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Protection of Property Rights and Fair Trade by Law

The laws on market economy, together with previous economic laws, have preliminary constructed a framework of legal system, and made important legal preparations for the cultivation and development of socialist market economy. By way of these laws, the organizational forms of market entities were defined, and a legal system was constructed for the purpose of confirming, respecting and protecting the legal rights of market entities, creating a favorable environment of fair trade for the development of participants in the market economy.

(Ⅰ) Preliminary Formation of Property Rights System

Property ownership is the basis of all market transactions. In China, not only the public properties are under the protection by law, hut also private properties have been gradually recognized and protected by law due to the swift growth of private properties during the development of the socialist market economy. Since the protection on private properties has been regarded as a significant indicator to measure the development of China' s market economy, the following discussion is more focused on this aspect.

l. Legislative Protection of Private Property Rights

First, the Constitution recognizes the legality of private property rights, which furnishes a fundamental guaranty for realizing private property rights. It is explicitly stipulated in the 1999 Constitution that all non-publicly-owned economy including the individual and private sectors under the legal system are the indispensable parts of socialist market economy, that the State will protect the legal rights and interests of the individual and private sectors, the citizens' ownership on their legal incomes, savings, houses and other legal properties, and the right of inheritance, and that, the legal rights and interests of the foreign enterprises, other economic organizations and foreign-funded enterprises within the territory of China will be protected by the laws of the People' s Republic of China.

Second, pursuant to the stipulations in the Constitution on protecting private property rights, the Civil Law grants each and every civil subject equal opportunities to enjoy ownership according to law. The General Principles of Civil Law of the People "s Republic of China which was passed in 1986 stipulates, "the civil rights and interests of any citizen and legal person shall be protected by law and free from infringement by any organization or individual. The legal rights and interest of any individual business and lease-holding rural households shall be protected by law. The legal properties of any citizen shall be protected by law, and shall not be encroached, divested, damaged, or illegally sealed, detained, frozen or confiscated by any organization or individual"

China has revised some statutes on intellectual property rights, including the Patent Law, Detailed Rules for the Implementation of the Patent Law, Trademark Law, Rules for the Implementation of the Trademark Law, Copyright Law and Regulations on the Protection of Computer Software, and enacted the Regulations on the Protection of Layout Designs of Integrated Circuits. Such revisions and enactments will enable China probably to satisfy all the stipulations in the Agreement on Trade-Related Aspects of Intellectual Property Rights on the legislation for preserving intellectual property rights, and above all, provide more protection on intellectual property rights. Moreover, the Law on Sino-Foreign Contractual Cooperative Enterprises, Law on Foreign-Capital Enterprises, Law on Chinese-Foreign Equity Joint Ventures, Law on Individual Proprietorship Enterprises, Law on Partnership Enterprises have stipulated that the State will protect the legal rights and interests of corresponding subjects. When the legal private property right is encroached, the General Principles of the Civil Law and other relevant laws entitle the property owners to request to: recognize the ownership; return the original property; exclude hindrance; stop the injurious act; restitute to the previous condition; or make compensation for the loss.

In addition to holding harmless the property rights of individuals and enterprises, the expropriation of private property rights is also restricted by some other laws. For example, it is stipulated in the Law on Chinese-Foreign Equity Joint Ventures and Law on Foreign-Capital Enterprises that the State shall not nationalize or requisition any joint venture (foreign-capital enterprise); in some circumstances, when it is necessary to do so for public interests purpose, the joint ventures (foreign-capital enterprises) shall be expropriated in accordance with the legal procedures and shall be compensated therefore.

Third, Chapter V of the Criminal Law amended in 1997 defines the Crimes of Encroachment upon Property and Section 7 Chapter III defines the "Crimes of Infringing upon Intellectual Property Rights". In the chapter "Crimes of Encroachment upon Property", the following crimes are specified: crime of pillage, crime of theft, crime of swindling, crime of forcible seizure, crime of assembling a crowd for scrambling purposes, and crime of embezzlement. While the section " Crimes of Infringing upon Intellectual Property Rights" defines what is crime of counterfeiting registered trademarks, crime of selling commodities carrying counterfeit registered trademarks, crime of counterfeiting patents, crime of infringing upon copyright, and crime of commercial espionage. And it is stipulated that these crimes should be subject to criminal penalties, protecting the property rights by way of criminal law.

2. Protection of Private Property Rights by Enforcement of Law

As for administrative enforcement of law, China has promulgated the Law on Administrative Penalty, Law on Administrative Reconsideration and some other laws on administration, which lay a solid legal basis for the administration by law by the administrative organizations at different levels and the clerks therein, as well as protect the rights of tile administrative counterparts.

The industrial and commercial administrative authorities have made great endeavors to take concerted actions with the judicial departments in investigating and punishing illegal contracts, and have become a major supplement to the settlement of the illegal contracts by the judicial departments. As the efficiency of the industrial and commercial administrative authorities in investing and punishing is higher, in practices, the cases investigated and punished by them are much more than those put on file for investigation and handled by the judicial departments.

For the border protection of intellectual property rights, the Regulations on the Customs Protection of Intellectual Property Rights adopted on July 5, 1995, and the Customs Law amended and implemented by the Standing Committee of the National People's Congress in 2001 have taken it as one of the important duties of the Customs and made explicit stipulations thereon. According to the statistics, from the implementation of the Regulations on the Customs Protection of Intellectual Property Rights, the General Administration of Customs has approved to put on file 2780 cases concerning the intellectual property rights of the obligees home and abroad, and )he national Customs have investigated and punished 1373 cases involving infringing imports and exports, with a total value of some RMB340 million, effectively protecting the legal rights and interests of the obligees of the intellectual property rights and maintaining normal order for importation and exportation.

3. Judicial Protection of Private Property Rights

In respect of the judicial safeguarding of private property rights, China has promulgated three procedure laws, namely, the Civil Procedure Law, the Criminal Procedure Law and the Administrative Procedure Law, laying a solid judicial basis for protecting private property rights by outlining the doctrine of independently exercising the power according to law, the stipulation that everybody is[ equal before the law, and the principle of judicial impartiality and

(Ⅱ) Enterprise Setup, Operation and Exit Systems

1. Market Entry

(1) Market Entry for Foreign-Funded Enterprises

First, in the field of commodity trade, as promised before, our country substantially lowered the customs tariffs for imports on January 1, 2002, and recalled the quotas and licensing management on cereals, wool, cotton, acrylon, terylen, polyester chip, chemical fertilizers, arid some tire products on the same day. Additionally, some laws and rules inconsistent with the WTO rules were either revised or nullified.

Second, for trade in services, China had kept her promises in promulgating laws for some key trade in services departments, allowing foreign investments to enter China, such as the Regulations on the Administration of Representative Offices of Foreign Law Firms in China, the Rules on the Administration of Foreign Investment in Telecom Enterprises, the Regulations of the People's Republic of China on the Administration of Foreign-capital financial institutions, the Regulations on the Administration of Foreign Insurance Companies, the Regulations of the People' s Republic of China on International Seaborne Shipping, the Measures for the Administration of Sino-Foreign Cooperative Audio & Video Products Distributing Enterprises, the Decision of the State Council on Revising the Regulations on the Administration of Travel Agencies, etc.. Till then, foreign investors were allowed to invest in a wide range of trade in services covering telecom, finance, insurance, commercial retail and wholesale, foreign trade, investment companies, law, accounting, consultation, advertisement, etc. According to the warranties of China in negotiations before it became a W'I'O member country, the range of accessible service lines will be expanded in the years to come.

Third, in investment, Chinese legislative organization has revised three fundamental laws and implementing rules concerning direct foreign investment, namely, the Law on Chinese-Foreign Equity Joint Ventures, the Law on Sino-Foreign Contractual Cooperative Enterprises and the Law on Foreign-Capital Enterprises, and had eliminated some stipulations therein beyond the provisions in the Agreement on Trade-Related Aspects of Investment Measures of the WTO, including, but not limited to, requirements on local ingredients (contents), the balance of trade, substitute importation, and on ratio of export value to domestic sales. The reforms in taxation system also have unified the turnover tax systems for domestic and foreign enterprises ; higher charges levied on foreign-funded enterprises were abrogated; dual charging standards on some foreigners were abolished. The new Guidance Catalogue of Industries Open to Foreign Investments and policies on automobile industry have been published.

Fourth, to enhance the transparency, the Governmental WTO Consulting Spot of China went into operation in January 2002, offering all circles with consultation services of information that is related to or influencing the commodity trade and trade in services, and the laws, rules, regulations, measures and ordinances of China on trade-related intellectual property rights or foreign exchange control. To ensure the consulting work accurate and authoritative, the Governmental WTO Reporting and Consulting Bureau set up a Consultative Experts Team.

(2) Market Entry for Private Enterprises

With regard to market entry for private enterprises, the most remarkable action is that all the 31 provinces, autonomous regions and municipalities directly under the Central Government have issued administrative rules or regulations to underpin the development of private and individual businesses. One of the most important contents therein is to aggrandize the scope for the private and individual sectors. For instance, Beijing promulgated the opinions and regulations in 1998 and 2001 on encouraging the private and individual sectors in the said city, stipulating, "The people's governments at different levels shall not set any prerequisites for registration against any private or individual business beyond the laws and regulations", and, "The principle of fair market entry shall be observed. Any government or the relevant authority shall not arbitrarily mount restrictions against investment with the excuse of ownership systems. Private and individual businesses are encouraged to set foot in the present key industries, products and technical projects, in particular, the hi-tech industry, tertiary industry, modern agriculture, urban infrastructure, etc.; competitive individual and private businesses from other cities are encouraged to invest and initiate businesses in this City. " Guangdong, the frontier of the reforms and opening-up, issued the Decision of Guangdong on Developing Individual and Private Sectors in 1999, putting forward that it is necessary to "expand the permissible scope", encouraging qualified private producers to deal in foreign economy and trade, allowing and supporting these sectors to invest in infrastructure, education and other cultural lines. Zhejiang is the most developed province of China in terms of private sector, as well as the freest in market entry. In 2000, it was provided in the Opinions on Further Giving Full Play to the Functions of Industrial and Commercial Administration to Impel the Enterprise Reforms and Development, which was transmitted by the government of the said province from the Provincial Administration for Industrial and Commercial, "Relieve the restrictions on the business scope of enterprises. Unless it is otherwise prohibited or restricted by the State, all enterprises have file right to select their business scope at their discretion according to their own conditions". Even in Tibet Autonomous Region, the most remote plateau province, the government issued the Decision on Giving Energetic Support to Develop Non-Publicly-Owned Economy in 1999, declaring "further soften the terms for market entry and simplify the approval procedures", and, "Individual and private businesses are entitled to run any business by any pattern, with the exception of the indust~e~x~5t commodities that the laws and rules explicitly prohibit to set foot in .

2. Establishment of Enterprises

The Company Law of the People " s Republic of China, the Law of the People" s Republic of China on Partnership Enterprises, and the Law of the People ' s Republic of China on Individual Proprietorship Enterprises respectively specify the requirements and procedures for establishing a corporate enterprise, partnership and individual proprietorship. The Company Law of the People ' s Republic of China stipulates that incorporation shall still be subject to "Approvalism"; the "Registration Rules" shall be applicable to the establishment of a limited company in principle, i.e. , the qualified limited company can be registered directly unless it is otherwise stipulated by other laws and rifles. The 1997 Law of the People' s Republic of China on Partnership Enterprises stipulates that when applying for establishing a partnership, the applicant shall submit an application for registration to the enterprise registrar, together with a partnership agreement, partners' IDs, mid other necessary documents, and that the applicant shall hand in the reference documents when applying if it is provided by laws or administrative rules that such establishment shall be subject to the relevant authorities for approval. It is stipulated in the Law of the People" s Republic of China on Individual Proprietorship Enterprises enacted in 1999 that the establishment of individual proprietorship enterprises shall be subject to registration, and that any eligible natural person is allowed to set up an individual proprietary enterprise. It can be considered that China is transiting from approval system to registration system for enterprise establishment and is gradually approaching the practice in the market economy countries.

3. Business Operation

In business operation, all enterprises independently are to run their businesses and make decisions in conformity with the relevant laws. For domestic enterprises, normally they are not required to submit their production and operational plans any more. For Chinese and foreign equity joint ventures and Sino-foreign contractual cooperative enterprises, they shall conduct their operations in accordance with the approved contracts and articles of association for the Chinese and foreign equity joint ventures, or the approved contracts and articles of association for the Sino-foreign contractual cooperative enterprises concerned. As regards foreign-capital enterprises, they shall run their business under the approved articles of association for foreign-capital enterprises, in disregard of any intervention within their business scope.

4. Market Exit for Enterprises

In China, there are explicit stipulations by law concerning the market exit for enterprises. For example, it is provided in the Company Law of the People ' s Republic of China that in the event that a company is unable to pay off the due debts and is thus declared bankrupt according to law, the people's court shall set up a liquidating group, consisting of shareholders, organizations and some professionals, to activate the bankruptcy liquidate proceedings.

At present, the following laws and articles have touched bankruptcy: the Corporate Bankruptcy Law (Trial) promulgated in 1986, Chapter 19 "Sequence in Repaying Debts by Bankrupted Business Corporation" in the Civil Procedure Law enacted in 1991, Chapter 16 "Sequence in Repaying Debts by Bankrupted Business Corporation" in the Opinion of the Supreme People's Court on Some Issues in Applying the Civil Procedure Law of the People" s Republic of China issued in 1992, and the Decision on Some Issues in Handling Enterprise Bankruptcy Cases issued by the Supreme People' s Court in 2002.

Basically, China has established perfect systems for enterprise establishment, operation and withdrawal, to which incorporation, operation and withdrawal shall be subject. Now, the amendments to the Corporate Bankruptcy Law (Trial) by the National People' s Congress are drawing to an end. It is reported that the new bankruptcy law borrows some legislative techniques from the bankruptcy laws of some developed countries, such as restructuring after bankruptcy and bankruptcy trustee systems. The new law will surely provide more favorable legal supports for enterprise withdrawal.

(Ⅱ) Establishment and Maintenance of Fairness in Market Competition

Fair competition is the motivating power for the development of market economy; to maintain fairness in the market economy is a necessary guaranty for the healthy development. In respect of establishing market rules mad maintaining normal market order, China has promulgated the Law of Counter-Unfair Competition, the Law on the Protection of Consumer Rights & Interests, the Law on the Management of Urban Real Estate, the Advertisement Law, Auction Law, tile Guaranty Law, the Law on Negotiable Instruments, the Insurance Law, the Arbitration Law and the Contract Law. These laws have manifested the principle of impartiality, justice, openness and efficiency in the market economy, and will facilitate the formation of a nationwide unified and open market. On the other hand, we cannot ignore that the Chinese market still has the following two aspects of problems: first, unfair competition activities disturb the market order; some unfavorable acts still exist, such as commercial fraudulence, compulsory trading, counterfeit, infringement, taking substandard products as fine products, smuggling and trafficking in contraband, etc; second, blocked market, such as regional barrier. In the past two years, the work of the law enforcement organizations for fair trade at different levels can be summarized into the following four aspects: (1) Crackdown on illegal activities of manufacturing and selling counterfeit commodities, (2) Fights against infringement of trademark mad false advertising; (3) Elimination of compulsory trade, administrative monopoly, etc., and (4) Struggles against smuggling mad trafficking in contraband.

In safeguarding fairness in trading in 2001, the relevant organizations have done a great deal and made great achievements. In this year, altogether 1386791 cases violating economic laws or regulations were investigated and punished by the administrative organizations for industry and commerce nationwide, increasing by 42.74 percent than 2000. Among them, 682026 were investigated and punished after filing, the rate of investigation and punishment being 49.18 percent.

To maintain the market order, apart from the above administrative enforcement of law, the people' s courts concluded lots of criminal cases destroying the order of market economy. Take the year of 2001 as an example, in regulating and standardizing the market order, the people's courts punished many criminals manufacturing and selling counterfeit commodities, smuggling, committing financial fraudulence, tax evasion and refusal to pay taxes by violent means, cheating in obtaining export rebates, cheating in obtaining foreign exchanges, producing and trafficking in phony money, and cracked down on pyramid sales activities according to law. In 2001, 14953 eases of seriously destroying the order of market economy were closed and 19972 criminals were punished, avoiding economic losses amounting to 2.23 billion yuan. They have also settled 1276601 cases concerning enterprise structuring, purchase and sales, financing, agriculture and rural economic development, financial and maritime mad maritime trade cases, facilitating the establishment of a favorable market and credit. In crackdown on crimes impairing financial security that year, a total of 6650 such eases were concluded, with 8906 criminals punished. Notably, the courts revealed and settled the case of counterfeiting RMB560 million money by Lu Yiqun et al. which had drawn much public attention and the swindling ease of raising RMB320 minion funds by Cao Yufei et al., and punished the principal criminals. These actions have greatly frightened the criminals. Combats were conducted against the crimes concerning the production of food, medicines, cotton, agricultural funds and medical apparatuses, and selling counterfeit commodities. In this year, they concluded 764 such cases, punishing 921 criminals. Meanwhile, the people's courts also focused on labor disputes and eases. Altogether 100440 such cases were handled, up by 33 percent than 2000, which protected the laborers' legal rights and interests, and ensured implementation of valid labor contracts.

In the light of the revised Patent Law, the Copyright Law and the Trademark Law, the Supreme People ' s Court timely worked out its judicial interpretation, thus providing a concrete foundation for trying fresh cases concerning the layout design of integrated circuits and new species of plants. In 2001, 5041 cases involving intellectual property fights were concluded, from which the intellectual achievements were protected and technical progress and innovation were promoted. Table 10 - 4 illustrates all the cases concluded by the courts all over the country in 2001.

(China.org.cn November 7, 2003)

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