liu said.

Other players in the sector would like to see more input from the industry.

"We think that the industry association should play a more positive role in the private equity sector. We'll keep a close eye on the detailed rules to be made by the CSRC for fund managers of privately offered funds," Yi Jigang, president of Orient Jiyi Investment, a Beijing-based private equity firm, told China Daily.

The venture capital and private equity sector has been developing rapidly in China. There were more than 10,000 venture capital and private equity firms at the end of 2011 managing nearly 2 trillion yuan ($317.5 billion) in total assets, according to Liu Jianjun, director of the financial affairs division of the CSRC's Department of Fiscal and Financial Affairs.

"Private equity investment is good for companies to raise money and for the nation to reform its economy," said Liu. "But there has been some illegal fundraising."

Government authorities in Tianjin said in August 2011 that a fraudulent equity investment firm called Huolimu Equity Investment Fund had illegally raised about 1.6 billion yuan from more than 5,000 people around China. The money could not be recovered.

And previously, according to media reports, two other equity investment firms — Tiankai Xinsheng Equity Investment Fund in Tianjin and Well & Well Group in Shanghai — also defrauded investors.

Edward Lehman 雷曼法学博士
Managing Director 董事长

LEHMAN, LEE & XU China Lawyers

Lehman, Lee & Xu is a top-tier Chinese law firm specializing in corporate, commercial and intellectual property matters. For further information on any issue discussed in this edition of China Law Digest , or for all other enquiries, please e-mail us at or visit our website at

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