Mar 21, 2017 12:33 PM

Editorial: China’s New Civil Code Will Be a Cornerstone for Reforms

China’s decades-long attempts to instate an overarching law outlining the rights and responsibilities of its 1.4 billion citizens came to fruition at the recently concluded session of the country’s legislature. The National People’s Congress on March 15 approved the General Provisions of the Civil Law — a preamble to the country’s first civil code — paving the way to create a framework to resolve private disputes involving property rights and contract violations among others. Lawmakers want the fully-fledged civil code to be enacted by 2020.

Sixty-eight years after the establishment of the People’s Republic of China, the country is yet to put in place a unified civil code. Over time China has developed a patchwork civil law system with fragmented legislations. In 1986, lawmakers enacted a rudimentary bit of legislation labeled the General Principles of the Civil Law, which laid the foundation for protecting civil rights. In 1999, China passed the contract law and then a property rights law in 2007. But gaps and inconsistencies exist between these different bits of legislation. A unified civil code that clearly spells out the boundary between government and markets and the public and private spheres is much needed as China continues to deepen economic reforms and strengthen the rule of law.

After passing the preamble, the next step is to integrate existing, fragmented bits of civil legislation into a single code by 2020. But drafting an effective civil code doesn’t only involve putting together existing laws, it requires a careful study of the previous reforms to China’s civil law system and deliberating on how to align the country's legal system to keep pace with its rapid social and economic modernization process.

As China shifts to a slower growth track, many social problems that were previously subsumed by the breakneck speed of growth have started to emerge. This has also opened up a window of opportunity for comprehensive reforms, but it is difficult to make progress given deep rooted vested interests among certain groups at all levels. Judicial reform, especially the formulation of a civil code, is critical to push forward China’s reform efforts.

The fundamental principles enshrined in the civil code are equality, freedom, justice and integrity that form the foundation of a market economy. It has been 25 years since China established a “socialist market economy,” that pledged to create a level playing field for all players in the economy. But reality is far from it. Inadequate protection for private or individual rights, slow judicial reforms and the lack of integrity has made it difficult for economic actors to do business in good faith or rely on the spirit of a social contract. This has led to extra transaction costs, price distortions, market chaos and the inefficient allocation of resources.

Violation of individual rights, especially private property rights, is a widespread issue and an effective civil code is vital to addressing this problem. Since the third plenum of the Communist Party’s 18th National Congress in late 2013, the central government has reiterated the importance of protecting property rights and issued key documents mapping out reforms to safeguard property rights. These efforts are in line with the spirit of the civil code. Its General Provisions say “legitimate personal and property rights are protected by the law and shall not be violated by any individual or organization.” This provision must be definitely implemented.

The civil code should serve as a guide to China’s economic reform agenda. It should be codified with a rigorous structure and follow reasonable standards. Lawmakers must adopt a scientific and rational approach to it, while an open and inclusive spirit that is tolerant of Chinese characteristics would also be essential in the formulation of such a code.

First, it must emphasize such concepts as the autonomy of will in private law and freedom of contract, which form the unshakeable foundation of any market economy. Otherwise, the government’s ability to interfere with private rights will be unrestrained. The civil code should give credence to the idea that “absence of legal prohibitions means freedom.”

Next, it should also address some of the legal issues that have caused public concern such as the vague legal provisions dealing with the expiration of land use rights.

Chinese homeowners do not legally own the land on which their homes are built. Instead, they lease the rights to use the property for a limited number of years from the government, an arrangement that creates uncertainty for buyers. The lack of clear provisions in the current Property Law has created a legal limbo and fueled public anxiety about what will happen when the lease period is over. Boosting individuals’ confidence on the security of their private assets requires detailed, transparent laws.

The process of formulating a civil code will be beset with challenges given that groups with vested interests operate at all levels. There will be tough battles ahead for top policymakers and judicial authorities who are striving to make the civil code an effective shield to protect civil rights. It requires a strong resolution, unwavering determination and most of all — patient wisdom.

China’s civil code will be a turning point in its history, similar to the Napoleonic civil code or the German civil code, which cleared obstacles and paved the way for development for future generations. Lawmakers with great commitment and vision will be able to turn the civil code into a “capstone” of China’s market-oriented economic system.

Hu Shuli is the chief editor of Caixin Media.

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