China and its Foreign Investors: Different Agendas

Form China’s perspective, foreign investments and investors played an important role in China’s economic development.  Through Joint Ventures and technology transfers in the 1980s, foreign capital provided growth in the light electronic and automotive industries.  They played an even more prominent role in Chinese economic development and global market integration in the 1990s.  According to Feng Li and Jing Li, China had “a very clear agenda driven by technology transfer, and it did not want to become a dumping ground for the world’s obsolete technologies” (Li and Li 204).  Foreign investment relieved capital supply bottlenecks by infusing large monetary and non-monetary investments in industries that needed modernization and reform.  They made significant contributions to the development of Chinese technology by providing essential training to local employees and transferring advanced production techniques to China.  Along with advanced technology, foreign investments also transported enterprise management techniques that were particularly valuable in a rapidly modernizing market (Li and Li 204-216).  The importance of foreign investment also made China susceptible to foreign investors’ perceptions of the Chinese investment environment.  Their perceptions of China ultimately determined their willingness to invest.  To maintain a steady flow of foreign investments into China, the central and local governments had to react to problems such as corruption, low efficiency of government services, and inadequate legal infrastructure.  As one official remarked, “Some of [the foreign investors’] demands also need to be met by China—otherwise they will go somewhere else” (Li and Li 225).  The Chinese government became increasingly accommodating to foreign demands.  “The perception of China’s investment environment by foreign investors can significantly affect international business confidence in the Chinese market.  China’s reaction to such problems and concerns were often reflected in new regulations and policies” that instituted a more adequate legal framework (Li and Li 77). 

            China’s enormous market and the its potential for future growth attracted capital since the late 1970s.  The main rationales for foreign investors to invest in China included “penetrating new markets” that had not been dominated by competitors, “rationalizing production by making use of the best locational advantage” such as geographic proximity to other markets and inexpensive labor, “exploiting economies of scale” by producing products where costs were low, “taking advantage of tax incentives or preferential treatments” provided by the Chinese government, and “achieving higher returns on investment by investing in fast growing economies” (Li and Li 35).  China met all of these criteria.  It had the largest consumer base in the world, boasting 1.2 billion potential consumers.  Before 1978, the consumer market was closed to foreign capital and investors, which created scarce competition.  When China slowly opened its doors to foreigners, international investors such as MNCs competed amongst themselves to capture the “first-mover advantage.”  Establishing a firm foothold early in the new market became strategically important for them.  The inexpensive labor sources and China’s geographic proximity to other Asian markets also made it an attractive investment location.  The cost of labor in China was much lower than in Korea, Japan, Taiwan, and Singapore.  Benefiting from “economy of scale,” it was less expensive for MNCs to centralize production in China, and then transport the products to markets along the Pacific Rim.  Exploiting resources and utilizing the economy of scale, MNCs employed China as a production center for major markets in East and Southeast Asia.  Even though China was a more rigidly controlled market compared to Singapore and Korea, the Chinese government provided foreign investors with various incentives such as tax exemptions and preferential import treatment to counteract the negative impacts.  With the above factors in place, China became one of the most attractive destinations for foreign investors who desired high rate of business growth and return on investment. 

Convergence of Expectations

Both foreign investors, including multinationals, and the Chinese government agreed that increasing foreign investments in China was mutually beneficial.  With the Chinese government susceptible to investors’ demands for change, international actors such as MNCs initiated changes within legal institution and regulations.  MNCs and foreign investors contributed to anti-corruption measures in China in various ways.  By way of increasing interaction and encouraging multilateral cultural exchange, they introduced Western legal rules, cultures, and expectations into China where they did not exist before.  Because of their investments in China, they pressured the government to create a favorable legal framework that would protect their interests.  In addition, through governmental representation in their home countries, MNCs compelled China to adopt rules and regulations that were modeled after Western legislation.  Realizing the importance of legal implementation, MNCs encouraged the establishment of local constituency to support law enforcement.

Introduction of New Legal Norms and Expectations

MNCs and foreign investors did not travel alone.  They brought the practices and values from their industrialized home countries to China.  Some of these practices were required by codified legal rules in home countries, while others were non-codified practices.  The majority of industrialized countries had to comply with the Organization for Economic Corporation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the Convention).  According to the Convention, the thirty-four signatory countries were required to enact national laws that criminalized bribery and other corruptive activities to obtain "improper advantage in the conduct of international business” (Corr and Lawler).  Furthermore, in an effort to suppress corruptive practices initiated by MNCs in host countries, the signatories were responsible to create legislation that prohibited activities fostering corruption and bribery (OECD Convention on Bribery Article 8(1)), making bribery more difficult for MNCs. 

Even though the Convention was formally adopted in the late 1990s, many MNCs had long before standardized anti-bribery and anti-corruption practices.  US multinationals were required to follow the preceding Foreign Corrupt Practices Act (FCPA) since the 1977.  Laws such as FCTA and the Convention provided MNCs a legal framework within which they could operate.  High profile cases such as the Lockheed Corporate bribery case in Egypt and the General Electric fraud case in Israel have demonstrated the commitment of the Department of Justice (DOJ) to punish violators around the world. 

With the humiliation of legal prosecution related to high-profile lawsuits at stake, MNCs such as Johnson & Johnson (J&J) implemented comprehensive code of ethics and monitoring programs to comply with the ethical and legal requirements of both home and host countries.  The J&J code of ethics states that the company will respect host countries cultures without relaxing its ethical principle.  In its business in developing countries including China, J&J monitors the enforcement of the non-bribery ethics code by local and foreign employees and outside consultants.  Furthermore, auditors who report directly to the corporate board of directors are assigned to monitor employee ethical and legal conduct in host countries (J&J website). 

The FCPA and the Convention not only provided restrictions on how MNCs could operate in China, but also offered certain guidelines and protection in the complex Chinese business environment.  Anti-corruption regulations such as the FCPA and the Convention provided MNCs the means to steer clear of the bribery minefield.  As Ms. Sheila Melvin, the Director of the Shanghai office of the United States-China Business Council, remarked, American businesses could use the FCPA as a shield when they were pressured by Chinese officials and business partners to provide kickbacks or bribes.  When the managers of MNCs were asked to supply bribes, they could site the FCTA (Jay 8). 

Operating in China, MNCs were constrained by regulations from home.  To MNCs, not being able to bribe became a disadvantage in a market where bribery was rampant.  To mitigate such disadvantages, many MNCs investing in China seem to be “focusing on trying to convince the locals of the benefits” of non-corruptive business practices, according to Sarah Jay.  As Irv Beiman a general manager at a Western management-consulting firm revealed, more and more foreign invested firms were educating their Chinese contacts on the benefits of choosing superior products and services instead of bribes.  He believed that offering better quality would win out over the agents’ shortsighted desire for bribe money in the long run (Jay 8).  With MNCs and Joint Ventures, which followed non-corruptive practices, operating in China, a new set of operating rules was increasingly recognized in Chinese market. 

With neighboring countries competing to attract foreign investments, the Chinese government realized that it has to accommodate MNCs’ need for a “clean” market environment.  Paul Jensen, a consultant working for the US, European and Japanese interests in China, contributed part of these changes to government initiatives, “‘The national government has realized that it [corruption] is a problem and has tried to force local officials into curtailing some of their demands.  They [the central government] realize that it [bribery] has not only created a barrier to investment but it is giving China a bad reputation’ ” (Jay 9).  In an effort to repair its damaged reputation, the Chinese government introduced numerous laws and regulations to curb widespread corruption and prosecuted corrupted officials (Day and Tansey 11).  One of these regulations, the Administrative Litigation Law (ALL) implemented in October 1990, attempted to restrain local officials’ demands for bribes.  The ALL provided authority to the People’s Court to monitor the actions of administrators and bureaucrats.  Furthermore, it granted power to the court to overturn and revise unlawful or unfair decisions by local bureaucratic authorities (Potter Chinese Legal System 26-29).  The ALL covered a wide variety of issues concerning a range of aspects of business operations.  “The broad scope of administrative conduct subject to review under the ALL is intended to curb bureaucratism and prevent abuses of power by administrative officials who imposed their will without reference to or support from regulatory rules.  This has significance not only as an administrative regulation but also as an anti-corruption measure, discouraging officials from enforcing regulations inconsistently based on favoritism, patronage”, and bribery (Potter Chinese Legal System 22).  Legislation such as the ALL subjected bureaucratic and administrative decisions to judicial review.  It aimed to curb the unrestrained power of local officials and limited their ability to abuse such power for personal gains. 

Over time, rules expected by MNCs have changed the expectations and practices concerning bribery in the local market.  Irv Baiman has observed changes in business practices in China over the years: “‘I was here four years ago and it (the city of Shanghai) was a disaster…  Now I think that city is being run surprisingly well.  I’m amazed.  I don’t hear about corruption in the government in Shanghai.  I don’t hear people complaining’” (Jay 9).  Another consultant, Vincent Gauthier, agreed with Beiman that “‘Practices are slowly changing… and people are no longer as reliant on kickbacks to make ends meet’” (Jay 9).  Bound by the Convention and home country laws, MNCs encouraged the proliferation of non-corrupt business rules and expectations in China.  At the same time, their investments have created economic incentives for the Chinese government to accommodate their demand for a non-corrupt marketplace.  This generated enough economic impetus for the government to implement legislation and regulations to curb corruption. 

Protection of Foreign Investment: Legal Institution and Transparency

            From the perspective of MNCs and foreign investors, safeguarding their investments and protecting profitability are of paramount importance.  “More and more businesses were realizing that their investments and even their persons were not safe in a country where there was no rule of law.  Contracts mean nothing if they could be canceled at the whim of local officials.  Corruption…thrived in a country where there was no rule of law, and corruption was without a doubt one of the greatest enemies of successful business in China” (Kamm 6).  As the Chinese government became accommodating to the needs of MNCs, MNCs obtained the means to protect their interests.  One of these means was direct lobbying. 

            The advocacy of MNCs within China has promoted legal reforms, especially in the areas in which MNCs had vital interests.  The existence of US-style provisions in laws governing foreign investments suggested that foreign investors played a role in encouraging Chinese legal reforms that benefited them.  “The move toward US style law and regulation have been significantly compartmentalized, with relatively extensive changes occurring in semi-segregated markets for foreigners or in those aspects of regulations that have been of greatest immediate concern to foreign investors” (DeLisle).  For example, in response to foreign investors’ criticism of the lack of transparency and corporate governance, the amendments to the Equity Joint Venture Law (EJVL) April 4, 1990, has explicated regulations governing bookkeeping and accounting practices as well as foreign domestic labor-management relations (Shen 103-104).  According to the amendment, the appointment and dismissal of upper level managers has to meet the approval of the board of directors.  This board of directors was also responsible for audit accounting records to make sure that bookkeeping practices were in accordance with Chinese accounting rules.  The EJVL amendment also overrode non-public regulatory provisions limiting the access of these firms to the domestic market.  By doing so, China no longer required MNCs to balance their foreign exchange, which in essence favored domestic raw materials and other required input (Lardy 147).  In its quest for access to the outside capital market, China has moved to accommodate foreign investors’ demands for a robust legal institution and legal protection, “because the capital-seeking governments have seen such changes as a necessary condition for attracting investment” (Delisle). These reforms demonstrated China’s trend of turning away from bureaucratic control of foreign investment.  It increasingly conformed to equitable and fair legislation from the West.  The growing reliance on codified laws instead of inside regulations illustrated a recent government tendency to strengthen its legal institution.

The foreign capital-friendly reforms suggested that advocacy by the Business Councils in China, foreign firms themselves, and foreign embassies have made an impact on Chinese legislative reforms (DeLisle).  One example was the lobbying effort by the American Morton Company (AMC) to improve transparency by cutting down regulatory “Red Tapes.”  AMC, who has been investing in a joint venture in Beijing to produce jeeps, loudly voiced its complaints. 
 

Their concerns were voiced through the major US business association with interests in China, the US-China Business council.  In meetings with Chinese officials involved in formulating investment policy, the Council members communicated explicitly that certain changes would be needed if China wished to induce more investment.  The US embassy in Beijing also circulated a memo to Chinese leaders during this period citing the major complains of US investors, and indicating that this environment was posing a strong obstacle to US investment (Pearson 74).

The AMC example was not an isolated case in the 1990s.  There were numerous MNCs investing in China who utilized the power of trade councils and embassies to express concerns, lobby for more transparency, and urge the development of legal institutional changes.  Pressure from foreign investors contributed to fostering market liberalization through restricting bureaucratic interference, abolishing a number of contradictory regulations, and cutting down the regulatory “Red Tapes.”  Decreasing bureaucratic opaqueness, cutting through “Red Tapes” were reactions partly to foreign investors’ concerns. 

            Another channel through which the MNCs and investors influenced the Chinese regulators was through their home country governments, who directly lobbied the Chinese government.  Most of the Western developed countries were democratic countries with a large number of constituencies in the private business sector supporting key officials.  In the formulation of economic treatment of China, these foreign officials had to take MNCs’ interests and goals into consideration.  Armed with legal and constitutional authority to deny China and Chinese nationals access to US capital, and various forms of economic assistance, the US government had the capability to punish China if it did not comply with its constituent MNCs’ demands.  For example,

The US has threatened economic sanctions or continuing to block China’s entry into the WTO to extract commitments from the Chinese government to bring its intellectual property regime and its trade laws and practices into line with international standards…  More Broadly, the shadow of possible US sanctions…have led the Chinese officials to take more seriously some of the law reform prescriptions offered by US legal advisors, especially when such advice has been offered through governmental legal assistance programs and when it has concerned issues that have been important to the US government or its leaders’ key constituencies [MNCs] (DeLisle).           

The democratic political structure within Western countries enabled MNCs and large investors to utilize their home country governments to pressure China.  By responding to MNCs demands for more favorable investment environments, the Chinese government gave up a part of its autonomy in pursuit of broader economic goals. However, conceding to foreign pressure was not always painless. The growth of Chinese nationalism has hindered the government’s reform efforts.  With China emerging as an economic power, its confidence also grew.  Many Chinese felt that China needed to take its rightful place in the world alongside other global powers.  When a number of disputes arose between China and the developed countries, especially the US, some nationalists even consider MNCs the “minions of Imperialism.”  As some Chinese companies were losing out to MNCs, they urged the government to “save domestic industries” by tightening the control of foreign activities (Zhang 129).  Even though such national sentiment existed, it was rarely extreme.  With a large percentage of the Chinese population experiencing the benefits of globalization, including a vast range of higher quality consumer goods produced by MNCs and joint ventures, China could not reverse its course of reform. 

Changing Expectation and Building Domestic Constituency: the Case of Intellectual Property

China has made headway in establishing intellectual property (IP) laws and regulations that complied with internationally accepted standards.  However, the effectiveness of IP laws and regulations were hampered by ineffectual enforcement.  The incentives to break the IP laws were high because pirating software and entertainment content hurt MNCs more than domestics firms. 

“Public enforcement [of IP laws] in developing countries can be improved if international and domestic intellectual property policies are aligned with the needs of local software suppliers.  These actors share U.S. concerns over software piracy and have taken a stance to defend their rights” (Teran).  Unfortunately, however, “it would take some time for the [Chinese domestic] software industry to be fully aware of the importance of IP protection and that economic incentive do play a large role in promoting consciousness of IP rights”(Li Yahong).

Many MNCs realized that the Chinese domestic software industry and entertainment content providers were crucial partners in advocating more stringent IP law enforcement.  In order to educate and spread IP awareness, Microsoft developed software-programming capabilities in China to encourage the growth of local contend providers.  “Microsoft invests heavily in such projects as Guangdong Education and Research Network, and the China Education and Research Network.  It has donated hundreds of NT servers, MS Chinese Office and Windows 95 packages to Chinese organizations. Microsoft has also invested in four training centers in Beijing, Shanghai and Guangzhou, and has decided to make it easier for original equipment manufacturers to license the MS operating system software” (Spierer).  Fujitsu Limited of Japan is another example of how foreign investment nurtured the growth of the domestic PC and software industry.  In 1995, Fujitsu and Nanjing University, one of the premiere universities in China, began to cooperate in the development of corporate software.  After seeing the result of a yearlong feasibility study conducted by the University, Fujitsu decided to form a joint venture software-development company called Nanjing Fujitsu Nanda Software Technology Co.  Other joint ventures between Fujitsu and China include Xian Fujitsu Telecommunication Equipment Co., which was formed in 1995 with a local technology firm.  Through these joint ventures, Fujitsu provided capital and the technology to further develop Chinese industries that relied upon IP protections (Luo, Yadong 213).  These MNCs “provided assistance to local software suppliers to defend their intellectual property rights” and increased China’s incentives to enforce IP laws (Li Yahong).  Investing in developing host countries’ IP content production capability, MNCs have fostered greater appreciation and awareness of IP laws and at the same time have established a constituency within China to lobby for greater IP protection and law enforcement.  In the long run, the Chinese government’s commitment to enforcement would be rewarded by future MNC investments and, more importantly, the growth of domestic technology and software industries.  In essence, MNCs’ strategies of supporting local content suppliers has converged the interests of the Chinese government, local industries, and foreign investors. 

V. Accession into the WTO and China’s Legal Reform

As early as 1986, China, realizing the importance of the WTO in its economic “opening,” expressed its interest in obtaining the contractual party status from the WTO (then GATT).  The lengthy accession process provided the GATT/WTO ample opportunities to influence Chinese legal and domestic affairs.  The road to China’s WTO accession “was paved with about 1,000 pages of densely worded agreements covering trade areas from automobile manufacturing to venture capital investments” (“China’s Legal Scene”).  It suggested that China went through major legal institutional changes in preparation of its WTO accession.  These legal institutional reforms concentrated in the areas of market liberalization, transparency, and Intellectual Property (IP) protection.  The new legal developments, the strengthening of legal institution and the diminishing of unabated bureaucratic power, profoundly effected bribery and corruption in China. 

China has been changing from an autarchic society into a global market player in the past two decades.   Most Chinese leaders and scholars agreed that China would remain relatively poor and weak, if isolated from the global economic and political system. It would not be able to modernize rapidly without connecting with the global capital market and expanding its economic relations to the outside world (Wang, Yan 43).  The WTO accession also demonstrated the Chinese government’s commitment to reform its economy by making it more attractive to foreign investors.  As China Law & Practice remarked, the membership into the WTO was a political and economic triumph for the Chinese government, who has been eager to solidify China’s growing importance in the world economy and international relations (“China’s Legal Scene”). 

China’s determination to enter the world economic and political community was unquestionable.  Such eagerness granted the WTO access to the highest level of the Chinese government.  China’s strong desire for acceptance also provided the WTO powerful leverage during the accession negotiation.  The officials from the highest level of the CCP and the government declared their intention to reform the legal system in order to adjust to rapid economic growth and global integration. The central government was commitment to implement a legal system that could handle the “brave new world” of the WTO (“China’s Legal Scene”).  Former Chinese Premier Zhu Rongji made this intention clear to the Deputy Director-General of the WTO Miguel Mendoza and fifteen foreign ministers of justice at the Symposium on WTO and Legal Services.  He affirmed that China was willing to draw on the knowledge of legislation, law enforcement and legal services from developed countries in order to improve its legal system.  In his exchange with these foreign dignitaries, Zhu also promised the Chinese government’s continued dedication in fulfilling its legal and regulatory commitment to the WTO and its dispute resolution process.  Furthermore, Zhu pledged future commitment to continue legal reforms (“Premier Zhu tells WTO Forum”). 

China’s compliance process with the WTO rules and regulations had a profound impact on the Chinese legislative and administrative system.  The recent National People’s Congress (NPC) initiated a wave of nationwide legal reforms to integrate into the WTO community:

Each ministry, commission and governmental department has been ordered to conduct a top-down review of laws and regulations that fall under its governance, and to put forward proposals to which non-compliant laws and regulations should be revised and which should be repealed, as well as proposals for new laws and regulations to be put into place.  The State Legal Affairs office coordinated the combined efforts (Luo and Wang). 

China’s entrance into the WTO not only altered the economic system, but also modified government regulations and domestic legal institution. 

The WTO and Market Liberalization

            The most obvious form of legal change in preparation for entrance into the WTO was market liberalization.  The WTO does not look at economic barriers such as tariff and domestic protection favorably.  In order to comply with the WTO’s Protocol of Accession, China committed itself to lower trade barriers and to practice fair trade with all WTO members.  It has reduced regulatory tariffs on 4,874 items from 23 to 17 percent at the end of the 1990s to meet the WTO accession requirement.  A more coordinated approach to tax imports and exports was being implemented by central, provincial and local governments.  Furthermore, China also allowed access to foreign capital markets by lifting legal restrictions on holding foreign currencies and other financial instruments (Shen 132). 

In order to compete with other economies, China had to reform its domestic market.  To reduce structural rigidity, China lifted numerous restrictions on foreign investment to allow market forces to operate.  Foreign enterprises were given greater access to the Chinese market.  Legal amendments also eliminated foreign investment performance requirements embedded in various legislations such as the Sino-Foreign Equity Joint Venture Law, the Sino-Foreign Cooperative Joint Venture Law, and the Wholly Foreign-owned Enterprise Law[8].  China was in the process of rewriting regulations that restricted or prohibited foreign investors from investing in certain key industries.  For example, “the 1994 Auto Industry Policy, which required at least 40% local content for sedans and 50% for commercial vehicles, were in the process of being amended.”  In addition, China started to gradually deregulate service sectors such as telecommunications, banking, and insurance to “reflect multilateral market access commitments” (Luo and Wang). 

The recent redrafting of laws and the lowering of protective barriers had the effect on both government enterprises and private companies.  Fewer quotas, targets, and domestic protection decreased the need to rely on guanxi[9] to bypass restrictions or on bribery to win competitive advantage.  The heavier taxes levied on the SOEs were being gradually alleviated.  By the same token, the SOEs’ priority to import and their special permission to buy raw material at a lower than market price have been abolished.  “All kinds of positive and negative discrimination will gradually be eroded and this will also diminish the bureaucratic power of administrations to issue legally binding regulations, which are often internal and secret.”  With the reduction of domestic protection, market forces were increasingly allowed to reign.  As Margaret Pearson points out “the market is also a natural quick and unbiased enforcer of its own rules.  It is an enforcer that the Chinese, for the most, accept” (Pearson 101).  With deregulations and liberalization, economic activities in general were required to go through fewer regulatory “red tapes,” reducing the opportunities for corruption.  Liberalization of the market also took some authority away from the bureaucracy, allowing the “invisible hand of the market greater power at the expense of the officials” (Becker).  By diminishing economic and domestic favoritism, the government clarified the relation between the market and the bureaucracy (Gao 355).  With these reforms, China modified the role of government in economic activities.  Such modification in regulatory behavior curtailed the authorities of the bureaucracy and reduced the opportunities for bribery and corruption.

However, the reform under the WTO regime has met some local resistance.  The anti-dumping regulations and the prohibition of domestic protection were seen locally as an attempt to preclude China’s development by thwarting its competitive advantage in wages and production costs.  Many Chinese remained ambivalent and suspicious towards the dispute between China and other WTO members surrounding direct and indirect subsidies, while domestics companies in telecommunication, heavy manufacturing, and pharmaceutical industries watched the gradual industry deregulation nervously (Potter Chinese Legal System 128-129).  In spite of resistance, the highest level of government maintained its commitment to economic liberalization and further development, and new reforms were still being formulated.  Comparing to the beginning of 1990s, China had made tremendous improvement in market deregulation and liberalization. 

The WTO and Transparency

The concessions China adopted to conform to WTO regulations also promoted transparency.  The legislation process integrating the WTO concessions into domestic laws has begun in the 1990s.  China’s accession documents included the transparency and legalization requirements outlined in the Tokyo and Uruguay Round of WTO negotiations (Ostry 19).  The GATT/WTO Article X (Article X) requires the adoption of Publication and Administration of Trade Regulations, a series of documents demanding transparency in regulations and legislation.  The Draft Protocol for China’s accession into the WTO (Draft Protocol) reflected three facets of transparency outlined by Article X.  It stipulated the public availability of regulations governing trade, procedural fairness[10], and an independent and impartial system for review of administrative decision making” (Biddulph 154). 

The WTO demanded the Chinese legal system to contain adequate mechanisms for publication of laws, accept consultation in drafting laws and rules, and set up inquiry points where participants could find out about the law in particular area (Biddulph 158).  In the area of law publication, there was a significant trend towards publication of laws and regulations.  Conforming to the spirit of Article X, the Draft Protocol dictated the enforcement of those laws and regulations that were published. Laws and rules not published would not be enforceable (Ostry 127).  Various departments of the bureaucracy started to publish collections of rules and made them available to the public.  For example, the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) published its own gazette in which all laws, regulations, and administrative rules relating to foreign investment and trade were listed (Ostry 128).  And, “in 1995, the draft revised Criminal Procedure Law was published in the form of a book.  In September 1998 the draft Contract Law was published in a national newspaper, the Legal System Daily” (Biddulph 163). It was established specifically to meet the “publication clause” within Article X of the GATT requirement.  This trend towards more transparency precipitated in the passage of PRC Legislative Law in 2000, which required the publication of central and local level laws, administrative regulations, and rules (Biddulph 169). 

In additional to the publication requirement, the “consultation clause” in the Draft Protocol further enhanced transparency and strengthened the legal institution.  Because the government was essentially adopting the Western principles of laws, there has been a new interest in soliciting comments on new legislation from legal professionals who had studied Western legal institution and understood the application of market-oriented regulations.  The government was more open to inputs from non-governmental individuals, and the opinions and expertise of legal scholars were consulted.  “This has made the whole process of drafting new laws more transparent” (“China’s legal scene”).  The “Administration of the Trade Regime” section within the Draft Protocol included not only the “right of comment” from the public but also a replication of US Federal Administrative Procedure Act’s “Transparency” section (Ostry 127).  It required the publication and service of substantive rule be made no less than 30 days before its effective date.  It should also provide interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments with or without the opportunity of oral presentation (Ostry 133).  Another recent development in response to the WTO was the governmental solicitation of public input by publishing drafts of legal bills in books and journals.  Such trend provided necessary information for public participation of the law drafting process (Biddulph 169).  Event though this did not guarantee foreigners and domestic parties’ access to the whole legislation process, it provided certain level of consultancy during the law drafting procedure. As Clifford Chance, a Western attorney practicing in China, remarked, “the WTO impact can be seen in the methods of drafting new laws as well as in fulfilling the specific requirements of the WTO” (“China’s Legal Scene”). 

The “Inquiry Point” clause in the Draft Protocol, combining with the “publication” and “consultation” clauses, provided necessary information to generate public input.  The Draft Protocol mandated that at least one inquiry point would be set up to grant interested persons access to pertinent legal information (Ostry 127).  Some have suggested that the “Inquiry Point” clause did not grant comprehensive coverage to all aspects of legal infrastructure (Ostry 128).  Yet, it did provide some legal access to the public where it did not exist before.  It could take a long period of time before the Chinese legal system become as transparent as some Western legal systems, given the condition of substantive regulatory and administrative procedure laws before the legal reforms (Ostry 128).  However the trends towards transparency suggested that the Chinese legal system was moving quickly towards the right direction.  The Draft Protocol had generated impetus for amending Chinese domestic laws and creating a greater degree of transparency in the legal system.

Lastly, the addition to administrative laws in the 1990s provided better governance in the bureaucracy.  The Administrative Punishments Law, passed in 1996, “was considered to represent an important development in legislative administrative procedure.”  It was significant to China’s accession into the WTO because it governed the “imposition of administrative punishments such as fines, confiscation of unlawfully obtained income or property, suspension or revocation of licenses or permits and even administrative detention” (Biddulph 172).  All of which directly affected entities involving in international trade The restrictions in the legislation limited the ability of bureaucrats to impose punishment on foreign and domestic parties at their own discretion.  It also reduced the range of state agencies capable of imposing administrative punishments.  Before giving a punishment, the administrative agency must inform the accused of the facts, evidence and law upon which the decision is based and give reasons for the decision. This legislation granted the accused party the opportunity to respond to the accusation and to introduce other evidence without penalty.  Furthermore, the accused party also received the right to request an independent hearing.  This legislation made the basic standard of administrative conduct available.  It also provided a “legislative basis requiring the principled exercise of administrative discretion” that was a crucial component of uniform, impartial implementation of laws (Biddulph 172-173).  The compliance process to WTO rules and norms created impetus for change in the Chinese legal system.  The legal adjustments in the 1990s were steps towards transparency and better governance. 

The “publication,” “consultation,” and “inquiry point” clauses checked the unabated power of the bureaucracy by limiting its discretion in interpreting and enforcing the laws.  By the end of 1990s, the bureaucratic officials were no longer the sole persons who had the excess to legislations and regulations.  Market participants were able to research the legislations pertinent to them and observed the officials’ interpretation of legislation.  In the process of law making, more external participants’ opinions were considered.  Law drafting agencies began to consult external parties such as legal experts (“China’s Legal Scene”).  At the same time, “as the legal system being developed under the spirit of Article X and Draft Protocol, the scope of [administrative] discretion was gradually being narrowed…  The unabated discretion of the government agencies started to diminish (Biddulph 183).  With increasing transparency and more robust legal infrastructure, the power of the bureaucracy was restricted, and legal uncertain was reduced.  These, in turn, deceased the opportunities for corrupt practices to take place.

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