Fifteen Eighty Four

2020 has been an exceptionally challenging year. The widespread of Covid-19 affects everyone’s life across the globe. As we manage to live through the endless lockdowns and reopens and learn to live a different life, a major event in the legal world seems to have been forgotten: the enactment of Chinese Civil Code. The code was officially adopted by the National People’s Congress on May 28, and will become effective on January 1, 2021 as the first civil code since 1949. Half a century of codification effort finally resulted in the adoption of this much anticipated code. It utilized state-of-the- art codification techniques and presents a number of innovative features unique to China. It has been said that French Civil Code, the Napoleonic Code, was the Civil Code of the 19th century. German Civil Code was considered the most influential one in the 20th century. Given the increasing economic and geopolitical importance of China, will Chinese Civil Code become the Civil Code of the 21st century?

The second largest economy in the world is finally going to be regulated by a modern and Western-styled Civil Code. It may come as surprise, but virtually all major Western businesses, if big enough, would have been doing business in China. Clearly, all business parties will benefit from the legal protection afforded to them by the Code. Rest assured, everyone would like to know exactly what and how much has changed. This series of blogposts would explain what I think are the most significant changes that the Code has brought to the business reality.

The structure of the Code and the major legal transplants.

In its concise 1260 articles, the Code is divided in seven books: the general provisions, property, contracts, personality, family law, succession and torts. In a break with civilian traditions, the Chinese Civil Code divides obligations into contracts and torts, and it absorbs law of unjust enrichment into the book on contracts as quasi-contracts. Moreover, a book on law of personality stands on its own which includes an enumerated list of personality rights protected by Chinese law with a focus on privacy and data protection in an effort to keep Chinese civil law up-to-date in order to tackle the legal challenges posed by the advancement of technology. As a newly drafted code, Chinese Civil Code is in a position to pick the “cherries” from various legal families across the globe to meet its needs. For example, article 1615-1 is a general fault liability clause that replicates French Civil Code articles 1240-1241; articles 533 and article 580 both deal with change of circumstances. Article 533 took the German doctrine of Störung der Geschäftsgrundlage (destruction of the basis of transaction) as in BGB 313 yet article 580 created a common law- inspired concept of frustration of purpose; however, such a doctrine does not operate as a cause to excuse the liability for breach of contract as in common law but rather as a cause to excuse the breaching party from performing a contract when the performance is excessively expensive. Article 151 resembles the doctrine of unconscionability in American law. Overall, the legislative techniques are modern, sophisticated and business friendly.

Protection of private interest

In my view, the single most important feature of the Code is its effort to legitimatize private law. For the first time in the history of Communist China, state and private interests are treated equally.

Unlike Russia where a massive privatization took place after the 1989, China never underwent a large scale privatization. Despite the lack of legal and ideological certainty, private sector in China has been growing at an exponential speed outside the state sector. All these happened while the ideological and doctrinal debates towards the recognition of private law in a socialist regime have been ongoing in the past 40 years.

The recognition of the legitimacy of private ownership interests has always been a major ideological hurdle in China’s private law-making since 1950s. The Civil Code finally settles it: private interest should receive the same protection as the state interest in China.

For decades after 1949, private law was by and large abolished and private interest unprotected. The 1954 Constitution actually set the clear goal to transform private ownership into socialist public ownership. The article 10 of the constitution provides: “[t]he state policy towards capitalist industry and commerce is to use, restrict and transform it with the purpose of transform the capitalist ownership to ownership by the whole people .”

Starting in 1954, government regulations required that private enterprises be converted into public-private joint ventures with the state. In 1956, all private and individually owned enterprises were transformed into public private joint ventures, which soon became de facto state-owned enterprises. By the end of that year, only 0.5 per cent of the private enterprises had not yet been formed into public private joint ventures. In the 1975 Constitution, the protection of private ownership was finally discarded, and only public ownership was inviolable¹. After the economic reform at the end of 1970’s and the declaration of establishment of a socialist market economy in 1993, the ideology has shifted towards protection of private economy and a system of private law has been steadily and gradually developed. A unified contract law statute was enacted in 1999, property law 2007 and tort law 2010. A 1988 constitutional amendment, permitted “the private sector of the economy to exist and develop within the limits prescribed by law.” Further, the private sector of the economy was regarded as “a complement to the socialist public economy.” The status of the private economy was elevated to “a major component”² of the economy in 1999. In 2004, a constitutional amendment provided that private ownership is inviolable³. Today, private economy makes up for more than half of the Chinese economy and the commitment to protect private interests is absolutely critical to the growth of China. This commitment to equal protection of state and private interests is duly recognized by article 207 of the Civil Code, which provides: “[p]roperty rights of state, collectives and private individuals along with property rights of others receive equal protection under the law; no organization or individual shall infringe upon (these rights).”

¹Constitution article 8 (1975).
²Constitutional Amendment art. 16 (1999).
³Constitutional Amendment art. 22 (2004).