April 26, 2018

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Commercial Transactions in China

 While the Civil Law is the basic set of legislation governing commercial transactions in China, numerous statutes have been enacted to deal with the intricacies of disparate areas of law, including statutes pertaining to banking law, insurance law, negotiable instrument law, company law, securities law, trust law, and maritime law.

While the large volume of legislation can be confusing, there are some unifying themes that play out across all areas of Chinese commercial law, which is premised upon the following basic principles.

Organization of commercial subjects

Commercial subjects, that is to say, the individuals or legal entities involved in commercial transactions, must be organized in a manner that is permitted by law. Only one type of organization may be chosen.

Commercial subjects may be organized in accordance with the types of legal entities they are, for instance whether they are sole proprietorships, companies or partnership. They may also be organized in accordance with forms of ownership, for instance whether they are owned by individuals or companies.

Profit Protection

One of the main aims of Chinese commercial law is to protect profits, and profit-making is seen as the aim of all commercial activity. Therefore, contracts are often interpreted in a manner that maximizes profits.

Enabling transactions

Chinese commercial transactions law places great emphasis on upholding commercial contracts, which are seen as essential in enabling and facilitating transactions.  As a result, courts are loath to intervene by regulating contractual obligations based on reasonableness or public interest, or by upholding implied terms not made explicitly.

The Chinese legal system also aims to hasten commercial transactions, thus the rules governing commercial transactions tend to be viewed as inflexible and not open to interpretation since greater speed can be achieved through predictability.

In line with this desire for speed, the law governing commercial transactions in China tends to allow for relatively short limitation periods in comparison with those allotted to other civil claims.

Fairness

Chinese commercial transactions law purports to foster equality and a level playing field. While the official position is that equality and honesty must be prioritized, this may not always play out in effect.

Safety of commercial activities

Chinese commercial transactions law places great emphasis on reporting and disclosure. For instance, public notice must be given of a company’s registration and a lengthy information disclosure procedure must be followed for companies wishing to be publicly listed.

Procedural rules and regulations including measures put in place to combat anti-competitive practices have been enacted in respect of various commercial activities including registration of business entities, accounts, and taxation.

The external appearance principle hastens commercial transaction matters and suits by establishing that a commercial act shall be judged by its external appearance and parties shall be estopped from denying such acts.

The principle of strict liability is also upheld in many aspects of Chinese commercial transactions law and imposes upon a party absolute liability whether or not fault or blame can be attributed to him or it.