Introduction

On March 15, 1999, the National People’s Congress of China (NPC) – the Chinese national legislative body – adopted the Law of Contract of the People’s Republic of China (Contract Law). Effective on October 1, 1999, the Contract Law is regarded as the most significant legislation regulating civil and commercial affairs in the nation.1 It not only unified all previous contract law legislation, but also marked the beginning of comprehensively regulatory stage of contracts in modern China since 1949 when the People’s Republic of China was founded.

In Chinese history, a contract was commonly termed as an agreement, and the written form of agreement as used in dealing with civil affairs could be traced back in as early as the West Zhou (1100 to 770 BC).2 During the West Zhou period, “agreement”, known in Chinese as “Qi Yue” was adopted to record the consent of two parties for their exchange of goods or purchase of lands as well as other civil activities such as loan and lease. On certain occasions where the transaction (exchange) was deemed important, the process and the terms of the transaction were engraved in the bronze tripod as the evidence of the transaction, and the engraved agreement was also called “Certificate of Agreement” (Qi Juan).3 Since West Zhou, agreement, from dynasty to dynasty,

1See Gu Angran, A talk on Contract Law of the People’s Republic of China, 1–5 (Law Press, 1999).

2For general information, see Zhang Jinfan, Evolution of the Chinese Legal Civilization, 55–56 (China University of Political Science and Law Press, 1999).

3 See id.

2Chinese Contract Law

had become the major form representing consent of parties in their civil activities and evidential document of the meeting of minds of parties concerned.

Ironically, however, the contract did not play any active role in the People’s Republic of China for several decades until 1980’s. Factors attributive to this phenomenon were many. The most notable factor was perhaps the planned economy that dominated all civil activities in China. Another significant factor was the ideology of absolute subordination of private interest to public one – the golden rule that governed the country for a considerably long period of time in the modern history of China.

1. Chairman Mao’s “Plain Paper” Theory and Legal Vacuum in China

When the Chinese Communist Party (CCP) took the power in October 1949, all then existing laws and regulations promulgated by the Nationalist government were regarded as evils and therefore ought to be eliminated. The process of cleaning-up of the old laws actually began in January 1949 when the CCP issued an announcement to be put forward on the table for the peace talks with the KMT-Kuomingtong (Nationalist Party), which demanded the abolishment of the constitution and laws adopted under the KMT regime. One month later, in February 1949, the Central Committee of the CCP issued the Directives on the Abolishment of the Code of Six Laws and the Establishment of Judicial Principles in the Liberated Areas. The Directives annulled all laws and regulations that were effective under the KMT government.4

Mao Ze Dong highly appraised the abolishment of the KMT legal system and poetically described the new system that replaced the old one as a piece of “Plain Paper” (or a blank sheet of paper). According to Mao, “there would be no burden bearing with a piece of plain paper, on which the newest and most beautiful words could be written and the newest and most beautiful pictures could be drawn.”5 Under this “Plain Paper” philosophy, Mao started his ambitious socialist construction in China, and built Chinese economy under the model of former Soviet Union – known as the planned economy.

4See Xin Chunying, Chinese Legal System and Current Legal Reform, 325–327 (Law Press, 1999).

5Mao Ze Dong, Introduction of A Cooperative Unit, The Selected Papers of Mao Ze Dong 1 (People’s Publishing House, 1985).

Introduction 3

In the early years of 1950’s, attempting to help China recover from the wreckage of the civil war (1946–1949), the central government of China made efforts to regulate the economy through certain legal means. In September 1950, for example, the Administration Council (later replaced by the State Council in 1954) through its Commission of Finance and Economy issued “Provisional Methods on Contractual Agreement Made between Government Agencies, State Enterprises, and Cooperatives”.6 Under the Methods, it was required that a contractual agreement be made for major business activities between government agencies, state enterprises, and cooperatives. The major business activities as listed in the Methods included loans, collection and payment under agency, sales of goods, products made to order, barters, entrusted receipts and sales, out-sourced processing, lending money or items by mandate, entrusted transportation, renovation and construction, concessionary business operation, as well as joint ventures.7

On September 20, 1954, the first Constitution of China was adopted – known as the 1954 Constitution.8 According to the 1954 Constitution, the National People’s Congress (NPC) was empowered as the top legislative body in the nation.9 Under the requirement of the 1954 Constitution, the NPC started to draft major laws, and one of which was the “Civil Code”. In October 1955, the General Principles of Civil Law of China was first drafted and it contained the basic principles, the subject of rights (person), the object (also translated as the subject matter) of rights, the legal acts, and the statute of limitation.10 In December 1956, the first draft “Civil Code” was complete, which included four parts – General Principles, Ownership, Obligatio (zhai) and Inheritance – with a total of 525 articles. In the Obligatio, contract was the major component. Unfortunately however, the process of drafting was interrupted in 1958 as a result of the Anti-Rightist Campaign against intellectuals

6See Wang Liming, A Novel Discussion on Contract Law – General Principles, 11–12 (China University of Political Science and Law Publishing House, 1996).

7 See Wang Liming, id.

8From 1954 to 1982, there were four constitutions that were adopted in China in 1954, 1975, 1978 and 1982 respectively. The current Constitution is the 1982 Constitution, which has been amended four times since it was adopted on December 4, 1982. The four Amendments to the 1982 Constitution were made 1988, 1993, 1999 and 2004 respectively.

9 See Xu Chongde, Constitution, 241–242 (People’s University Press, 1999).

10See He Qinghua, et al, General View of Civil Code Drafts of New China, Volume I, 3–11 (Law Press, 2003).

4Chinese Contract Law

launched in 1957,11 and consequently, the drafting work of the “Civil Code” inevitably aborted.12

After the Anti-Rightist Campaign, China actually was led to a period of legal vacuum. In August 1958, Chairman Mao in a special session of CCP’s political bureau meeting in Bei Daihe clearly remarked: “the law was something we should have, but we did have our own stuff”.13 According to Mao, it would be impossible to rule the majority on the basis of law, but what is important was the customs that people were used to because the provisions in a law were too many to be remembered. Mao took himself as an example and said, “Though I participated in the drafting of Constitution, I could not remember any part of it”. It was Mao’s belief that every decision made by CCP was the law, and even the party’s meeting minutes would also become the law.14 As an echo to Mao’s speech, the CCP Working Group of Politics and Law sent a report to Mao and CCP Central Committee on December 20, 1958 emphasizing that under the real situations in China, there was no need at all to adopt civil law, criminal law as well as procedural laws.15

The nationwide “crop failure” in early 1960’s,16 which resulted in severe famine in modern Chinese history during which millions of people died of starvation, shocked the CCP and the central government of China. In an attempt to take the nation back to the right track of economic construction from Mao’s class struggle, Mao offered to step aside to play a secondary role

11Anti-rightist campaign was the national “class struggle” launched by Chairman Mao against intellectuals in 1957 in response to the criticism the intellectuals made to the CCP and central government at Mao’s invitation. The criticism began in 1956 when Mao initiated a policy of “Letting Hundreds of Flowers Blossom and Letting Hundreds of Thoughts Contend” in order to promote “people’s democracy”. See Yin Xiaohu, New China’s Road of Constitutionalism (1949–1999), 87–90 (Shanghai University of Communication Press, 2000).

12See Wang Jiafu, Civil Law Obligatio, 21 (Law Press, 1991).

13See Yin Xiaohu, supra note 11 at p. 90.

14See id. A well-known story about Mao’s marital life with his wife Jiang Qin may help illustrate more about how Mao treated himself vis-a-vis the law and judiciary. At one time when Mao talked to his guards about his depression about his relationship with Jiang, Mao said that “if you want to devoice your wife, you could go to a court, but if I want to do the same, where should I go?”

15See Yin Xiaohu, supra note 11 at pp. 94–95.

16During the three years of 1960–1962, the country nearly collapsed because of the starvation. The official explanation was that the starvation was caused by the natural disaster plus the former Soviet Union’s suddenly withdrawal of its aids to China. But it was believed that the tragedy was to a great extent the sequelae of the government’s mismanagement during the “great leap forward” campaign nationwide from 1958–1960. See Stanley Lubman, Bird in Cage, Legal Reform in China after Mao, 80 (Stanford University Press, 1999).