When I first arrived in China and was asked what I liked best about working here I inevitably replied, rather giddily, “There are no lawyers!” Now, after six years, when asked to name some of the biggest challenges foreign companies face here, I just as hastily note, “There are no lawyers.”
As a 30-year veteran of the corporate world I had always known lawyers to be the people whose job it is to tell you what you can’t do. And in their eyes that’s pretty much everything and anything.
In fact, I was frustrated with the American judicial system to the same degree most Americans are. Its justice is notably imperfect and good ideas and worthy projects seem to be scuttled at every turn by crafty lawyers on the payrolls of individuals and organizations with self-serving agendas.
What I have learned in China, however, is that lawyers are not at the heart of the Western legal system. They are merely the caretakers of the system, a generally honorable profession with a propensity to attract misplaced blame.
The real foundation of the Western legal system is not the lawyers, or even the laws themselves. What really holds liberal democracy and free market capitalism together is the decades and decades of case law that underpin the Western judicial system.
Who knew? I surely didn’t. If anything I always looked rather disdainfully at case law as an anchor in the past. Why should we care what some court ruled 30 years ago in a case with only tangential relevance? The world has changed. Shouldn’t the legal system keep pace?
I am now forced to admit, however, that I missed the point. I focused on the institution when it was the context which the institution gave rise to that defined its fundamental importance to economic development and general prosperity.
The issue facing economies where the rule of law, and case law in particular, has yet to take root, is predictability – or, in those cases, the lack thereof. For all of its faults, a legal system built on a foundation of precedent, the raison d’etre for case law, provides a nurturing environment of predictability within which economies and societies can grow.
Nothing is more anathema to business than uncertainty and the risk that goes with it. Surprises are great when it comes to a birthday gift but potentially expensive, even lethal, when it comes to commerce.
The problem is greatly compounded when it comes to China and its nascent legal system, of course, because the judicial system is not entirely independent. It’s a political system, moreover, that understands the levers of power. And one of the most powerful levers of all is uncertainty, which the government leverages through an intentional lack of clarity in the laws and regulations it passes. As one Chinese colleague put it, “If the laws were too precise people would find ways to go around them.” In keeping them vague power shifts to the policeman, the government inspector, or the court judge, allowing them wide discretion as to how they will interpret the law or regulation in that particular circumstance on that particular day.
It’s ingenious, really. In the West, think of all of the people whose ‘profession’ it is to find loopholes in the laws and regulations that their clients want to circumvent. There is a gajillion-dollar industry built, for example, to parse the very precise language of the U.S. tax code in search of deductions and other ways to avoid paying Uncle Sam. Warren Buffett, as a result, has a lower tax rate than his secretary, a result even he apparently considers unfair.
Even generally acknowledged criminals who no one really wants on the street earn their freedom through the skillful exploitation of legal technicalities never envisioned by the lawmakers who wrote the law or the jurists who gave it the strength of legal precedence.
Seldom will that work in China, however, since there are fewer technicalities to begin with and a much smaller library of case law to have, over time, given a loophole the legal status of four-lane tunnel.
So why the difference? Is it that the Chinese do not believe in the rule of law and the Western love of order? Quite the contrary. Harmony is a national obsession. These are not entropists.
Once again I believe it is the receiver-orientated nature of Chinese communication that gave rise to this cleverly effective judicial model of well-crafted ambiguity. Whereas the Western legal system puts the onus on the lawmaker to define laws that can be easily applied to each and every situation, a nearly impossible task, it is, in China, up to the governed to act in the appropriate spirit intended.
Both, of course, lend themselves to some abuse. In the West you have the oft-cited potential to govern from the bench, wherein judges wield enormous power through the creative parsing of otherwise inconsequential words. Or the previously noted chance that thugs and criminals will go free when everyone knows they belong behind bars.
And in China, of course, you have the potential for government officials to interpret the law in ways that benefits their self-interest or otherwise fulfills their personal or political agenda.
As has often proven to be the case during my stay here, however, the self-aware and generally pragmatic Chinese government appears to be aware of this potential excess and has vowed steps to address it. At the recently held Third Plenum of the Communist Party of China’s 18th Central Committee, the plenum at which new administrations have typically unveiled their reform agenda, the government affirmed its commitment to give the judiciary both more power and more independence.
While I still shake my head at the turn of thinking that causes me to applaud such a move, I think that is very good news indeed for the Western businesses operating here. There is wisdom, after all, in the old saying, ‘better the devil you know than the one you don’t.’
In the meantime, I do have a few suggestions for Western companies and individuals wishing to conduct business here. For starters, don’t spend a lot of time and money having your lawyers pore over every detail of your legal contracts. It probably won’t matter in the end if there is a dispute and for reasons I will explain in a future blog your business partner, if the contract involves one, is unlikely to read it anyway.
Secondly, and most importantly, don’t spend too much time thinking about what the laws and regulations allow you to do. The answer is that no one knows for sure. Instead, put yourself in the shoes of the government. What would they want you to do? What action or decision would best align with their interests and objectives?
And if that’s in doubt ask them. It is very common for people to call the government anonymously and ask for guidance as to how a particular rule or regulation is applied. They probably won’t give you a very precise answer, for obvious reasons, but they will be happy to share the perspective they will bring to the issue.
In the end it is not their desire to entrap you. The government’s overriding purpose is to maintain social harmony and advance the state. Unless your proposal compromises one or both of those objectives, I have found the government refreshingly genuine in helping you get on with your business.
But in this season of giving thanks, you might nonetheless give thanks to those you might heretofore have considered unworthy of your gratitude, the attorneys, who help to provide, however imperfectly, an environment of certainty within which you can make the calculated and thoughtful decisions necessary to help your business grow and prosper.
Copyright © 2013 Glassmaker in China
Notice: The views expressed in this post are strictly those of the writer acting in a personal capacity. They are not in any way endorsed or sanctioned by his employer or any other individual with which he may be personally or professionally affiliated.