The Making of the New Chinese Civil Code

The Chinese Civil Code 2020 is the first ever Civil Code in mainland China since 1949. In their book, The Making of the Chinese Civil Code. Promises and Persistent Problems (Cambridge University Press), Hao Jiang, Assistant Professor at Bocconi University Department of Law, and Pietro Sirena, Full Professor at Bocconi University Department of Law, share insights on the new Code. They highlight challenges in reconciliating previous conflicting rules that resulted from various legal transplants, protecting State assets in a predominantly private-run economy, and accommodating different legal philosophies. Bocconi Knowledge, by the courtesy of the authors and the publisher, publishes an excerpt from the book.




China is certainly the last major civilian jurisdiction to adopt a civil code. In 1991, James Gordley predicted that Western private law "will govern nearly the entire world" when China adopts its civil code. That statement was true. Chinese private law has been Westernized for a long time, yet China did not have a civil code until recently. In the year 2020, after seventy years of communism, China finally enacted a civil code. In my view, the delay does not reflect the lack of diligence on the part of the legislature and legal scholars, but rather arose from some fundamental problems that needed to be resolved before a coherent and functional code could be drafted. Though the pre-communist Civil Code of the Republic of China (ROC) was a modern and sophisticated one, it was based on private ownership and a capitalist market. When a pure socialist regime was established in 1949, the legitimacy of the ROC's Code disappeared. However, after the economic reform of the late 1970s, a state-led capitalist economy reintroduced a socialist market economy and, most importantly, private ownership. Nevertheless, additional difficulties came to light in using private law to regulate the life of private citizens.

First, there is a theoretical difficulty in applying Western private law to a partially state-owned economy. According to the "will" theories of explaining legal doctrine that were developed in the West in the nineteenth century, a party was bound by what he willed and
only what he willed. That theory was hard to reconcile with the longstanding idea that contracts should be fair-to use the language of Aristotle, that they should do commutative justice-and it created theoretical difficulties in explaining private law. When this theoretical foundation was borrowed in China, the problems were exacerbated, especially when state ownership is concerned. Courts are often misled by will theories and refuse to examine whether a contractual transaction was in fact an effort to strip state assets. This problem might be exacerbated further by a progressive structural change adopted by the Code that significantly modernizes Chinese private law. Following the German tradition, the Code unifies the rules governing the voidability of contracts and of civil juristic acts, which were previously in conflict, under one set of rules in the General Provisions of the Code that deals with all civil juristic acts, including contracts. Moreover, the Code no longer treats state interests any differently from private interests and eliminates the power of the State to declare the nullity of a contract.

Moreover, conflicting legal transplants need to be harmonized and clear rules established in order to minimize the danger of contradictions within the Code. For example, courts seem to be at odds as to whether recovery for pure economic loss is permitted by Chinese tort law. Before the enactment of the Code, Article 2 of the Chinese Tort Liability Law (TLL), like section 823 of the German Civil Code, enumerated the rights protected in tort and excluded rights that are not rights of person and property. As we will see, German courts have concluded that a plaintiff cannot recover from purely economic loss. Article 6 of the TLL, on the other hand, resembled articles 1240 and 1241 of the French Civil Code, which permit recovery so long as harm resulted. French courts have held that a plaintiff can recover for pure economic loss. The result in China was confusion and inconsistency in judicial decisions. It is my impression that most judges have not faced the question of whether there should be liability for pure economic loss. They either do not see why the law should only protect rights of property and person or consider economic rights part of property rights. Judges who do face the question are unsure whether economic rights are protected by law.

Following China's enactment of the Code, it looks like the French view has prevailed among the drafters, as evidenced by the new article 1165. Supposedly, this clear contradiction in the TLL ended as of 2021 when that law was superseded by the Code. However, this significant change has not been mentioned in either legislative or academic commentaries before the official passage of the Code. It was not even debated among the academics. Even two of the drafters have different opinions as to whether article 1165 changed the law. Zhou Youjun, one of the drafters, is of the view that the law has not changed and that civil interests are exactly the interests previously listed in Article 2 of the TLL. Meng Qiang, the secretary of the drafting committee, stated in an e-mail to the author that civil interests are to be broadly interpreted and that pure economic loss will receive more protection with time. Clearly, the two positions are contradictory. There is no doubt that this barely noticed but fundamental change in Chinese tort law will continue to create significant confusion in practice.

Additionally, on a deeper level, philosophical ideals of private law that suit China need to be compatible with doctrinal rules. Western private law is based on the fundamental idea that justice in a dispute between private parties-as Aristotle would say, commutative justice-is distinct from the fairness of the distribution of wealth in the society-as Aristotle would say, distributive justice. Nevertheless, a concern for the distribution of wealth is supposed to be at the foundation of the Chinese legal system. Courts need clearer guidance as to how to reconcile such a direct conflict between the two. The prime example is a basis for liability in tort that is recognized in China but not in the West: what may be called "liability in equity." According to the doctrine of liability in equity, once harm is done, the party that caused it is partially liable even though he was not at fault, provided that he is in a financial position to pay. Whether to impose liability, however, rests at the discretion of Chinese judges. This rule is not easy to square with the traditional grounds for liability in the West or with the idea that private disputes concern only commutative justice.

Moreover, doctrinal innovations can be a double-edged sword, and need to be more carefully crafted to avoid conflicting or counterproductive results. The adoption of a book on personality rights is a prime example. Its adoption was based on the view that it is an independent set of law that deserves its own space. Nevertheless, when seeking relief, it only makes sense that the general provisions of tort law apply. This situation raises several practical difficulties for parties seeking relief. If both tort law and personality rights law elements have to be met before a party can bring an action under personality rights law, it is unclear whether the innovation is actually making it easier to protect personality rights.

This chapter uses historical and comparative insights to showcase the tensions between the new Code and these preexisting and persistent problems. As we will see, the root cause of these persistent problems come not only from legislative techniques, but rather mostly from Chinese economic structure and state ownership, conflicts between distributive justice-the foundation of Chinese moral philosophy-and commutative justice-the foundation of Western private law-and from the compatibility issues in legal transplants.