13 - The New Validity Rules in Chinese Civil Code and Chinese State-Owned Enterprises’ Freedom in Contracting

Summary

This chapter provides a snapshot of the recent developments on Chinese security interest law. Several questions will be explored. Firstly, were there any needs for changes? Secondly, what are the recent changes? Thirdly, have these changes achieved the purpose? I will offer some critical reflections of the law in terms of clarity, simplicity, convenience, and fairness. Not only are the relevant background and statutory framework of the security interests explained, but its theoretical structure and several practical issues will also be discussed. For instance, where a loan has been secured by both a personal guarantee and a mortgage, in the absence of any agreement, will the creditor have a free choice on which one to enforce first? Another question to be addressed is in situations where more than two securities had secured a loan (including a personal guarantee and mortgages) on a joint and several liability basis, in the absence of any agreement, can a security provider indemnify from the others after it fulfilled its security obligation in case of the debtor’s insolvency ?