The American Debate over Legal Accountability of Chinese Companies
Washington may assign more responsibility to representatives of Chinese firms in the United States, especially those active in finance and services says Caixin article
http://english.caixin.com/2015-05-25/100812356.html
The debate in the United States over relations with China is passionate – and not remotely sterile. It’s a multidirectional activity between legislators, lobbyists, public opinion, the press and universities. Perspectives are obviously complex, and their articulation cuts across political memberships. If ideological opposition to China’s exuberance exists in principle, economic convenience pushes for maintaining friendly relationships with Beijing. However, this second position is losing strength, also due to the approaching election to determine U.S. President Barack Obama’s successor.
More and more frequently, U.S. citizens view China as a threat instead of a source of business. The terms of the debate are known, but the aspect of the legal responsibility of Chinese companies active in the U.S. services sector adds to this. Obviously, the theme is not well-known to the general public, but its impact is easily imaginable. The framework is China’s appetite for the capital necessary for expansion. The yuan is not internationalized and capital markets are still anchored on Wall Street. The largest U.S. initial public offering was launched in New York and involved Chinese magnate Jack Ma’s Alibaba Group.
Not surprisingly, by now a plethora of Chinese banks, financial institutions and listed companies are active in the United States. Some experts view the expansion optimistically. They believe that U.S. laws are inviolable and that the business environment will positively infect Chinese companies and convert them completely to a market economy’s rules: transparency, responsibility and respect for competition. However, a series of cases contradicts this, giving strength to more intransigent opinions.
The real problem is where U.S. jurisdiction ends when it comes to Chinese companies. Obviously, Chinese firms operating within U.S. territories are subject to local laws, but they’re often not the deciding factors, as opposed to parent country. As a consequence, every judicial appeal needs to be enforced in China. The Hague Convention on private law, which allows the transmission of legal acts with dedicated channels other than diplomatic, has existed for years. Even if China was a signatory in 1997 (the United States signed in 1972), dispute management has had a lot of sand in its gears.
In many cases, the top difficulty to pursuing a Chinese company’s legal responsibility is to identify who is really in charge, as company ownership is usually shielded by corporations set up in offshore financial centers like the Caymans or British Virgin Islands with complicated structures.
In other cases, especially those involving state-backed companies, the “state secret” clause can be triggered. In addition, the bureaucracy for getting legal action from abroad into China is very hard to overcome.
The most likely outcome of the debate in Washington is the assigning of more responsibility to the representatives of Chinese companies in the United States active in finance and services. This probably represents the most indicated solution against procedural impotence.
Alberto Forchielli is the managing director of Mandarin Capital Partners, and founder and president of Osservatorio Asia
