Govenment Jurisdiction in China. Too Many Cooks....

Posted by Steve on November 9, 2009 at 04:28 AM
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The Chinese government is dealing with many significant issues relating to the economy and to the climate. The two that concern our clients are food safety and energy conservation. The fact that several different Chinese government departments often have overlapping jurisdiction over the same issue sometimes prevents the Chinese government from effectively dealing with these issues. The usual effect of the overlap is administrative paralysis, which means the problem simply never gets solved.

This issue is highlighted by the recent dispute in China over approval of the Chinese version of the World of Warcraft video game. As reported in a Xinhua article, entitled, "Warcraft game falls into war of gov't departments," one Chinese government agency has refused registration while a competing agency insists it has the right to go ahead. While the agencies battles, the avid gamers who want to play the game are left in limbo. The agency turf battle is leading to gridlock on the approval front:

On Monday, the General Administration of Press and Publication (GAPP) rejected Chinese Internet portal NetEase's application seeking approval for the Chinese version of WoW.

NetEase violated a rule banning new account registration and collection of subscription fees during a trial period that started July 30, when the firm was ordered to "revise harmful content" in the game, the GAPP said.

The ministry-level administration said it might terminate access to the popular online game.

However, in an unexpected twist, China's Ministry of Culture (MOC) on Tuesday criticized GAPP's ban on WoW as "abusing its authority."

"Online games and publications are subject to administration by the MOC," said Li Xiong, a MOC official in charge of market affairs.

Both the GAPP and MOC insisted they are each the sole regulator of the profitable online games in China.



As the article points out, this is typical in China. Because my law firm is based in Seattle and I operate out of Qingdao, both of which are world fishing centers, I am constantly dealing with China food safety issues. However, as this same article points out, multiple agency jurisdiction makes China's food safety problems very difficult to solve:
Shi Jie, a lawyer in Beijing told Xinhua Wednesday that more than ten government departments including the agricultural, industrial, commercial, health and quality inspection departments, had their own different regulations on food safety, which made supervision on the issue very hard.

"They fight for regulating powers with each other, but many tend to shrug off responsibilities when food safety accidents occur," said Shi, who is also a member of the National Committee of the Chinese People's Political Consultative Conference.

The much touted new Food Safety Law does nothing to resolve this overlapping jurisdiction. As a result, its enactment has not led to any real change in the food safety area. The only real effect has been the creation of a new layer of bureaucratic red tape, which is good for we China lawyers, but bad for just about everyone else. For more on my views on China food safety, check out this Wall Street Journal article I wrote this Forbes article in which I was interviewed regarding China's milk scandal and this Los Angeles Times article in which I was interviewed regarding food safety problems involving China's fish industry.

In addition to competing agencies, we have also seen many tug of wars between local and national governments. Many times a local government will say "yes" to a deal that clearly violates national law. The less experienced foreign companies assume that if "the government" has given its blessing to the deal, everything must be in order. Unfortunately, we have handled a number of matters where a local government blessed a deal but the national government shut it down months, years and even decades later because it was never legal.

It even goes beyond that. In one region of China in which my firm frequently works, we are constantly having to contend with turf battles at the purely local level. There are fights among the cities in the region over who can outdo the other in terms of promises to foreign companies that in the end will never fly with Beijing. And, get this, we have even had to contend with districts/development zones within this city making promises to our clients that we know the city itself will never accept. The locals will tell our clients, "sure, you can do this," even when they know the city, province, and national rules forbid the activity. Eventually, the approval has to go up to the city government and the "special" privilege gets taken away. What the local guys hope is that by this time the foreign investor learns it has been duped, it will be so invested in the project it will go forward with it anyway.

Needless to say, this makes our jobs as lawyers all that more difficult as we are constantly finding ourselves having to tell our clients that what the government is promising them (which always sounds so good), is in fact fleeting at best. It is human nature to be disappointed when something promised to you is taken away "by your lawyer."

The Chinese government and its advisers are well aware of the problem of overlapping/competing governmental bodies and they know this issue permeates multiple areas of China law and regulation. However, the positions of these governmental entities are well entrenched and there is no indication the problems will be resolved soon. This means foreign businesses must take extra care to determine which agency and which jurisdiction asserts the right to regulate their particular business in China and they must work with all of the players to ensure not being caught between them. The fate of NetEase awaits those who do not pay careful attention to this issue.