In December 2001, China acceded to the World Trade Organization (WTO). This event is significant not only for the Chinese, but also for foreign investors who want to establish a presence in China. It is expected that China's entry into the WTO will result in trade liberalization, and, thus, increased investment opportunities for foreign investors. To enter the Chinese market, foreign investors must understand the business and legal environments in which they will operate. Accordingly, this book aims to introduce the legal framework to conducting business in China, with emphasis on business organizations, investment vehicles, contracts, labor and employment, intellectual property, consumer protection, tax considerations, securities, banking, and dispute resolution. Before delving into specific issues, however, it is imperative to have an overview of the Chinese legal system.
To understand the present, one must know the past. Having defeated the Kuomintang (), who subsequently fled to Taiwan, the Chinese Communist Party (the Party) established the People's Republic of China in 1949. The new regime first abolished Kuomintang's legal system, which was considered to have supported “semi-feudal” or “semi-colonial” rule. Thereafter, it removed most of the judges who had been appointed by the Kuomintang government. In addition, the Party initiated several mass campaigns, such as the Land Reform Movement and the Movement against “Three Evils, ” 1 to prepare the masses for a new political order. During those campaigns, “mass trials” were conducted to try “enemies” 2 before assembled crowds. In terms of formal legal norms, only a handful of laws were enacted during this period, such as the Marriage Law, the Trade Union Law, and the Land Reform Law. Meanwhile, the government under the leadership of the Party carried out nationalization and collectivization measures. Consequently, large private industrial and commercial establishments were converted into state-owned enterprises, while medium-sized and small industrial and commercial concerns were grouped together to become collectives.
As China followed the Soviet Union in adopting a command economy, efforts were also undertaken to develop a legal system based on the Soviet