Angus Young

Why China Shall Not Completely Transit from a Relation Based to a Rule Based Governance Regime: A Chinese Perspective.

Manuscript Type: Perspective. Research Question/Issue: This paper argues that China shall not completely transit from a relation‐based into a rule‐based governance regime because the Chinese system of governance is the product of its rich heritage and entrenched value system. Research Findings/Insights: Relation‐based governance has two dimensions. This first is apparent from the emphasis on reciprocity and mutual obligations fostered between individuals and groups. The second is evident from inside an organization, where governance is hierarchical and paternalistic. This system of governance was influenced by Confucian doctrines that are moral centered precepts used to regulate human behavior and relationships. Given that this governance regime is interlinked to the Chinese culture, it is doubtful that China would completely abandon it in favor of a rule‐based system from the West. Theoretical/Academic Implications: There are two key implications drawn from this article. First, in the absence of the moral underpinnings of relation‐based governance, this system is susceptible to exploitation. Individuals could take advantage of relationships and relational networks to commit mischief or achieve personal gains through tunneling or expropriation of company assets. Therefore, it is imperative to reinforce the ethical ideals of relation‐based governance in China. Second, since relationalism from Chinas past and the laws transplanted from the West are key features of Chinas governance regime, it is important to explore hybrid solutions to lessen the possibility of bottlenecks and incongruities emerging. Practitioner/Policy Implications: Any proposed hybrid governance solution ought to be able to deal with potential differences between the Chinese and the Western value systems as well as combine both regimes into an integrated framework.

Confucian Principles of Governance: Paternalistic Order and Relational Obligations Without Legal Rules

Tung Chung-Shu (179-104B.C.) synthesized the works of Confucius and Mencius to come up with a blueprint for the creation of civil society based on hierarchical order and moral cultivation, known as ‘San Gang Wu Chang’. ‘San Gang’ refers to the obligations attached to three key relationships in any given society, they are those between the king and his subjects; father and son; husband and wife. It is essentially social stratification with the focus on paternalism. ‘Wu Chang’ speaks of the five virtues: benevolence (Ren), righteousness (Yi), propriety (Li), wisdom (Zhi), and trust (Xin). These five moral benchmarks are the underpinnings of human intercourse and relational obligations. Therefore, the application of this Confucian order in the context of corporate governance suggests an emphasis on the establishment of paternalistic order and the fulfillment of one’s relational obligations towards others in the company, the goal is to create a harmonious environment.

Individual tax compliance in China: a review

Purpose The purpose of this paper is to review research about China’s individual tax compliance. While empirical research in this jurisdiction is still in its infancy, the scale of the problem might be under estimated, or at least over looked. Comparatively, tax compliance as a subject matter has received considerable attention in developed Western economies, where the data had revealed an increasing trend of taxpayers not complying with their tax obligations. Although, this issue had not received as much attention by the Chinese government, as the world’s second largest economy and one of the most populous nations in the world, tax compliance is of critical importance to the Chinese economy and welfare of its citizens. Therefore, it is crucial that a review about China’s tax compliance research should be conducted to identify gaps in the literature. Design/methodology/approach This paper focuses specifically on a review of empirical research about China’s individual tax compliance. While, this work is primarily descriptive, it builds on existing research to make normative recommendations aimed at improving tax compliance in China. Findings This paper reaffirmed earlier findings in the literature that Confucianism influences both Chinese social and individual ethical values, any attempt to foster greater tax compliance in China should appeal to the importance of taxes as contributions to the public funding of family and community welfare. However, what was missing from previous research is that the assumption about Chinese ethical values was overly narrow. Apart from Confucianism, another Chinese philosophy known as Legalism is also influential in prompting ethical behaviour, in particular on regulatory issues. Therefore, tax compliance in China drawing on Chinese ethical values should include both incentives and disincentives to prompt individuals to comply with their tax obligations. Research limitations/implications The observations and recommendations put forward in the paper are principle-based solutions drawn from Chinese ethical values. Furthermore, no detailed discussions on enforcement are included, as it is beyond the scope of the paper. Hence, the recommendations will require further empirical testing and should be examined in future research. Originality/value This review draws attention to a subject matter in China that has been overlooked. Apart from revisiting the key and related literature on China, this paper identified a gap that had been neglected in earlier research. Legalism, a less known Chinese ethical school of thoughts, is an important to the design of tax regulations prompting individuals to comply with their tax obligations.

The Chinese ‘Oppression’ Remedy: Creative Interpretations of Company Law by Chinese Courts

This is the first detailed study of the Chinese oppression remedy under the PRC Company Law (Article 20.1-2). Compared to UK, Canadian and Australian equivalents, the wording of the Chinese remedy is vague, and the Supreme People’s Court has not clarified its meaning. Yet Chinese courts have created a body of de facto case precedents and made the remedy into an effective tool for minority shareholders to gain redress for a broad range of wrongs committed by abusive shareholders. Such use of case precedents should be formalized in China to bring more predictability to statutory interpretation.

Conceptualizing a Hybrid Approach in Enforcement and Compliance in China: Adapting Responsive Regulation and Confucian Doctrines to Regulate Commerce

In the last few decades, China has transplanted a number of commercial laws from the West. However, without active enforcement of the laws, the Chinese economy in the mid to longer term is unlikely to benefits from the pledges of the new laws. This is not to say hefty number of prosecutions and successful litigation outcomes are unable to achieve the objects of the laws, rather this command and control approach creates an adversarial culture through protracted courtroom battles liken to a game of ‘cat and mouse’, not to mention the financial cost involved. Alternatively, regulators should combine regulatory innovations like responsive regulation pioneered by Ayres and Braithwaite with the Chinese business cultural values and practices to accomplish greater voluntary regulatory compliance. This approach would put the emphasis on forging a cooperative relationship between regulators and to bring about greater compliance with the spirit of the law. Adding to this is reviving elements of non-legal regulatory doctrine from Confucius that is a combination of moral precepts, hierarchical order and relational obligations between individuals and groups to compel voluntary compliance to codes of conducts known as ‘li’. And given Chinese business people belief in ‘guanxi’, this means relationships are valued more important than rules, embedded Confucian doctrines in regulation and compliance will be a sensible approach. In sum, enforcement should not be about ‘catch me if you can’. Instead, fostering a ‘culture of compliance’ with by adapting notions of responsive regulation by Ayres and Braithwaite with elements of Confucian legal doctrine will be more fitting for China.

Competition Laws and Policies in China and Hong Kong: A Tale of Two Regulatory Journeys

Competition law is generally enacted to control and influence certain business conduct deemed harmful to the smooth functioning of a competitive market. This is usually a by product of deregulation and opening up of markets to competition, as market forces alone might not be able to ensure allocative efficiency and competitive pricing is achieved. From the experiences in many European countries, the laws tend to emphasize on regulating post privatised state industries, as well as large private companies exploiting their market power to maximise profits at the expense of consumers (Maher, 2004). Much of the economic arguments for competition law are quite straightforward, the policy rationale for governmental intervention is to prevent the exploitation of market power of large companies and to promote competition (Corones, 2004). The political arguments however, are more complex where vested interests between stakeholders come into conflict. So the legislation could be a product of political compromises with ‘carve outs’ to exclude certain sectors and companies. Thereby, making competition law a piece of economically sub optimal, and technically complex to enforce piece of legislation. After 14 years of debate, a new Anti-Monopoly Law (AML) in the Peoples’ Republic of China (PRC) was enacted on the 30th August 2007 and took effect on the 1st August 2008. The new AML is a milestone in Chinese pro competition policy and law. Supposedly this law would drastically alter the manner in which businesses (both domestic and foreign) operate in China and, in turn, considerable benefits would flow onto the Chinese public through increased economic efficiency, lower prices and the introduction of innovative goods and services. Yet there is a ‘catch’, whilst the laws appear, at least in general, consistent with international competition law regimes like those in Australia, United Kingdom and the European Union, there are some significant challenges to the successful operation and implementation of the Chinese AML. In comparison, Hong Kong (HK), as a special administrative region of China, about 2000km away from Beijing, presents a different political and competition environment. Nevertheless, both economies are striving to achieve sustainable economic growth in a globally competitive market place. After a decade of discussions, HK’s journey in enacting competitive has yet to realize. Under pressure from various stakeholders, the HK government has put out a details proposal on competitive law for public consultation in May this year. Even though the proposal is aimed at enhancing economic efficiency and promoting sustainable competition, there are some issues in the detailed proposal that are causes for concern. The motivation of this paper is to retrace some of the key arguments and factors leading to the enactment of competition law in PRC and the debates advocating such law in HK, so as to anticipate some of the problems associated with implementation. It also interesting to analyse the regulatory journeys of one country under two different administrations, where one is a modern economy under quasi-democratic government, the other is a developing one, labelled as a ‘market economy with socialist characteristics’ under a centralised socialist government. Part two of this paper begins with a brief introduction to the PRC AML legislative background, substantive provisions of the AML and the areas of uncertainty in regulation and enforcement of the AML. Part three devolves into the debates in enacting competition law in HK, which to date has yet to become law. Despite the detailed proposal transplanting many ideas from the laws of other modern economies, they are some provisions that are either weak or continues to safeguard the interest of monopolies in selective sectors. This article shall conclude with some insights from the trials and tribulations of the new PRC law and HK’s drawn out policy dithering.

LIFTING THE CORPORATE VEIL IN CHINA: STATUTORY VAGUENESS, SHAREHOLDER IGNORANCE AND CASE PRECEDENTS IN A CIVIL LAW SYSTEM

This article surveys almost 300 court judgments in which shareholders have been sued for corporate debts under Article 20 of the PRC Company Law. The frequency of ‘veil-lifting’ can indicate how much weight is ascribed in China to fundamental corporate law principles such as limited liability, asset partitioning and the separate legal identity of the corporation. Our survey finds that shareholders were found liable for corporate debts in over 75% of cases, a significantly higher rate of veil-lifting than in jurisdictions elsewhere in the world. We challenge previous scholars’ explanations of this phenomenon. We also argue that statutory vagueness has led to unfair and inconsistent veil-lifting judgments in a number of cases. The current interpretative system of Supreme Peoples Court Regulations and Guiding Cases needs modification to ensure that inconsistencies in adjudication are ironed out in a more timely manner.

Adapting Responsive Regulation with Traditional Chinese Legal Doctrines? Something Old and Borrowed to Create Something Viable for a Modern China

China is now an economic superpower. However, the sustainability of this Chinese economic miracle rests upon good governance buoyed by the rule of law. Whilst the notion of the rule of law is a complex subject matter, the ability to bring about a social order backed by laws under an integrated and cohesive regulatory framework is imperative. Then again, China is a country with long held cultural traditions and values. Thus, transplanting a regulatory framework from the West into China will not work unless it is flexible and pliable enough to incorporate tradition Chinese values and norms. This article draws to the attention of responsive regulation and examines the possibility of adapting it with traditional Chinese legal doctrines to create something would meet the needs of a rapidly modernizing China. Even though this exercise remains conceptual, it is hopefully a step in the right direction for China’s socio-economic development.

Corporate Governance in China and Hong Kong: Reconciling Traditional Chinese Values, Regulatory Innovation and Accountability

Much has been said about the convergence of corporate governance and regulations. The underlying assumptions of this phenomenon are driven by globalisation and the dominance of the Anglo-US model of corporate governance. Since the Asian crisis in 1997, Hong Kong and perhaps to a less extend China, had amended both company laws and regulations, mirroring provisions and rules in developed Western economics. This paper will attempt to reconcile the east-west ideological divide about regulating corporate governance under a meta-regulatory framework. The aim is to combine laws and ethics thereby enhancing accountability and improving regulatory compliance by adapting Chinese ethical values like Confucianism into the regulatory system. Therefore, the overarching goal of this exercise is to adapt the wisdom of Chinese ethics into regulatory guidelines for Hong Kong and China’s rapidly growing economies.