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June 2004 Issue No. 2   
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Legal Reform
Recent Developments at China's Legal Forefront

Enforcement of Civil Judgments: Harder than Reaching the Sky
These days, it is hard to know whether to be optimistic or pessimistic about the future of China’s judiciary. On the one hand, there is the growing recognition that the work of courts is different from other government bodies, reflecting a trend towards professionalization, acceptance by courts of increasingly complex cases and greater emphasis on procedural regularity. On the other hand, a number of deep-rooted problems seem to have worsened in recent years. One of those is courts’ inability to enforce their judgments. As admitted by Xiao Yang (肖扬), President of China’s Supreme People’s Court (最高人民法院, SPC) during the court’s annual work report to the 10th National People’s Congress (第十届全国人大) in March 2004: “The difficulty of executing civil and commercial judgments (执行难) has become a major ‘chronic ailment’, often leading to chaos in the enforcement process; there are few solutions to the problem”. (www.court.gov.cn) Since the late 1980’s, the subject of difficulty in enforcement has been a regular theme of the SPC’s annual work reports to the national legislature. Despite direct orders from the top Communist Party leadership and numerous campaigns by both the SPC and lower Chinese courts to remedy the situation, the inability of courts to enforce their decisions, whether for compensation of damages, payment of debt, or ownership of property, continues to be a widespread and serious problem described by many as “harder than reaching the sky” (难于上青天).

During a recent online discussion hosted by China Courts Net (中国法院网) and People’s Net (人民网), Ge Xingjun (葛行军), the head of the SPC’s Judgment Enforcement Division (执行办公室) revealed the following statistics regarding the nationwide enforcement rate for civil and economic judgments: 40% at provincial people’s high courts, 50% at intermediate people’s courts and 60% at basic level people’s courts. (www.bbs.chinacourt.org 法制论坛, March 11, 2004) A judge from Shandong Province (山东省) however, reported in 2002 that the enforcement rate was as low as 30% in economically less developed regions. (Qilu Evening Post《齐鲁晚报》, November 26, 2002) While such numbers may not be the best indicator of the underlying problem (among other things, it is not clear what qualifies as a judgment that has been enforced and one that has not), the difficulty of enforcing judgments is clearly evident in the numerous reports routinely carried by the Chinese press.

To begin with, China’s courts lack the authority and stature to command obedience to their decisions, especially when such decisions affect other government branches and officials. According to one unnamed Shandong judge in charge of enforcing judgment, as much as 70% of his caseload was influenced by directives from local government and Communist Party officials. (Shandong Xinhuanet, December 13, 2003) The situation involving debt obligations of China’s village and township enterprises (乡镇企业) also illustrates the weak political position of the courts. As reported by the Legal Daily《法制日报》on April 29, 2003: “The execution [of judgments] against village and township enterprises is a major headache for courts. While such enterprises were once the most promoted economic model, their very existence masks an inherent conflict: the village and township governments are not economic entities, yet their enterprises have a direct and subordinate relationship with these governments. When things go well everyone is happy. But if an enterprise becomes bankrupt due to poor management, its village or township government is unable to assume its debt. … Of the 30 villages and townships in Tongshan County, Jiangsu Province (江苏省铜山县), 20 became defendants in debt enforcement actions. … Some local officials do not even bother to meet with judges coming over to execute the judgments and there is nothing the judges can do about it.” Judges in China understand their predicament. “I have been to meetings held by the city’s People’s Congress”, said a judge from the enforcement bureau of a city-level court in Liaoning Province (辽宁省), “These meetings are filled with officials from towns and villages which are the subject of debt enforcement actions. How can we afford to offend them? Every village and township produces seven to eight delegates to the [city’s] People’s Congress. The Court’s [annual] work report has to be approved by them.” (Legal Daily, id.) The report went on to observe that this comment came from a judge with over 10 years of experience who “naturally understood that the same officials from the villages and townships could head the Court someday, or become the Vice Mayor or the Vice Chairman at the People’s Congress”.

Whether a judgment can be enforced is often a contest of influence or power. China’s official newspaper, the People’s Daily (《人民日报》), recently carried a prominent story about a judgment which remained unexecuted for six years despite interventions by the provincial People’s Congress and the provincial high court. The judgment, issued in 1996 by the Fuyang Intermediate People’s Court (阜阳中级人民法院) in Anhui Province, involved a commercial dispute between two local companies. The enforcement efforts undertaken by the same court were repeatedly blocked by the defendant, a company headed by a man who was a delegate to the People’s Congress of Fuyang and the Vice Mayor of an adjacent town, Jieshou (界首市). The stalemate continued for four years until the top leadership of two successive provincial People’s Congresses intervened in 2001 and 2002, which led to the Anhui Province People’s High Court (安徽省最高人民法院) twice sending its own enforcement officers to execute the judgment. Despite such unprecedented pressure from above, the defendant still managed to disregard the execution order, eventually filing for bankruptcy in 2003. The Anhui People’s High Court attributed its and the Fuyang Intermediate People’s Court’s inability to take compulsory measures against the defendant to the official positions held by the head of the company. “This has resulted in a history of the [defendant] company repeatedly resisting the courts’ enforcement efforts”, said the Anhui People’s High Court in one of its reports. (People’s Daily, October 24, 2003)

Local protectionism is another contributing factor to the country’s enforcement difficulties, particularly in enforcing judgments rendered by courts outside the local jurisdictions. When a defendant or his assets is located outside a court’s geographic jurisdiction, a Chinese court may either send its own officers to execute the judgment in the foreign jurisdiction or “entrust” another court in that foreign jurisdiction to execute the judgment (委托执行). One Beijing court estimated that only 10% of its entrusted enforcement cases were executed and another 40-50% never received any response from the entrusted courts. (Legal Daily, April 29, 2003) Many local governments require courts from other jurisdictions to apply for their approval before executing a judgment against a local defendant. (Shandong Xinhuanet, December 23, 2003) Sometimes, the litigants’ places of residency solely determine the outcome of an enforcement action. A court in Sichuan Province (四川省) delayed enforcing its own judgment against a local company for three years because the judgment creditor was from outside the province. Such inaction, as the court explained, was based on an unwritten local policy which required prior approval by the local Communist Party when the execution of a judgment involved the loss of local assets to outsiders. When the Sichuan Province People’s High Court finally intervened by designating another court to execute the judgment, the first court promptly followed its local government’s instructions to help the defendant falsely file for bankruptcy. (Sichuan Daily《四川日报》, January 12, 2004)

Among individual cases, the enforcement of compensation awards to victims of traffic accidents and the collection of fines in criminal cases in China’s more impoverished rural areas are most difficult for many Chinese courts. In one instance, a young boy from Shanxi Province (山西省) sustained severe injuries after being run over in 1996 by a tractor operated by another peasant. Eight years later, his family was still unable to collect the RMB40,000 (US$5,000) of medical expenses they had incurred. It turned out that the driver’s only assets consisted of his ramshackle cave dwelling and a few pieces of old furniture. The victim’s family’s only hope was for the driver to get married someday so they could take his dowry. Many Chinese peasants operate motor vehicles without insurance. When accidents occur, they either skip town or are able to avoid compensating the victims simply by being poor. Equally hard to enforce are court orders of criminal fines or compensation for victims of crimes. Many criminal defendants are themselves destitute, prompting judges to look at the defendants’ financial circumstances before issuing fines or compensation orders. “One must be realistic … if the only thing of value at a criminal defendant’s home is a hot water bottle”, said a judge from Qinghai Province (青海省). (Source: Legal Daily, April 29, 2003) The SPC estimated that between 30-40% of the applications for compulsory enforcement accepted by courts nationwide were impossible to execute due to the defendants’ lack of assets. Under Chinese laws, a judgment creditor may apply to the court for compulsory enforcement when voluntary compliance is not forthcoming. “The People’s Courts should not have taken these cases in the first place. This is not an issue of enforcement difficulty. Yet the enforcement efforts involved in such cases have attracted the most complaints from applicants of such fruitless enforcement actions”, said Ge Xingjun of the SPC. (www.bbs.chinacourt.org, id.)

Judgments involving general commercial and economic disputes also face mounting enforcement difficulties. In Beijing, during the first six months of 2003, the value of unexecuted civil and economic judgments (consisting mostly of bank loan defaults and real estate disputes) was twice as much as that of those executed. (Beijing Evening News《北京晚报》, November 12, 2003) In Yantai, Shandong Province (山东省烟台市), 65% of the approximately 40,000 civil and economic judgments rendered by the city’s intermediate people’s court every year require compulsory enforcement due to judgment debtors’ refusal to voluntarily comply with the court orders. (Shandong Xinhuanet 新华网山东频道, March 15, 2003) Many of China’s banks, already laden with bad debt as a result of questionable and unsound lending practices, have been hit hard by unenforceable loan default judgments. As of the end of 2002, three of China’s largest state-owned banks, China Construction Bank (中国建设银行), China Agricultural Bank (中国农业银行)and China Industrial and Commerce Bank (中国工商银行), had a total of RMB8 billion (US$1 billion) of uncollected loan default judgments stranded in the court system of Shandong Province alone, most of which had been outstanding for long periods of time. (www.legalinfo.gov.cn 中国普法网, December 23, 2003) According to local judges, there is a growing trend of corporate borrowers attempting to evade debt obligations by either shifting assets to newly-created entities or falsely declaring bankruptcy. (Shandong Xinhuanet, id.) Often times, however, even if assets are available to satisfy defaulted debt obligations, as in the case of many unprofitable medium and large state-owned enterprises, lenders cannot liquidate the pledged factories and equipment for fear that it would lead to thousands of workers losing their jobs.

In recent years, the difficulty in enforcement also contributed to the growing problem of China’s 94 million migrant workers being unable to collect wages from their employers. According to the All China Federation of Trade Union (全国总工会), as of 2003, the unpaid wages of migrant workers reached RMB100 billion (US$12.5 billion). (www.sofang.com 搜房新闻中心, December 25, 2003) In 2003, five hundred migrant workers from Anhui Province made national news by successfully suing to recover unpaid wages from the general contractor and builder of a construction project in Beijing. The difficulties they encountered in collecting on their judgment soon hit the headlines again. According to the Beijing News《新京报》, despite a personal call for help from the Mayor of Beijing, the enforcement of their judgment yielded no results from the cash-strapped defendants and the court’s effort to auction off the construction project was blocked by competing claims from other creditors. (January 10, 2004) It eventually took three courts, including the Beijing People’s High Court (北京市最高人民法院), to “persuade” other creditors to back off from their claims so that the migrant workers could go home with their pay before the Chinese New Year. (www.sofang.com, January 16, 2004)

Under Section 313 of China’s Criminal Law (刑法), resisting the execution of a court judgment by a debtor is a criminal offense subject to up to three years of imprisonment, detention or fines. In August 2002, China’s National People’s Congress issued a legislative interpretation to extend criminal liability under Section 313 to guarantors, those who are responsible for assisting the execution of judgments and civil servants who conspire with judgment debtors to thwart the execution of court judgments. (Xinhuanet, September 11, 2002) However, because courts must rely on the police and prosecutors to make arrests and file charges, many judges found this process cumbersome, making Section 313 hard to implement. (China Youth Daily, March 18, 2003) In October, the Beijing People’s High Court, together with the city’s police and the procuratorate issued an order which allowed law enforcement agencies to bring criminal charges against those who resist the enforcement of court judgments. (Xinhuanet, October 10, 2003) Such joint efforts may result in more criminal prosecutions but their effectiveness will continue to depend on the diligence of the police and the prosecutors.

Chinese courts at all levels have been exploring other new and sometimes novel solutions to increase the rate of judgment enforcement and to alleviate the public dissatisfaction with the courts’ performance, even though the desired effect of such measures remains highly uncertain. In each of Sichuan and Shandong provinces, the Provincial People’s High Court has been given the authority to intervene in difficult enforcement cases, either by designating a different lower court to take over the matter or by deploying its own judgment enforcement officers. (Sichuan Daily, January 12, 2004 and Shandong Xinhuanet, id.) Many other courts, including the SPC, began publishing names of the judgment debtors over the Internet; courts in Tianjin even offered rewards to the public for leads to judgment debtors’ assets. (Xinhuanet, September 10, 2003 and January 18, 2004) In Guangzhou and elsewhere, lower courts issued orders restricting excessive consumption by judgment debtors, including prohibiting them to go to fancy restaurants, travel by air or purchase real estate until their obligations are satisfied. However, these anti-consumption orders, which relied on the public to report on violations by judgment debtors, are themselves impossible to enforce. (Legal Daily, April 30, 2003)

 


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