6 - The Security Interests in Chinese Law

Summary

Upon the enactment of Chinese Civil Code, the previous rules that allowed for enlarged state power to annul contracts were dropped. Chinese law has gone one step further in promoting freedom of contract. The validity rules have been streamlined and the previous contradictory and inconsistent treatment between civil juristic acts and contracts, state and private parties eliminated. However, the new legislative technique will unavoidably facilitate asset stripping, the very reason that the paternalistic rules were in place. Through a historical, doctrinal, and logical lens, we will show why there can be no effective model of a neutral set of validity rules that deals with state-owned enterprises in a less than free and competitive market. The only way to make it work is to have SOEs exit most of the competitive industries and focus on areas that serve the policy goals. Also, paternalistic rules concerning the validity of a contract in trading state-assets should be enacted either in the Civil Code or through special legislations and applicable to government, state-owned enterprises and private parties alike