University of Wollongong Research Online University of Wollongong Thesis Collection University of Wollongong Thesis Collections 2011 The hineseC Socio-Cultural Influence on the Legal System of the People’s Republic of China and Its Implications for Foreign Investment: A Critical Analysis Ying Lin University of Wollongong Recommended Citation Lin, Ying, The hineC se Socio-Cultural Influence on the Legal System of the People’s Republic of China and Its Implications for Foreign Investment: A Critical Analysis, Doctor of Philosophy thesis, , University of Wollongong, 2011. http://ro.uow.edu.au/theses/ 3484 Research Online is the open access institutional repository for the University of Wollongong. For further information contact the UOW Library: [email protected] The Chinese Socio-Cultural Influence on the Legal System of the People’s Republic of China and Its Implications for Foreign Investment: A Critical Analysis A thesis submitted in fulfilment of the requirements for the award of the degree DOCTOR OF PHILOSOPHY from UNIVERSITY OF WOLLONGONG by Ying Lin LLB (ShenZhen), LLM (Wollongong) FACULTY OF LAW 2011 THESIS CERTIFICATION I, Ying Lin, declare that this thesis, submitted in fulfilment of the requirements for the award of Doctor of Philosophy, in the Faculty of Law, University of Wollongong, is wholly my own work unless otherwise referenced or acknowledged. The document has not been submitted for qualifications at any other academic institution. Signature ………………………… Ying Lin Date ……………………………… THESIS DECLARATION This is to certify that I, Ying Lin, being a candidate for the degree of Doctor of Philosophy (PhD), am fully aware of the University of Wollongong’s rules and procedures relating to the preparation, submission, retention and use of higher degree thesis, and its policy on intellectual property. I acknowledge that the University requires the thesis to be retained in the library for record purposes and that within copyright privileges of the author, it should be accessible for consultation and copying at the discretion of the library officer in charge and in accordance with the Copyright Act (1968). I authorise the University of Wollongong to publish an abstract of this thesis. Signature ……………………………. Ying Lin Date …………………………………. Abstract China’s dramatically increasing economic development has established a major presence in the global market since the commencement of its ‘Open Door’ policy in December 1978. An important result of this policy’s implementation was the involvement of foreign direct investment in China’s economic reform. Undoubtedly, foreign investors have begun to play a significant role in the course of China’s economic development. However, foreign investors in the People’s Republic of China (PRC) must deal with a different legal environment to that of their home country and find that the law is different both in appearance and in practice. In this research social and legal issues relating to foreign investors operating in China are used as a starting point to identify the nature and development of the PRC legal system. From a historical and cultural point of view, the reasons for those issues are explored. The study reveals that a feudal political system and the dominance of Confucian culture in China have had a significant effect on the Chinese legal system. The different implications for the concepts of law, and its standing in society are the effects of these factors on the application of law. To comprehend the PRC legal system for foreign investors doing business in China, it will be suggested that it is important to understand Chinese history and culture originating in the particular region. The social standing of law and the nature of its enforcement in practice reflect the PRC legal culture. This thesis begins with issues affecting foreign investors operating in China, accompanied by an analysis of the influence of historical and cultural factors, such as political power and Confucian concepts of law in society. It reveals an important interaction between law and culture affecting the Chinese legal system today. The research includes a survey illustrating how foreign-investment enterprises in the PRC are dealing with the shock of a different legal system and caused by cross-cultural phenomena. Even though legal reform has been undertaken in developing a legal system in China, clearly it is the attitude towards law that has been a primary tool for facilitation of a utilitarian reception of foreign legal institutions. A survey referring to these issues for existing foreign investors has been conducted and the results analysed to explore the relations between cultural and social factors and the development of the legal system in China. It illustrates the interaction between law and culture in the evolution of China’s history. It reveals that is important to have a rational and practical attitude to law in China involving an understanding of the effects of Confucian culture and legalism on the legal system in the course of its evolution. This is a vital ingredient not only for an entry strategy for foreign investment but also for continued operations in China. These issues have illustrated the fact that the function and standing of law are uncertain as a result of different needs of development. This can be traced to Chinese history and the acknowledgement of the place of law in society. The Chinese legal tradition developed from both Confucianism (with its emphasis upon morality) and Legalism (which emphasised the rule of law), and the legal system is characterised by the influence of these two influential and adversarial schools of thought. The Confucian ideology provided the fundamentals for the substance of traditional law and the Legalist school constructed the important framework of the traditional legal system. Although the legalist school and Confucianism were adversarial philosophies in terms of their political ideologies of how Chinese society should be ruled, they certainly shared some important ideas, such as the emperor’s power over all facets of life, including law. However, Chinese imperial law bears a strong Confucian moral character. Confucian -ii- morality and imperial law were two parallel behavioural codes that combined to order social conduct in Chinese society. The features of law in a society and at a particular historical stage are shaped not only by the prevailing environment but also by the cultural heritage of that society, even though the role of culture and tradition in shaping the law may be muted, implicit and even unconscious. The emphasis on the emperor’s superior power under the teaching of Confucius is a major tradition in political power in China. A good government is based on virtue and morality but not by law. Certain fundamental features of the traditional legal culture clearly persist in the contemporary legal system and social attitudes towards law. Thus, a legal system must be assessed within its historical and cultural context. This research examines how law in China is created in the light of cultural and historical dimensions. The patriarchal relationship and behavioural norms within the extended family or clan were not only reflected in the power structure of officialdom but also formed the basic foundation and standards for social conformity. Foreign investor operations in China must meet the challenge posed by differences in legal culture and tradition because they will continue to significantly influence the future shaping of the PRC legal system. -iii- Acknowledgements I am most grateful to my supervisors Dr Sheikh Solaiman, Professor Natalie Stoianoff and Professor Warwick Gullett, of the Faculty of Law, University of Wollongong. They have been most helpful in providing constructive guidance and comments on successive drafts of this thesis. For final proof-reading of the thesis, I sincerely thank Elaine Newby. During my years of study in the Wollongong University Faculty of Law, many friends and faculty and library staff have given me invaluable assistance and moral support. I express my sincere thanks to them all. I give special thanks to my husband William Preece, who has been giving me complete and wonderful support and encouragement of my pursuit of academic study. Last, but not least, I express my deep gratitude to my parents. Without their love and encouragement, life would have been intolerable. -iv- TABLE OF CONTENTS Abstract …………………………………………………………………………....... i Acknowledgements ………………………………………………………………… iv Contents …………………………………………………………………………….. v List of Figures and Tables………………………………………………………....... xiii List of Abbreviations …………………………………………………………..….. xiv List of Appended Documents …………………………………...…………….….. xvi Chapter 1: General Introduction 1.1 Introduction …………………………………………………………………. 1 1.1.1 A Brief Outline of the Following Chapters of the Research ……………. 2 1.1.2 The Genesis of an Economic Revolution ………………………………. 4 1.2 Aims, Objectives and Contribution of the Research ………………………... 9 1.2.1 Aims of the Research .……………………………………………………10 1.2.2 Objectives of the Research …………………………………………….. 10 1.2.3 Significance of the Study ……………………………………………… 11 1.2.4 Contribution of the Study ……………………………………………… 11 1.2.5 A Survey Conducted for This Study …………………………………… 15 1.2.6 Methods and Methodology of the Research …………………………….. 16 1.2.7 Scope of the Study and Difficulties Experienced in the Research ……… 19 1.3. Background of Economic Growth and Legal Reform in China …………….. 20 1.3.1 An Overview ……………………………………………………………..20 1.3.2 Foreign