Chinese Legal Reform: The Case of Foreign Investment Law

By Yan Wang | Go to book overview

8

The protection of foreign investors' contract rights

Background

This chapter will discuss the current contract law regime and the newly enacted Contract Law. Since this is a study in legal development and one of the main purposes is to discuss the gaps between laws and their actual performance, the implementation of the present contract laws relating to foreign investors will be discussed, although the three contract laws will be replaced by the new Contract Law effective 1 October 1999. The implementation of new Contract Law is yet to be seen. Thus, Foreign Economic Contract Law (FECL) will be discussed to illustrate China's attempt to create a more market-oriented contract system to meet the needs of foreign investors. An analysis of the implementation of the law will be made in the context of problems encountered by foreign investors to find out the underlying reasons of these problems. This will also show whether the new Contract Law can solve these problems.


China's Contract Law

Overview of current Chinese contract laws

Contracts in China are divided into civil contracts and economic contracts. Civil contracts are contracts where one or both parties are individuals. They include consumer contracts, gift contracts, agency contracts, brokerage contracts and trust contracts. Economic contracts can be divided into domestic economic contracts and foreign economic contracts. While the former are contracts between domestic legal persons, other economic organizations, individual business households and rural leaseholding households, 1 the latter are those economic contracts where one party is a foreign enterprise or individual.

The law of contracts in China has several sources. The Economic Contract Law (ECL), the FECL and the Technology Contract Law are three main sources, which constitute the three pillars of China's contract law system. The ECL is domestic and the FECL is for foreign activities. Other sources include the General Principles of Civil Law (GPCL); state administrative regulations over particular types of contracts; local regulations and rules; and judicial interpretation. The

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