Enterprise reform in China : the evolving legal framework

Enterprise reform in China since 1979 has been supported by accelerated reform of China's legal framework. In the transition to a"socialist market economy", state enterprises will operate independently of the government, may no longer be fully owned or controlled by the state, and will deal with the state and other legal entities through market based transactions. The number of collective (township and village) enterprises has grown rapidly, and in recent years so has the number of private enterprises. This level of economic change requires a commensurate level of legal change. The author describes the legal framework needed for enterprise reform in the world's most populous country. First,it is essential to define the enterprise and its rights and obligations. To define and broaden the autonomy of enterprises, enterprise law and regulations must be reformed. For state and collective enterprises, a goal of legal reform is also to effect the separation of ownership and management. To create a legal environment in which all enterprises - including state enterprises -participate as independent actors, reform is also needed in the following areas. Bankruptcy and competition law, to promote fair effective competition among autonomous enterprises and to ensure the continued protection of the public interest even without direct state management of enterprises. Financial laws, including securities laws and regulations, so enterprise financing can take place in a market driven system rather than through a planning mechanism. Laws governing land use, mortgage financing, and pension and social security systems, to separate employee housing and pension and social security systems from enterprise obligation and henceforth to provide housing pensions, and social security through alternative means. Contract law, to protect the legal rights of enterprises and allow economic transactions between parties to replace administrative controls, and to ensure that the court system and dispute resolution processes function credibly and reliably, thereby making all other reforms enforceable. To make these reforms meaningful, property rights must also be better defined. China's civil code currently offers only a limited definition of the rights of ownership and of an enterprise's rights to sell, transfer, or otherwise dispose of property. The author catalogs these pieces of the legal framework, suggesting where further reform is needed to support enterprise reform; focuses on the reform of state enterprises but also discusses the reform of nonstate enterprises; and touches only lightly on the role of foreign investment but does address the developing framework of patent, trademark, and copyright laws,