Govenment Jurisdiction in China. Too Many Cooks....
The Chinese government is dealing with many significant issues relating to the economy and to the climate. The two that concern our clients are food safety and energy conservation. The fact that several different Chinese government departments often have overlapping jurisdiction over the same issue sometimes prevents the Chinese government from effectively dealing with these issues. The usual effect of the overlap is administrative paralysis, which means the problem simply never gets solved.
This issue is highlighted by the recent dispute in China over approval of the Chinese version of the World of Warcraft video game. As reported in a Xinhua article, entitled, "Warcraft game falls into war of gov't departments," one Chinese government agency has refused registration while a competing agency insists it has the right to go ahead. While the agencies battles, the avid gamers who want to play the game are left in limbo. The agency turf battle is leading to gridlock on the approval front:
On Monday, the General Administration of Press and Publication (GAPP) rejected Chinese Internet portal NetEase's application seeking approval for the Chinese version of WoW.NetEase violated a rule banning new account registration and collection of subscription fees during a trial period that started July 30, when the firm was ordered to "revise harmful content" in the game, the GAPP said.
The ministry-level administration said it might terminate access to the popular online game.
However, in an unexpected twist, China's Ministry of Culture (MOC) on Tuesday criticized GAPP's ban on WoW as "abusing its authority."
"Online games and publications are subject to administration by the MOC," said Li Xiong, a MOC official in charge of market affairs.
Both the GAPP and MOC insisted they are each the sole regulator of the profitable online games in China.
As the article points out, this is typical in China. Because my law firm is based in Seattle and I operate out of Qingdao, both of which are world fishing centers, I am constantly dealing with China food safety issues. However, as this same article points out, multiple agency jurisdiction makes China's food safety problems very difficult to solve:
Shi Jie, a lawyer in Beijing told Xinhua Wednesday that more than ten government departments including the agricultural, industrial, commercial, health and quality inspection departments, had their own different regulations on food safety, which made supervision on the issue very hard."They fight for regulating powers with each other, but many tend to shrug off responsibilities when food safety accidents occur," said Shi, who is also a member of the National Committee of the Chinese People's Political Consultative Conference.
The much touted new Food Safety Law does nothing to resolve this overlapping jurisdiction. As a result, its enactment has not led to any real change in the food safety area. The only real effect has been the creation of a new layer of bureaucratic red tape, which is good for we China lawyers, but bad for just about everyone else. For more on my views on China food safety, check out this Wall Street Journal article I wrote this Forbes article in which I was interviewed regarding China's milk scandal and this Los Angeles Times article in which I was interviewed regarding food safety problems involving China's fish industry.
In addition to competing agencies, we have also seen many tug of wars between local and national governments. Many times a local government will say "yes" to a deal that clearly violates national law. The less experienced foreign companies assume that if "the government" has given its blessing to the deal, everything must be in order. Unfortunately, we have handled a number of matters where a local government blessed a deal but the national government shut it down months, years and even decades later because it was never legal.
It even goes beyond that. In one region of China in which my firm frequently works, we are constantly having to contend with turf battles at the purely local level. There are fights among the cities in the region over who can outdo the other in terms of promises to foreign companies that in the end will never fly with Beijing. And, get this, we have even had to contend with districts/development zones within this city making promises to our clients that we know the city itself will never accept. The locals will tell our clients, "sure, you can do this," even when they know the city, province, and national rules forbid the activity. Eventually, the approval has to go up to the city government and the "special" privilege gets taken away. What the local guys hope is that by this time the foreign investor learns it has been duped, it will be so invested in the project it will go forward with it anyway.
Needless to say, this makes our jobs as lawyers all that more difficult as we are constantly finding ourselves having to tell our clients that what the government is promising them (which always sounds so good), is in fact fleeting at best. It is human nature to be disappointed when something promised to you is taken away "by your lawyer."
The Chinese government and its advisers are well aware of the problem of overlapping/competing governmental bodies and they know this issue permeates multiple areas of China law and regulation. However, the positions of these governmental entities are well entrenched and there is no indication the problems will be resolved soon. This means foreign businesses must take extra care to determine which agency and which jurisdiction asserts the right to regulate their particular business in China and they must work with all of the players to ensure not being caught between them. The fate of NetEase awaits those who do not pay careful attention to this issue.
Comments
in some ways this seems like an opposite of cases in which relief is sought through multiple administrative or judicial institutions, and each denies responsibility for the matter, attempting to characterize it as something for the other to handle -- with the result that no one is required to take responsibility. i believe this has been called "部门意识".
Guo Zengguang case:
chinese:
http://zgnmg.org/zhi/wqal/3txt.asp?id=36
english:
http://sites.google.com/a/chinapilaw.org/blaomw/leading-cases/guo-zengguang-v-beijing-a-district-labor-bureau
Posted by: WS | November 9, 2009 3:43 PM
Steve, well done. I do, however, must remind readers that China is still in its adolescent stage in terms of jurisprudence in commerce and politics. The problem in China is that they cannot simply apply laws and regulations made up in the West. They must prudently blend these factors with a 5,000+ year old culture. America developed its judicial and commercial systems during a relatively short period in its history (18th and 19th centuries). China by some measures is "growing" well enough.
Posted by: Ben L. Faustino | November 9, 2009 4:46 PM
We are handling a case about an internet game dispute between a Chinese company, the licensee and a foreign game company, the licensor. The Chinese government approval is a really confusing issue. According a decision made by the State Council of China in 2004, the approval for the publications of foreign licensors in China (including the publication of internet games) shall be made by GAPP. The same decision also states that the content examination of the "internet cultural products" imported by "internet cultural entities" shall be made by the Ministry of Culture. In practice, the establishment of an internet game company and the operation of an internet game shall be examined and approved by the MOC. But the importation of a foreign internet game shall be firstly approved by GAPP. So in this case, the importation of a foreign internet game shall be firstly approved by the GAPP, then the "content" of the game shall also be examined and approved by the MOC. That's why it's so confusing.
The game approval and administration problem is just an example. There are many other similar problems. Another example is that when applying for the establishment of a foreign invested company, the investors shall firstly submit the Articles of Association to the local BOFTEC for approval and then file the AOA to the local AIC for registration. Sometimes the local AIC will also examine the AOA and require revisions of the AOA which has already been approved by the local BOFTEC. This will make the investor go to the BOFTEC for a second approval. It's really annoying and confusing.
It's not so easy to ask the approval authority to change all this over a night. I think the best way to avoid this is to consult an experienced person before doing this or employ such a person. Practice experience is equally important.
Posted by: Wallice Chai | November 9, 2009 7:00 PM
Feel free to delete or "harmonise" this comment if need be: But Wallice Chai's comment makes me think "Netease" and "World of Warcraft". Is too much information being divulged here?
Posted by: chriswaugh_bj | November 10, 2009 12:06 AM
I don't think that bureaucratic turf wars are particularly Chinese or even worse in China than in any other bureaucracy (either corporate or governmental).
There are some areas in which China has substantially fewer bureaucratic turf wars than in the United States. There are a *lot* fewer turf wars in Chinese banking and financial regulation than in the United States.
Also one reason that the Chinese economy works is because of bureaucratic turf wars. Rather than carving up turf through administrative means, the government decided to use the market to resolve some bureaucratic conflicts, which meant that competing SOE's in China became competing list companies which resulted in something akin to market competition.
So just because you have two companies that are technically state-owned, doesn't mean that they would do everything they can to bash each other in the market.
Posted by: Twofish | November 10, 2009 11:29 AM
"America developed its judicial and commercial systems during a relatively short period in its history (18th and 19th centuries). China by some measures is "growing" well enough."
I don't think that is accurate. Other than those states inheriting non-English legal systems, the American states and Federal system inherited the English common law tradition, which had centuries of development in England prior American independence. For example, even today, contract law in the US is substantially the same as that in the common law jurisdictions of the British Commonwealth. Similarly, while the American legislative and executive systems differs from its English parent, it is largely an evolutionary descendant from that parent, with a few key changes, rather than being a fresh creation from scratch.
China's curse is that the legislative, executive and bureaucratic tradition that it is seeking to evolve from is a sprawling system that was born at least 2,000 years ago and does not lend itself well to clear demarcation of responsibility, clarity or rule-of-law-like predictability.
I believe the Western legal model is superior but it's not easily transferable to a foreign culture. Taiwan is an interesting case study in applying Western models to a Chinese culture, although the extent of my knowledge is limited to images of brawls in their legislative body and other legislator misbehavior that suggests that Chinese democracy would be a very different creature to Anglosphere democracy, not in the least as the institutions do not have a long institutional and cultural history as a reference point for norms.
Posted by: Tiu Fu Fong | November 11, 2009 9:10 PM