The European Chamber and our members take ‘rule of law’ to be a fundamental requirement for a functioning market economy and a prerequisite for sustainable economic growth. Ever since it was introduced as an option in the European Chamber’s annual Business Confidence Survey, improved rule of law has been identified by European industry as the top potential driver for China’s future economic growth.

China’s leadership indicated in the 3^rd Plenum’s Decision, that a market economy is where China is headed. This has raised hopes for comprehensive reforms – not only within the international business community, but also among Chinese citizens.

In Article 2 of the Decision there is an acknowledgement that China must be governed according to the rule of law, so it is extremely encouraging that the 4^th Plenum, to be held in November this year, is going to focus specifically on this subject.

It is useful to refer to the United Nation’s official definition of the concept of ‘rule of law’:

“The rule of law is a principle of governance in which all persons, institutions and entities, public and private, including the State itself, are accountable to laws that are publicly promulgated, equally enforced and independently adjudicated, and which are consistent with international human rights norms and standards. It requires, as well, measures to ensure adherence to the principles of supremacy of law, equality before the law, accountability to the law, fairness in the application of the law, separation of powers, participation in decision-making, legal certainty, avoidance of arbitrariness and procedural and legal transparency.”[1]

Based on this definition, we can assert that rule of law is comprised of the following four qualities: accountability, transparency, public consultation and an independent judiciary.

Ma Damou in 2002. Ma strongly advocated the drafting of the PRC Anti-Monopoly Law. He was leader of the bill, which finally came into effect in August 2008.

In China there is still a lack of constraint on administrative powers and thus the accountability of, for example, law enforcement agencies, is still limited. This has been apparent throughout the recent Anti-Monopoly Law (AML) enforcement cases, in response to which the European Chamber released an official statement on 13^th August. As mentioned in this statement, the European Chamber had received numerous alarming anecdotal accounts from a number of sectors that administrative intimidation tactics were used to impel companies to accept punishments and remedies without full and proper hearings. Such governmental practices are not in line with the Decision’s vow for governance in accordance with the rule of law.

There is also a lack of transparency in the promulgation, elaboration and implementation of laws and regulations by legislative, judiciary and administrative bodies. Despite efforts to improve transparency and consultation by the State Council Legislative Affairs Office, many ministries and commissions still do not allow for a consultation period of at least 30 days for public comments on draft regulations. For example, there was no public consultation on the revision of the China (Shanghai) Pilot Free Trade Zone (CSPFTZ) Negative List and the public consultation concerning the Administrative Regulation of the CSPFTZ was only open for 27 calendar days, covering a holiday period.

Rule of law requires predictability as it increases trust in the legal system. However, the often erratic legislative environment and the discretionary enforcement of regulations still remain the two most significant regulatory obstacles for European business in China, as identified by our members in the Chamber’s Business Confidence Survey 2014.

Reform must ensure judicial independence, not just from local governments, but also from interference from prosecutors and any state actors. Without such independence, the system would still allow for official arbitrariness.

We are encouraged that China has indicated that it will embark on an overhaul of its legal system, and that the Party has communicated the need for rule of law. A fair and efficient legal system that inspires complete trust is crucial for business as it allows companies to plan their activities accordingly and safeguards the rules protecting the market economy.

The European Chamber is looking ahead to November’s 4^th Plenum with a mixture of anticipation and cautious optimism. As a member you can be assured that we will be watching these developments closely, and we will remain ready to liaise with the Chinese Government to offer our support and advice.

Jörg Wuttke
President of the European Chamber of Commerce in China

[1] What is the rule of law? – United Nations Rule of Law. http://www.unrol.org/article.aspx?article_id=3