China’s minimum fines foster uniform penalties across infractions and prevent leniency for minor violations.
The Chinese government fined a small grocery store in Yulin, Shanxi Province a staggering $9,600 for selling three-dollar stalks of celery that failed to meet quality standards. This example is one of many instances in which the Chinese government has fined small businesses for minor infractions.
One reason for these high fines in China stems from statutory minimum penalties for regulatory violations. These penalties can be so substantial that they have, counterintuitively, deterred administrative agencies from applying available exemptions for minor violations. Consequently, minor violations receive the same high minimum fines as more serious violations, leading to unfair enforcement outcomes.
In China, as elsewhere, administrative agencies regularly impose fines to enforce compliance with regulations. According to Gary S. Becker’s economic model, setting fines demands that regulated entities take into account the marginal benefits and costs of violations, including the likelihood of detection and conviction. Regulators, however, often struggle to translate these same considerations into reasonably sized fine amounts.
The complexity increases when legislators set strict limits for minimum and maximum fines. In China, the State Council, as the central government, is the highest executive body and the supreme administrative organ. It exercises unified leadership over the work of local governments at all levels nationwide.
Chinese agencies consult Articles 32 and 33 of China’s Administrative Penalty Law when imposing fines below the statutory minimum. Originally passed in 1996 and revised in 2017 and 2021, the law’s latest revisions include more leniency provisions, such as “no penalties for first violation” in Article 33. These articles permit exemptions and lighter measures, enabling agencies to avoid disproportionate penalties in specific situations and in the exercise of their discretionary power. Local governments then establish their own guidelines, specifying penalties for different levels of violations, some of which are not subject to exemptions.
Despite the provisions allowing for leniency, high minimum fines have had the surprising effect of discouraging local governments from incorporating less severe fines in their guidelines because local governments perceive the violations as being more serious than they actually are. As a result, local governments have been less likely to grant exemptions and impose lighter penalties than under earlier guidelines with lower minimum penalties, even though they do have the discretion to do so.
Agencies that operate under the new guidelines act as if they are deterred from applying the leniency measures provided within the Administrative Penalty Law. This lack of less-severe penalties stated in the central government’s guidelines unduly limits local discretion and results in the application of high minimum fines for both minor and severe violations.
The high minimum fines under the latest version of China’s Regulation Governing Hog Slaughtering (RGHS) rule, for example, shows how such penalties limit the use of exemptions or lighter measures in cases of unauthorized hog slaughtering.
The RGHS is an administrative regulation, which holds less legal weight than statutory law in China, but it sets high penalties for unauthorized pig-slaughtering activities. For example, fines for goods valued below ¥10,000 ($1,384) now range from ¥50,000 ($6,918) to ¥100,000 ($13,836). Goods valued over ¥10,000 ($1,384) are to be fined between 10 to 20 times their value, a significant increase in the penalty provided in the prior iteration of the regulation.
The 2021 amendments to Article 31of the RGHS not only increased the minimum fines but also broadened the fine range, thereby granting agencies more discretion. To standardize this discretion, local governments established non-binding yet influential guidelines for administrative discretion, known as “cailiang jizhun,”which detail the standards for the regulation’s application.
Out of 22 provincial guidelines, however, only two explicitly define when to apply exemptions or lighter penalties below the statutory minimum. Yunnan Province specifies conditions for no penalties but does not allow leniency below the statutory minimum, while Beijing includes provisions for leniency below the statutory minimum.
When local governments define leniency below the statutory minimum fine, administrative officials are able to guide agencies in applying these provisions to minor violations. Without clear guidelines, however, agencies may overlook the possibility of imposing less severe fines for less severe infractions.
In contrast, the other 20 provinces only define fines within the statutory fine range, likely in part because local governments typically view unauthorized pig slaughtering as a serious penalty.
Importantly, though, most local governments do not rely on exemptions and lighter penalties when setting these guidelines, despite their ability to do so under the Administrative Penalty Law.
Using data from Bei Da Fa Bao’s Administrative Penalties and Judicial Cases databases, researchers examined 94 hog-slaughtering cases following the adoption of the 2021 changes to the regulation.
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High Minimum Fines in China Undermine Administrative Discretion