The Ascendance of the Resolution Power in China’s Parliamentary Bodies

 Written By: Julie Qiu  and Wei Cui

Posted on: June 26, 2020

Peng Zhen speaking at a conference of the NPC Legal Affairs Commission

Since the COVID-19 epidemic broke out in Wuhan in January 2020, sub-national People’s Congresses (PCs) in many Chinese provinces and cities have announced policies regarding the control and prevention of the disease and economic recovery. Many of the policy documents promulgated have the same function and effect as local statutes (difang fagui), and have been pronounced as having the effect of law. But they often came with the title of “decisions” or “resolutions” (jueding).  Both in name and in the procedure of adoption, this particular parliamentary instrument is to some extent distinguishable from the adoption of local statutes under the Law on Legislation. In previous decades, it was seldom used independently in providing for individual’s legal rights and obligations.

To invoke potential comparisons with non-statutory parliamentary actions in Canada and other jurisdictions, we provisionally refer to these instruments as “resolutions”. The subnational parliamentary “resolutions” on COVID-19 that were adopted in February and March 2020 are related to the increasingly frequent exercise by Chinese PCs of their resolution power regarding “major issues” (zhongda shixiang jueding quan) in the last few years. This potentially important development has not been previously noted in Western media or scholarship. We offer a brief background on the history and legal basis of the resolution power.

Article 104 of China’s Constitution grants PCs above the county level the power to “discuss and decide” major issues in all fields of work in its jurisdiction. Article 44 (4) of Organization Law for Local People’s Congresses and Local People’s Governments at All Levels (Local Organizational Law) further provides that PCs above the county level have the powers to discuss and decide major issues in “politics, economy, education, science, culture, public health, protection of the environment and natural resources, and civil and ethnic affairs in their jurisdictions”. While these may be regarded as the Constitutional and fundamental legal basis for PCs’ resolution power, they clearly say little about the extent of the power, nor how it would be exercised. Instead PCs are granted discretion to make rules themselves regarding this aspect of their competence.

The powers of PCs in China are sometimes said to be divided into four types: legislative, supervisory, appointment and removal, and decision-making on major issues (the so-called
“Four Powers”). This conceptual division is attributed to Peng Zhen (in an important speech given in 1980) and has been kept in use by scholars in China. The evolving relationship of the resolution power to the other three parliamentary powers has gone through two periods.

1982-2013: the Resolution Power depended on the exercise of the other powers

PCs’ Resolution Power was written into the Chinese Constitution in 1982. However, from 1982 to 2013, the central roles of PCs were seen as performing their legislative and supervisory functions. Under the leadership of Jiang Zemin and Hu Jintao, resolutions were only used to render decisions related to legislative and supervisory procedures. Moreover, Jiang and Hu gave consistent emphasis to the legislative and supervisory powers of parliamentary bodies, relegating the resolution power to far lower prominence. For instance:

  • On March 18, 1990, at the Third Session of the 7th National People’s Congress (NPC), Jiang Zemin stated that those important decisions of the Chinese Communist Party Central Committee that should be decided by the NPC must be submitted to the latter to go through the legal process so as to become the will of the state. The same principle should apply to subnational PCs. He then emphasized improving the functions of PCs, especially strengthening their legislative and supervisory
  • On September 12, 1997, in the report to the 15th Party Congress, Jiang Zemin stated that it was necessary to integrate legislation with policy decisions on major issues in reform and development.
  • On November 8, 2012, in the report to the 8th NPC, Hu Jintao reaffirmed that, in order to turn the Chinese Communist Party’s (CCP) proposals into the will of the state, PCs’ functions as the organ of state power need to be fully utilized, which involves the exercise of the powers of legislation, supervision, appointment and removal, and decision-making. He then emphasized legislative and supervisory work in particular, again leaving the resolution power to lower status.

Indeed, prior to 2013, Hu was the only CCP General Secretary who mentioned the four powers of PCs as a whole. Emphasis instead was reserved for legislative and supervisory powers. After the 7th NPC, NPC Chairmen also seldom talked about the Resolution Power in public speeches, especially compared to the other parliamentary powers. PCs used the resolution instrument in relation to legislative activities mainly when they amended or repealed previous statutes. Newly enacted statutes generally assumed the names of ordinances (tiaoli) and measures (banfa).

2013-present: the Resolution Power was promoted to an unprecedent height

On November 12, 2013, the Third Plenum of the 18th NPC published the Decision on Major Issues to Comprehensively Deepening Reform. While this lengthy announcement was extensively parsed at the time for understanding Xi Jinping’s approach to law, one sentence buried in it eluded little attention. The Decision proposed to “improve the system of discussion and decision-making on major issues in People’s Congresses; governments at all levels shall report to the PC at the same level prior to making decisions on important issues.” As it turned out, this sentence heralded the entry of the parliamentary resolution power into political light, after decades of near invisibility.

In January 2017, the CCP General Office circulated a document titled “Implementation Opinions on Improving the System of Discussing and Decision-Making on Major Issues by People’s Congresses, and Reporting to People’s Congresses at Their Levels before Issuing Major Government Decisions” (《关于健全人大讨论决定重大事项制度,各级政府重大决策出台前向本级人大报告的实施意见》). This document was not made public, but as can be inferred from the lengthy title, there were two separate ideas: first, developing an institution for discussing and deciding on important policy issues within parliamentary bodies; and second, strengthening the practice of requiring the executive branch to report to PCs at same level before making major decisions.

  1. Instituting parliamentary discussions and decisions over important issues (apart from legislation)

Since the 2017 CCP Implementation Opinions, among the 28 provincial PCs that already had procedural statutes regarding “discussing and decision-making on major issues” (DDMI), 17 amended such statutes, where they elaborated the scope of “major issues” in conformity to the Implementation Opinions and introduced further procedural details. Beijing, which had no DDMI statute before, also enacted one in 2017.

Notably, Article 16 of Zhejiang’s DDMI statute and Article 4 in Hubei’s DDMI statute both provide that Resolutions adopted according to DDMI procedures have the effect of law. That is, these provisions assert that PC resolutions possess the same effect as local statutes recognized under the Law on Legislation. Since 2017, the Zhejiang Provincial PC has passed three Resolutions regulating individual obligations directly. By contrast, there were no such Resolutions before 2017.

  1. Requiring the executive branch to report to local PCs at before major policy decisions

In the past three years, five provincial PCs in China (Zhejiang, Anhui, Sichuan, Hubei and Guangxi) have introduced rules in their DDMI statutes that the executive branch should report to PCs at the same level before making decisions on major issues. In October 2018, the Beijing People’s Government released an informal document prescribing the policies that it would itself follow for reporting to the Standing Committee of the Beijing PC regarding major policy decisions.

On February 25, 2019, Xi Jinping presided over the second meeting of the Comprehensively Governing the Country by Law Committee. The meeting approved the Interim Regulation on Major Administrative Decision-Making Procedures (Draft), which was issued later by the State Council on April 20, 2019. Article 8 of this Regulation stipulates that when major administrative decisions fall within the scope of matters required by law to be deliberated and decided by the PC at the same level, or when there is a specific legal requirement for reporting to the PC, the “relevant procedures shall be followed.”

It is likely that the “relevant procedures” referred to here are to come from local DDMI statutes. Currently, with the exception of Xinjiang and Ningxia, all provincial PCs have issued DDMI statutes and listed the scope of major issues, based on the Local Organizational Law and the 2017 CCP Implementation Opinions. If a matter fits into the category of “major issues”, PCs can adopt Resolutions independently, while the executive branch can also make policy decisions. In the latter case, the executive branch should report to the PC at the same level and obtain approval before issuance of the policy.

As a result of these developments, the Resolution Power of Chinese parliamentary bodies has been promoted to an unprecedented height, in some ways even above the legislative and supervisory powers. PCs in prefectural cities may issue Resolutions with legal effects directly under DDMI statutes. If they opt for this procedure, cities can avoid submitting draft legislation to the provincial PC for approval before it comes into force (as provided in the Law on Legislation). Just as remarkably, there seems to be acceptance that PCs at the county level, while possessing no legislative power based on LL, can pass Resolutions on major issues with the effect of law in their jurisdiction. In short, insofar as major policy issues are concerned, there appears to be an emerging view that DDMI statutes preclude the application of the Law on Legislation, relax the procedural strictness on parliamentary lawmaking in lower-level PCs, and thereby grant extensive flexibility and discretion to these bodies.


Institute of Theory on China’s People’s Congress System  Decision-making Power of People’s Congress under Different Concepts, 中国人民代表大会制度理论研究会,《不同概念下的人大决定权》,专题探讨。

Sun Ying (2019), On the Dual Attributes of Decision-Making power of People’s Congress on Major Issues, Politics and Law, no. 2, p. 33, 孙莹,《论人大重大事项决定权的双重属性》,《政治与法律》2019年第2期, 第33页,





Lawmaking in the Time of the Pandemic

Written By: Wei Cui

Posted on June 25, 2020

On February 5, 2020, two weeks into the national lockdown to stop the spread of the novel coronavirus epidemic that had broken out in Wuhan, President Xi Jinping convened a meeting in Beijing of the Comprehensively Governing the Country by Law Committee (CGCLC) of the Central Committee of the Chinese Communist Party (CCP). The publicized agenda of the meeting contained disparate items, ranging from reforming judicial accountability, further entrenching the rule of law in China’s countryside, to using rule of law to enhance the business environment in Shanghai. The first item on the meeting agenda, however, was the approval of a CGCLC Opinion with the lengthy title, “CGCLC Opinion regarding Preventing and Controlling COVID-19 by Law, and Tangibly Protecting the Lives, Health and Safety of the People” (《中央全面依法治国委员会关于依法防控新型冠状病毒感染肺炎疫情、切实保障人民群众生命健康安全的意见》). This Opinion was not made public and presumably, like many other CCP documents, was intended to be read only by the relevant members of the high Party ranks. At least according to the official summary of the meeting offered by the Xinhua News Agency, Xi Jinping only argued that the government response to COVID-19 should make good use of law: he gave particular emphasis to strictly enforcing existing law to preserve social order, without explaining why the law was particularly relevant at this moment in an evolving crisis.

Yet this obscure February 5 meeting triggered an extraordinary response from sub-national legislatures across China. Just within the next week, People’s Congresses in 17 provincial-level jurisdictions enacted local legislations that laid out detailed government and societal measures for responding to the COVID-19 public health crisis, while stipulating the related rights and obligations of citizens and private parties. By the end of the months, 23 provinces have enacted such legislation. Even more impressively, 62 prefectural jurisdictions across China took similar legislative steps, largely independent of legislation in their respective provinces and often before provincial legislation. All of these legislative actions rapidly advanced without any move on the part of the National People’s Congress (NPC), traditionally the most prominent lawmaking body in China. Figures 1 and 2 below illustrate the geographical distribution of these provincial and city legislative responses across China.

Figure 1 Provincial COVID19 legislation

(color scheme reflects concentration of diagnosed COVID19 cases)

Figure 2 Prefectural COVID19 legislation

A reading of these subnational legislations reveals that there was clearly no blueprint or template for them. While the content of legislations adopted in difference provinces and cities displayed extensive overlaps—as one might expect for contemporaneous legislation that shared the same subject matter—the detailed drafting of the statutes substantially varied across jurisdictions, and there was a noticeable quantity of unique local policy elaborations. This, combined with the apparent absence of any national-level instruction (and especially in the absence of any NPC action), strongly suggests that the legislative outburst was not orchestrated or merely mechanically implementing some superior directive. Supporting this conclusion is also the fact that 8 out of 31 Chinese provinces, as well as 70 % of prefectural cities, did not enact local legislation. The decisions to adopt legislation appeared to be made independently by each jurisdiction.

This outburst of subnational legislation in February and March 2020 is remarkable not just in comparison to subnational PC’s regular level of activity, but also, and primarily, because there are three important reasons to think that subnational legislation was an especially appropriate instrument with which to implement COVID-19 response in China at this time.

First, like many other countries such as the U.S., Canada and Germany, the Chinese government’s response to the COVID-19 pandemic was decentralized. Other than a nationally organized effort to aid the province of Hubei (and the city of Wuhan in particular), the national government had a relatively small role to play in each province’s policy choices, whether regarding how to stop the spread of the coronavirus, or regarding how to pursue economic recovery. Post-pandemic policymaking in both the social and economic realms, therefore, is likely to be concentrated at the sub-national, and especially sub-provincial, level.

Second, because the response to COVID-19 is largely about mobilizing society—from social distancing and wearing masks to implementing safety measures in the workplace and sites of economic exchange—government policy especially needs to be public-facing. Enforcement by government agents is insufficient; the whole society needs to be mobilized to follow a set of changing rules and norms. The government needed to reach out to the public at this time more than any other, and legislatures can play a unique role in setting norms for the public for voluntary compliance in this way.

Third, for a number of institutional reasons, People’s Congresses give actors within the CCP a unique channel to speak to the public. This channel is unique both in the symbol of legitimacy it carries and in its ability to allow the Party to speak in an anonymous fashion: no particular political leader needed to associate him or herself with the legislatures’ announcements, while at the same time, arguably, legislative action can signal and declare political loyalty.

In a series of forthcoming blog entries, we will comment on some of the institutional backgrounds—many of which are unfamiliar to not only the public but even to legal communities—for understanding this wave of Chinese subnational COVID-19 legislation. We will also summarize some findings from our analysis of these legislative actions. Our investigation has two goals. The first is to identify features in the timing and format of local congressional actions, as well as potential interactions among them, that may be relevant to understanding their political motives. The second is to highlight those aspects of the provisions of COVID-19 local legislation that are likely to have substantial impacts in the short or medium term. Because the paths to vaccines and cures for COVID-19 and to economic recovery will take time to explore, and because lasting changes to economic and social institutions may occur as a result of the pandemic, our working assumption is that the legal framework set up by Chinese subnational governments in February-March 2020 will not soon be forgotten. We aim to identify new legal mechanisms of policymaking and implementation that is likely to be effective (or at least have an effect), and that is far less top-down than students of Chinese law are accustomed to.





China’s in the race to build a COVID-19 vaccine Written by Michael Wong

Written by  Michael Wong

Posted on May 26, 2020

The COVID-19 pandemic has thus far spread to all six inhabited continents, infected at least 5.4 million people and caused at least 340,000 deaths. Governments the world over have, to various degrees, closed their borders and shut down their economies. Countries that have successfully controlled the spread of the virus, such as China and South Korea, are weary of a second or third wave of new infections. The 1918 Influenza Pandemic has given a glimpse of the potential devastation that can occur with a virulent transmissive disease and an unvaccinated populace. The race to create an effective vaccine has become one of the most important priorities for the world’s advanced economies—and for China.

The stakes for China are high. COVID-19 disrupted every facet of Chinese life during the first three months of 2020. Hospitals were overwhelmed, and offices and factories were shuttered. The country’s gross domestic product contracted by 6.8% in the first quarter of 2020, the first decrease on official record since 1992. A successful vaccine therefore has immense value by preventing further waves of disease transmission and lockdowns, as well as ensuring the stability of the economy.

Before a vaccine can be distributed, it must first be approved and deemed safe and effective by a country’s health regulatory agency, such as the United States’ Food and Drug Administration (FDA) or China’s National Medical Products Administration. For approval to be granted, at least three phases of clinical trials are performed in humans. Phase I trials involve determining a safe dose for the vaccine and involves healthy volunteers, while phase II trials aim to find the right vaccine dose for an effective treatment. If the right balance is struck between safety and efficacy, the vaccine would move into phase III trials, where the vaccine would be compared against standard treatment. COVID-19 phase III trials would likely compare a vaccine candidate against an unrelated marketed vaccine. The use of an existing vaccine as a comparator may help mask the study participants from differentiating between the COVID-19 vaccine from the comparator.  After approval by a regulatory agency, further clinical trials may be completed to ensure that the product actually works.

China has multiple vaccine candidates in the pipeline—of the ten worldwide vaccine candidates currently enrolled in clinical trials, six are developed or invested in by the Chinese as of May 22, 2020. A further few dozen Chinese institutions and companies have candidates at the pre-clinical trial stage. Two Chinese vaccine candidates in particular have made headlines in Western media during the past few weeks.

The first is a collaboration between CanSino Biological, a private Chinese company, and the Beijing Institute of Biotechnology, affiliated with China’s People’s Liberation Army. The vaccine candidate, named Ad5-nCoV, has completed phase I testing, with the results published in The Lancet on May 22, 2020. Ad5-nCoV showed promising results in safety—the most common side effects were mild or moderate in severity—and efficacy, by eliciting a positive immune response in the test subjects. Ad5-nCoV has since moved to phase II trials in China, amongst the first of all vaccine candidates. CanSino made headlines last week when it was announced that the company intends to work with Canada’s National Research Council (NRC). The NRC had contributed to the development of the vaccine by licensing technology to CanSino for creating a cell line needed in vaccine production. The collaboration allows CanSino to test its vaccine in Canada, expanding its sample size in determining whether the vaccine is safe and efficacious. In return, Canada secures a potential vaccine for mass production and distribution, should the candidate remain viable throughout all clinical trials.

The second vaccine candidate is created by Sinovac Biotech, a private Chinese company. The company is conducting phase I and II trials concurrently; phase I trials began in April 2020, while phase II trials commenced the following month. Sinovac also published results on its vaccine candidate in Science; the company had previously tested on mice, rats, and non-human primates. In macaques, the higher dose of the vaccine candidate tested elicited complete protection against SARS-CoV-2, the causative virus of COVID-19. The vaccine did not lead to enhancement of infection in the macaques, which was a potential concern for certain types of vaccines. Venture capitalists have taken notice as well: on May 22, Advantech Capital, a Beijing-based private equity fund, and Vivo Capital, a Palo Alto-headquartered healthcare investment firm, have each invested US$7.5 million towards development of the vaccine.

The other four vaccine candidates pursued by Chinese parties and currently undergoing clinical trials are not far behind, with all four in combination Phase I/II trials. Sinopharm, a state-owned enterprise, is working with the Wuhan and Beijing Institutes of Biological Products on two separate vaccines, with funding from China’s Ministry of Science and Technology. The Shenzhen Geno-Immune Medical Institute, owned by the Shenzhen local government, is currently recruiting participants for its own vaccine study. Rather than creating its own vaccine, Fosun Pharma, a private Chinese company, invested in German biotechnology company BioNTech, whose vaccines are currently undergoing clinical testing in both the EU and the US. In exchange, Fosun Pharma has marketing rights of the vaccine in China upon approval by regulatory authorities.

Should any or all of these vaccine candidates emerge successfully, a future problem lies ahead for these pharmaceutical companies: regaining the Chinese people’s trusts in vaccines. The New York Times reported in early May of the wariness that the Chinese public has on Chinese-made vaccines, owing to the 2018 vaccine scandal in China. Two Chinese companies and institutions, including the Wuhan Institute of Biological Products, were involved in the production in several hundred thousand substandard vaccines, which were ultimately administered into children across the country. In order for vaccines to have a meaningful impact, widespread acceptance and uptake is required. Thus, Chinese companies have to not only find a successful vaccine, but also convince the public that it is safe for use.

Although China currently has COVID-19 disease spread under control, this is likely only temporary. Health experts warn of a subsequent wave, perhaps as early as September. A safe and effective vaccine remains the most coveted prize by countries worldwide, with China investing heavily in vaccine development. That investment is returning dividends—China currently has the most candidates in clinical development. Can China overcome its public perception on vaccine safety? China has to; their nation’s health and economic stability depends on it.




A Legal and Empirical Study on Collective Labour Relations in China: Analysis on Collective Wage Consultation

Written by Lili Wang

Posted on April 24, 2020

Collective wage consultation, similar to but different from collective bargaining, is a strategy in China for preventing and resolving collective labour disputes relevant to remuneration. Under this process, employers and a labour union, or representatives of employees, consult about labour compensation, working hours, rest days and leaves, labour safety and hygiene, vocational training, insurance, welfare benefits, and conclude a collective contract draft, which must then be approved by the workers’ congress or a general meeting of workers of the enterprise, signed by the two of the consultation representatives, and confirmed by local government.

Legislation governing collective wage consultation sets out a model based on co-determination, that is, one which endows rights of wage determination to employees and employers. But in practice, Corporatism-Coordination, a system in which governments regulate collective labor relations, and employees, employers, and district trade unions work together to make it true, better reflects the actual functioning for collective labor relations in China. That is “one party governs, and three parties coordinate”. This article discusses how collective labour relations in China is moving from a model of Corporatism-Coordination towards the envisioned model of Co-determination.

The legislation governing collective wage consultation formally conforms to a model of Co-determination. First, both employers and employees have equal rights to negotiate and determine the wage and essential issues according to article 13 and 15 of Trial Measures for collective wage consultation and article 26 of Collective Contract Provisions. Employers have no right to shutdown business enterprises, and employees have no right of strike, although employees do have rights of final deliberation on the consultation result. Second, governments supervise the consultation process and mediate related disputes, but cannot interfere in the communication of the two parties. Third, related regulations help to keep the balance of the two parties. Article 3 of Provisions on the Democratic Management of Enterprises affirms the rights of workers to know, participate, express and supervise business management activities.

Collective labour relations in China is moving from Corporatism to Co-determination. Under a model of Corporatism, wages were managed by the government, and employees and employers had little opportunity to discuss or influence wage determination. Under a model of Co-determination, as discussed above, wages are determined mainly by employees and employers.

Currently, collective labour relations in China exists under a model of Corporatism-Coordination, in which government is reducing its intervention in the labour market, but continues to provide guidance to employees and employers in the consultation process. The graph below illustrates this change. The thick arrow illustrates strong bargaining relationships, where strength reflects the significance and influence of the relevant parties, and dotted arrow illustrates weak bargaining relationships.

Under a model of Corporatism, there is a strong relationship between the government and employees and employers, but a weak relationship between employees and employers. In Corporatism-Coordination, there is a strong relationship amongst all three parties. In Co-determination, there is a strong relationship between employees and employers, but a weak relationship to government.

The shift from Corporatism and towards Co-determination can be seen in existing collective wage consultation cases in China in the past decade. Based on the analysis of 61 collective wage consultation cases from relevant news in the website of All – China Federation of Trade Unions from January 1, 2008 to April 10, 2017, relevant articles in the magazine of China Worker from July 2009 to December 2016, relevant articles in the graphic database of the newspaper of People’s Daily from January 1, 2008 to December 31, 2016, and cases in the internal material of C district trade union, the practice of collective wage consultation presents four models: co-determination; co-determination with assistance; synergism; and, integration.

One case fell under the model of co-determination, in which parties of employers and employees completed the process with a little guidance from local government. 18 cases fell under the model of co-determination with assistance, in which the process could not be completed without help from local government, district trade unions, lawyers, scholars and other social resources, due to disputes arising during consultation or a lack of familiarity with the consultation process. 40 cases fell under the model of synergism, in which the process was completed by the three parties, two consultative parties and local government. This model is characterized by top-down direction and influence from local government, which persuaded the employers and employees to start collective consultation, gave pressure to the employers to finish it, helped the two parties to summarize their ideas, held informal conferences for them to communicate effectively and even provided the model collective contract and detailed consultation result suggestions. Finally, 2 cases fell under the integration model by enterprises, in which the employers controlled the consultation and the collective contracts did not reflect the needs and interests of employees.

In practice, each of these models fall within the ambit of Corporatism-Coordination. First, government participation is an essential condition in the process of establishing collective labor relations under each model. All cases included encouragement, persuasion, guidance, supervision, or mediation from government. Second, the cooperation between employers and employees is a dominant trend under most models and cases. Although in most cases employers and employees lacked the capacities to consult effectively, they did have motivation to communicate and conclude a collective contract.

Corporatism-Coordination is providing a pathway towards Co-determination for labour relations in China. Between the periods from 2008-2013 and 2014-2017, the cases falling under the model of co-determination by assistance increased from 19% to 55% and the cases falling under the model of synergism is decreased from 76% to 40%. The only co-determination model case appeared in the period of 2014-2017. Therefore, it is shows that the effective communication and cooperation between employees and employers is increasing, suggesting that the model of Co-determination, as envisioned under the legislation, may be emerging in China. Today, the Chinese government is encouraging harmonious labour relations and establishing a social governance model based on collaboration, participation, and common interests. That will also encourage employers and employees to develop a collective labour relationship, and advance Co-determination as the dominant model for collective wage consultation in practice.


Why is China’s Underground Economy So Small?

Written By Mu Xin and Wei Cui

Posted on April 13, 2020

A rarely discussed aspect of China’s economic growth is the apparent small size of its underground economy. Until the last decade, at least, there was little controversy that China was a developing country. Even now, China belongs at best to the world’s cohort of “middle income” countries. Yet some studies show that as early as in the 1990s, China enjoyed a small underground economy comparable to much more developed countries.

In a World Bank policy research paper from 2010, for example, Schneider et al (2010)estimated, for the period 1999-2006, that China had the smallest shadow economy among developing countries, one that represented only 12.8% of China’s GDP. By the same estimation, China had the 8th smallest shadow economy among 120 countries in the world. This ranking included many developed countries: for example, Canada placed 15thin the same ranking, with 15.6% of its GDP underground.

In an updated study published by the IMF in 2018, Medina and Schneider (2018)estimate the size and development of the shadow economies of 158 countries over the period 1991-2015. Again, the authors conclude that China has a particularly small shadow economy compared with other developing countries: its underground economy was the 19th smallest among 158 countries studied, placing ahead of countries like Belgium and Denmark.

The difficulties of measuring the shadow economy are easy to imagine. And the macroeconomic methodologies used for such measurement can be quite abstract. Instead of explaining them, we can point to similar conclusions drawn by other authors using sufficiently different methods. For instance, Elgin and Öztunali (2012)offer their own model to estimate the size of shadow economy in 161 countries during 1950-2009. They found that China shadow economy declined from 34.06% of GDP in 1952 to 11.53% in 2008. The average shadow economy size in China over 1990–2006 was 15.54% of GDP, making it the 12th smallest among 161 countries studied—again coming out ahead of countries like Canada, Germany, and France.

Alm and Embaye (2013)estimate shadow economies across countries over the 1984-2006 period, using yet another method. They calculate that China’s shadow economy had an average size of 21% of GDP from 1990 to 2006. In their study, high-income countries tend to have lower proportions of their GDP underground than China, but China’s level is not far from that found in Italy and Greece. Overall, China ranked 25th in terms of having a small shadow economy, falling behind only Japan, Korea and Singapore among Asian countries.

These conclusions may seem puzzling in two ways. First, people who have lived in China will have had many direct experiences with Chinese businesses or individuals evading taxes and dodging regulations. Cash transactions used to be extremely common before the arrival of smartphone payments, as is informal labor. Indeed, some scholars have warnedthat informal work may have been recently on the rise. Surely, the use of cash and the extent of informal work seem lower in countries like Canada. Are the studies cited above wide off the mark?

One important idea may go some ways to dispel this first puzzle. It is useful to distinguish between two types of informality, firm informalityand labor informality. The first refers to firms not registering for tax purposes or generally not reporting their operations to government offices. The latter refers to registered firms hiring workers informally, not reporting all of their operations on the books or to the government, and so on. In a 2018 article, the Oxford economist Gabriel Ulyssearefers to this distinction as between the extensive v. intensive margins of formality. Whereas the decision to register for tax purposes is basically discrete, the decision to hire more or fewer informal workers (or report greater or lesser revenue to the government) is continuous. Many firms that have entered the formal sector may continue to practice labor informality.

Applying this distinction to China, it is possible that China has a level of labor informality that is typical of developing countries and very different from what is observed in developed countries, but, at the same time, has a low level of firm informality. High labor informality is what one tends to experience firsthand in China, whereas low firm informality, being based on discrete decisions, may be less salient. It may be that the estimates of a relatively small underground economy in China are picking up the effects of low firm informality.

Professor Ulyssea’s 2018 article demonstrates that because of the firm v. labor informality distinction, different policies for reducing “the informal sector” may have very different impacts on the levels of output, wages, productivity and welfare in an economy. Reducing the cost of business registration will not have the same effects as enforcing registration requirements more rigorously; the effects of cutting payroll tax rates are not quite the same as enforcing payroll tax compliance. In ongoing research at UBC, we are exploring the application of the distinction to China because of these rich implications.

A second puzzle generated by estimates of China’s small underground economy is the following: How did China achieve this outcome? If cross-country comparisons of informality are rather obscure, explanations of the emerging patterns are even more so. Scholars who offer these comparisons have suggested various possible explanations, but have tested the explanations only in very ad hoc manners.

One such explanation, however, offered by Buehn and Schneider 2012, struck us as being potentially quite relevant in China:

“A closer distance to economic agents and higher frequency of face to face contacts between bureaucrats and economic agents (firms and workers) increase the probability of detection and deter shadow economic activities, all things being equal.”

One of us has written about the very high level of decentralization in law enforcementin China. Tax administration in China, for example, is very much about face-to-face contact. It may be that the structure of the Chinese administrative state is particularly effective at reducing firm informality. Further exploring this possibility is another theme of our current research.






Take-Up of a Corporate Tax Cut among Vietnamese Firms

Written by Wei Cui

Posted on April 7, 2020

Since 2010, an ever-increasing population of Chinese firms has come to enjoy a 10% or even 5% preferential corporate income tax rate. In an earlier blog, I discussed some legal nuances that explain how these rate cuts for “small and micro-profit enterprises” became available, even though the statutory rates under the Enterprise Income Tax Law remain unchanged. It turns out that the Vietnamese government adopted some similar, temporary corporate income tax rate cuts in 2009 and 2011-12 (initially, also in response to the Global Financial Crisis). For smaller Vietnamese firms, the tax rate was reduced from 25% to 17.5%. In a paperpublished in the National Tax Journal last year, Professor Anh Pham from George Mason University presented interesting evidence that about half of Vietnamese firms failed to claim the reduced tax rate during the relevant period.

A general reason why findings of this kind are of interest is that they demonstrate how many tax policies that look good on paper may fail to elicit responses from taxpayers. In a recent study, for example, two Chinese scholars argued that many firms in China may have been unresponsive to a policy of accelerated depreciation introduced in 2014, because these firms already engaged in such high levels of tax avoidance or evasion as to result in little marginal tax benefit from accelerated depreciation. Even in the U.S. and Canada, there have been decades of controversy about whether accelerated depreciation policies are truly effective: a very large proportion of firms in loss positions, for example, gain almost no benefit from claiming additional depreciation deductions.

Professor Pham’s findings from Vietnam, however, are particularly notable in a couple of respects. Most importantly, she suggests a striking reason why Vietnamese firms may have failed to claim the simple tax benefit: the government just neglected to tell taxpayers about it! According to Professor Pham:

“[The] policy was publicized on TV and in major news outlets. The central government     also issued instructions to local tax officials on how to determine eligibility. However, individual firms were not notified about the tax cut, nor was there any notification of the tax cut in the corporate tax forms. To apply for the tax cut, a firm had to fill out a separate one-page form, also used for various other tax policies…Even in this form, the 30-percent temporary tax cut was not listed as a type of reduction. The firm needed to circle ‘Other’ and explain the type of reduction for which it would like to apply.”

“The extra step of filling out a form to claim the tax cut may seem strange at first, but the tax office considered the 30-percent tax cut just another policy among various others that firms could apply for. The majority of taxes in Vietnam are filed on paper. Since the tax cut was temporary, the tax office did not want to change and reprint all the corporate income tax return forms or other tax treatment forms.”

This sounds like a rather abject bureaucratic failure: apparently, TV airtime and newspaper space are viewed as inexpensive, but printing tax returns is considered costly!

While there are probably more charitable contextualizations of this aspect of Vietnamese government failure, there is arguably a generalizable takeaway: the content of tax law needs to be communicated to taxpayers, and the reliability of such channels of communication may be a determinant of the effectiveness of tax incentives.

Professor Pham also studies other possible explanations of firms’ failure to claim the rate cut. She hypothesizes that firms that have a “history of a tax avoidance” are less likely to claim the rate cut, for fear of being audited upon so claiming. This aspect of her paper struck me as quite tentative, however. For one, Professor Pham mentions that aside from awareness of the policy, the cost of claiming the rate cut was low or non-existent. In particular, no one needs to obtain approval from the tax authorities. If the general rate of audits in Vietnam is fairly low (the paper offers no information in this regard), then it is unclear why claiming this tax benefit is more likely to trigger an audit than anything else on tax returns.

Lastly, one surprising aspect of the Vietnam study has to do with a crucial empirical detail. Because her study does not rely on tax returns, Professor Pham has to infer who claimed the rate cut from effective tax rates (ETR) she calculates based on firms’ financial statements. The distribution of ETRs among Vietnamese firms she reports, however, is unusual in the relatively low proportion of firms reporting zero or negative profit. In the histogram below from the paper, for example, one sees that the ETR distribution among Vietnamese firms is tri-modal: it has three peaks at 0%, 17.5%, and 25%. The density for firms in the latter two peaks are higher than the first peak:

This is surprising because in most economies—indeed even in the U.S. and Canada—the largest proportion of firms are loss-making or generate profits close to zero. The highest mode in the ETR distribution, therefore, is expected to be at zero. The following two graphs, for instance, illustrate the ETR distribution for Chinese firms in two of the largest sectors (i.e. wholesale and retail, plus manufacturing) from one province:

Clearly, the concentration of Chinese firms at zero ETR is much larger than that shown for Vietnamese firms. Insofar as the zero ETR is attributable to losses, it would also explain why many Chinese firms may be indifferent to tax incentives that assume positive taxable income.

The unusually low proportion of zero-ETR firms in Professor Pham’s study thus seems like an anomaly. Even though it may not directly affect any of her conclusions, it leaves an open question for further studies of Vietnamese taxpayers.

Patriarchy and Paradigms in the Study of Chinese Law (Part II) Written by: Jie Cheng

Written by: Jie Cheng

父权体制与中国法的研究范式问题 (二)

Patriarchy and Paradigms in the Study of Chinese Law (Part II)

Some neo-Confucian scholars claim the Chinese tradition displays characteristics of meritocracy, as the government selects the virtuous and capable through imperial examinations, securing talents for government positions. This is another effective flat organizational structure besides democracy. Indeed, the imperial examination system is a significant institution for changing one’s class status in traditional Chinese society. But its most important function is to make status no longer depend on kinship. It does not eliminate differences in status. The process of the imperial examination even created a new quasi-kinship relationship: teacher-student friendship was generated between candidates and examiners, and between candidates and emperors. As the adage goes: even if someone is your teacher for only one day, you should regard him as your father for the rest of your life.

At the level of gender relations, the domination of men over women and the disparity between genders disappeared in the legal system. Still, in reality, it is maintained due to the actual dominance of men. At the level of the parent-child relationship, patriarchy is replaced by custody in the legal sense, but the core rights of patriarchy – control and discipline – are protected by law. Even in the economic field, besides state-owned enterprises, China’s most successful business organizations are basically family-owned corporations. In addition to entrepreneurship and innovation, entrepreneurs are expected to demonstrate a patriarchal manner, to be the spokespersons of the rest…






总结而言,拟亲属关系的普遍存在使得父权体制与社会生活密切交织并成为中国人日常生活体验的组成部分;而父权体制带来的依赖性则成为持续维系社会认同甚至政治合法性的基础。正因为这一体制既具有压制性又提供利益,所以拒绝或剥离就格外困难。正如Simone de Beauvoir在解释女性自我解放的困境时所注意到的,女性在社会与家庭中的从属性和被动性可能意味着舒适感与安全感的丧失。同样,中国权力与资源的高度集中意味着,受到压制的个人和群体既受制于这一结构,但同时又受益于这一结构。由此可以解释为什么中国的的社会解放和个人自由任务格外艰巨。因为中国的父权体制的影响不限于两性关系中的压制和奴役。在中国,父权体制(patriarchy)更多表现在各种生活场景中的尊卑、长幼关系上。在很多情况下,具有管治意义的父权体制与具有照管意义的家长制(paternalism)交织在一起,导致个人对这一体制的依赖和从属不断强化。


Patriarchy and Paradigms in the Study of Chinese Law (Part I)

Written By: Jie Cheng

父权体制与中国法的研究范式问题 (一)

Patriarchy and Paradigms in the Study of Chinese Law (Part I)

“Litigation-free” is a significant feature of the Chinese legal system. Scholars of Chinese legal history recognize it as a manifestation of the Confucianization of law in China. Scholars of contemporary legal systems also note that China’s legal system favors mediation and petitioning, but takes a skeptical or even negative attitude toward judicial independence. However, though legal historians classify the absence of litigation as a part of the Confucian tradition, there are different explanations of this absence in contemporary times. A typical view attributes it to the lacking of authority, independence, and professionalism of the judiciary under the Chinese Party-State or Authoritarianism. Another typical view characterizes it as an indigenous cultural heritage and resource, which must be integrated in the modernization of Chinese law. Although the assessments diverge, these two standpoints tend to view “freedom from litigation” as traceable to China’s unique tradition, and hope to achieve the modernization of the Chinese legal system through either transforming or utilizing this feature.

I would argue, however, that a litigation-free society is only an appearance of the Chinese legal system. The core of this tradition is patriarchy, the impact of which continues to today…




父权体制的主要内涵是君权至上和父权绝对化。这一特征在20世纪初五四运动前后被称为“宗法社会”,费孝通将之与法治社会对立起来,称之为“礼治社会”。在法学研究方面,法国学者Jean Escarra的研究最早提出了中国法律儒家化的观点,并以“非讼”作为儒家化的主要表现。继承这一概念的瞿同祖在《中国法律与中国社会》一书中进一步讲述了法律儒家化的过程,并以传统法律中几乎具有绝对性的父权作为儒家化的内涵。后来的法史学者如张晋藩等也称之为“以礼入法”。








Patriarchalism and Paradigms in the Study of Chinese Law (Part I)

Written by: Jie Cheng

Posted on: February 26, 2020

父权体制与中国法的研究范式问题 (一)

Patriarchalism and Paradigms in the Study of Chinese Law (Part I)




父权体制的主要内涵是君权至上和父权绝对化。这一特征在20世纪初五四运动前后被称为“宗法社会”,费孝通将之与法治社会对立起来,称之为“礼治社会”。在法学研究方面,法国学者Jean Escarra的研究最早提出了中国法律儒家化的观点,并以“非讼”作为儒家化的主要表现。继承这一概念的瞿同祖在《中国法律与中国社会》一书中进一步讲述了法律儒家化的过程,并以传统法律中几乎具有绝对性的父权作为儒家化的内涵。后来的法史学者如张晋藩等也称之为“以礼入法”。