The Chinese economy, vol. 45, no. 3, May–June 2012, pp. 8–23.
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ISSN 1097–1475/2012 $9.50 + 0.00.
The Global Financial Crisis
Role of Law in China
Abstract: in general, China’s response to the global financial crisis was not very different from that of other countries: a stimulus package worth trillions of renminbi, aimed at encouraging domestic consumption. At the same time, China realized that containing the economic havoc would also require the adoption of new legal measures. Consequently, a series of rules and regulations was promulgated as part of the country’s strategic response to the crisis. The objective of this article is to examine the role of law in promoting economic stability in China during the financial crisis.
The discussion focuses on contract law and bankruptcy law. how well does the regulatory regime address the economic dislocation of the global downturn? To what extent has the administration of policy contributed to the revitalization of the Chinese economy?
The past few years have witnessed unprecedented turbulence in the global economy. The Chinese financial sector, less integrated with other financial systems, is highly regulated and not a core segment of China’s economy
(Altman 2009, 3; Naude 2009). This has proved a blessing in disguise, because China’s economy has not been as severely affected as those of the
United States and the European Union (Cook and Lam 2009). Nonetheless, other Chinese business sectors have not been immune from the contagion of the global economic downturn. The slump in worldwide demand for China’s
Mary Ip is a lecturer at the University of New South Wales, Australia, a member of the China Working Group of the International Legal Service Advisory Council of the
Federal Attorney General’s Department Australia, and an inaugural member of the
China Focus Group of the Australia Law Council; e-mail: email@example.com.
exports represented a 1.2 percent decrease in November 2009, compared to the export rate at the same time in the previous year (sing Tao Daily
2009). China’s export trade is the engine of its economic development and a major contributor to the country’s gross domestic product. According to some reports, 9,000 factories in Guangdong province, the hub of industrial production, were shuttered, and more than 20 million workers were laid off as a result (epoch Times 2008). These damaging consequences have not only threatened the country’s economy, but have also exposed China to the risk of social instability. In response, on November 10, 2008, the Chinese government approved a RMB4 trillion stimulus package for 2009–2010 to boost domestic consumption and spark an economic recovery (Xinhua
Net 2008). The budget focused on housing, post-quake rebuilding, transport, health and education, rural infrastructure, environment, science and technology, income support, taxation, and financial reform. In addition, the Chinese government enacted a series of rules and regulations, including administrative interpretations and guidelines, in the areas of contract law, bankruptcy law, labor law, food safety law, and foreign investment.
Although the fiscal stimulus program has generated considerable scholarly comment on its effectiveness in steering China through the global financial turbulence, the legal steps the Chinese government undertook to stabilize the economy in the wake of the crisis have not attracted much attention.¹
This article intends to fill that gap.
Since a comprehensive analysis of China’s reaction is beyond the scope of the article, it will focus on contract law in relation to the preliminary stages of commercial transactions and on bankruptcy law as it governs the closing stages. The success or failure of a contract determines the need for bankruptcy proceedings. This