Chinese Administrative Law in the Northeast

• Author: Asian Mirror John Ohnesorge
• Position: Assistant Professor, Assistant Director, East Asian Legal Studies Center, University of Wisconsin Law School.
• Pages: 103-167

Page 103

The Author would like to thank Bill Alford, Xiaoping Chen, and participants at the University of Iowa College of Law Transnational Law and Contemporary Problems Symposium, February 2006. Portions of this Article draw on John Ohnesorge, Western Administrative Law in Northeast Asia: A Comparativist's History (2001) (unpublished S.J.D. dissertation, Harvard Law School, on file with Harvard Law School library). Unless otherwise noted, all translations are the Author's.

I Introduction

Historical research consists essentially in application to empirical material of various sets of empirically derived Page 104 hypothetical generalizations and in testing the closeness of the resulting fit, in the hope that in this way certain uniformities, certain typical situations, and certain typical relationships among individual factors in these situations can be ascertained.¹

Alexander Gerschenkron, the author of this quote, was an economic historian concerned with national development trajectories.² For those interested in comparative legal history, there is great wisdom in his words. Societies are enormously complex and constantly changing. If we are interested in comparing bodies of national law as they actually exist, embedded in these complex societies, then we need to begin empirically, studying how bodies of law actually function in one or more societies. From that empirical base, tenuous though it will often be, we can draw generalizations and tentative conclusions, which we can then subject to further empirical verification. Perhaps most importantly, what we can legitimately take away from this process are Gerschenkron's "uniformities," "typical situations," and "typical relationships," more like the heuristics we use to navigate everyday life than the laws of mathematics or the natural sciences.³

China's system of administrative law is very much a work in progress, closely related to both China's evolving political system, and to the changing role of the Chinese State in economic governance.⁴ And while scholarship on China's administrative law is large and growing,⁵ Page 105some fundamental issues remain problematic. For example, we usually think of administrative law as being related to a political system of checks and balances, as courts apply administrative law to constrain executive action. Yet we know that China's official political ideology rejects separation of powers and checks and balances.⁶ We also think of administrative law as protecting individuals or private entities against government action;⁷ yet the Chinese government's commitment to Page 106 individual rights and a legally protected private sphere is doubtful.⁸ We often think of administrative law as related to transparency, to a vibrant, informed civil society, and to political pluralism;⁹ yet we know that the Chinese government's approach to information¹⁰ and to the role of nongovernmental organizations¹¹ can be very restrictive. Finally, Page 107 commentators often say that economic development demands the "rule of law" to constrain government administration.¹² China, however, has enjoyed outstanding economic growth for the past two decades and is now said to be growing too quickly,¹³ all the while employing a rudimentary system of administrative law. Characteristic of its approach to economic governance, China now resorts to administrative control measures, as well as to more typical measures such as raising central bank interest rates¹⁴ in an attempt to slow investment growth.¹⁵

This Article seeks to apply a "Gershenkronian" approach to China's developing administrative law by considering what we see in China today in light of how administrative law developed in China's Northeast Asian neighbors. Current research and commentary on China's administrative law is largely China-centered.¹⁶ Though such work is indispensable, the premise of this Article is that much can be learned from considering China's administrative law in light of the "uniformities," "typical situations," and "typical relationships" that can be derived from studying Page 108 how administrative law developed in China's Northeast Asian neighbors.

II Administrative Law in Northeast Asia

Administrative law in Northeast Asia has been undergoing substantial change since the 1990s; these changes suggest that administrative law in the region is becoming more similar to the "pluralist" administrative law model we are familiar with in the United States.¹⁷ While these recent changes help to predict where China may be headed, to understand China's current situation it is also crucial to look at Northeast Asian administrative law prior to the current Chinese reforms. Section A, below, addresses administrative law in Northeast Asia during the "developmental state" era, the period from approximately 1950 to 1990. Section B then introduces the wave of statutory changes occurring in Northeast Asian administrative law since the early 1990s, identifying specific statutory innovations and discussing the social and political context in which those changes have taken place.

A Administrative Law and the Northeast Asian "Developmental State"

In the history of modern economic development, Japan, South Korea, and Taiwan stand out as the paradigmatic examples of the East Asian economic miracle.¹⁸ However, during the 1960s, 1970s, and 1980s, when these countries achieved miracle status, foreigners interested in trade and investment complained of "Japan, Inc.," and "Korea, Inc." The complaints were based on the perception that what they encountered in nominally capitalist Northeast Asia were not free-market economies, where commercial, trade, and investment decisions are left largely to market forces and private decision making. Instead, observers felt they were encountering Northeast Asian "industrial policy," which manifested itself through regulatory frameworks designed to allow national bureaucracies to control virtually all aspects of cross-border economic Page 109 activity, whether in goods, technology, investment, services, or currency.

The statutory basis of Northeast Asian industrial policy included foreign exchange controls and statutes requiring approval of foreign investments, technology licenses, and of licensing systems for domestic industry and foreign trade.¹⁹ Foreign investments could be channeled by this approval system into manufacturing for export, not for local sale. Sectors such as import-export trade, distribution, and retailing were long closed to foreign participation. In those sectors in which foreign investment was allowed, the regulatory framework often skewed investments toward minority shares in joint ventures with local partners. Portfolio investment by foreigners was generally limited to equity stakes far too small to gain control of local companies, so foreign investment through mergers or acquisitions was rare. Manufacturing investments were often subject to "local content" requirements conditioning approval on commitments to source inputs locally, thus supporting local suppliers, and/or subject to export performance requirements, to earn foreign exchange.

Combined with protectionist controls on imports and sometimes weak enforcement of foreign-owned intellectual property rights, these restrictions on incoming foreign investment left many foreign manufacturers with the Hobson's choice of sharing their technologies with local manufacturers or not participating at all in Northeast Asia's growing economies. But even stand-alone technology import licenses went through a bureaucratic screening process which could be used to improve the terms available to the local licensee, thus maximizing the inflow of useful, up-to-date technology, and minimizing the outflow of hard currency royalty payments. Local companies had to deal with the same system, meaning that they could not get access to raw materials, equipment, technology, capital, or business licenses without navigating the industrial policy bureaucracy. Local entrepreneurs could not access foreign capital markets without government approval, particularly in South Korea and Taiwan. In these countries, where the nationalizing of the banking sectors had been one of the first steps toward industrial Page 110 policy, raising capital from domestic sources meant dealing with the government. The governments then used their authority over the financial systems to influence the allocation of credit, often favoring those companies engaged in manufacturing for export.

That Northeast Asian governments adopted such industrial policies is beyond dispute.²⁰ What came to be a matter of dispute, popularized in Chalmers Johnson's seminal 1982 work MITI and the Japanese Miracle,²¹was the extent to which Northeast Asian industrial policy presented a challenge to liberal, free-market orthodoxy concerning the optimal role of the state in a market economy.²² In addition to this fundamental Page 111 economic question, discussion also focused on the bureaucracies charged with administering Northeast Asia's industrial policies. Were they in fact, as Johnson and other "revisionists" suggested, highly insulated from politics, exercising their discretionary authority in light of their expertise and in pursuit of the national interest? Or were they better understood as examples of bureaucracies captured by the...