Doing business in China can be a minefield and there have been a number of high profile cases in recent years where employees working for foreign companies have fallen foul of the Chinese legal system.
Indeed, there is much debate about the rule of law in China and whether it actually exists.
UTS Law Associate Professor, Dr Colin Hawes’ research includes the Chinese corporate system and the creative interpretation of corporate law by its judges.
He says a rule of law system does exist but perhaps not in the traditional understanding of the concept:
At its most basic level, the rule of law means that China has courts, lawyers, written laws and regulations, and formal procedures for dealing with disputes - none of which are radically different from other countries, except in minor details.
As part of his research, Dr Hawes interviewed judges and lawyers in Beijing, Shenzhen and Guangzhou and trawled through a mass of newly available online Chinese legal databases.
He says it’s important to understand that there are three external influences exerting pressure on the legal system – political influence, networks of personal relationships or social networks, and corruption - which can cause problems for foreign companies:
To avoid getting into serious trouble during a legal dispute, all Australians doing business in China need to grasp these major external influences and try to minimize their negative impact.
Dr Hawes does point out that much has been done over the past decade to minimise corruption and external interference in the legal system particularly in the civil courts but there are still major issues in the criminal courts.
His research works as a comprehensive ‘how to’ guide for foreign companies seeking to navigate the Chinese legal landscape.
He maintains that companies can safeguard their business and their employees by carefully following advice from China law experts and taking the time to understand and work within the system:
While there is a rule of law, it does have defects and does not work in the same way as in Australia. When one understands and adapts to the key differences, the system becomes much more predictable.
Dr Hawes’ research is published by the Australia-China Relations Institute.
Further reading: Dealing with commercial legal risks in the People's Republic of China: a primer for Australian businesses (PDF, 3.1Mb)