ASIABIZBLOG

View the update to my April 7, 2005 post, "New Regulations Curtail Individual Outbound Investment."

Intellectual Property & Piracy in China: The Next Chapter

Sponsored by the China Institute, Baker & McKenzie, Georgetown University Law Center and Deheng Chen Chan LLC.

Topic: "While foreign companies continue to criticize the Chinese government for turning a blind eye to rampant piracy, China is taking steps to stem the tide. But is it enough? What are the latest trends in the battle for remedies, and what do they say about the challenges of continued globalization? What’s next?"

Moderator:

James Feinerman, Associate Dean, International & Graduate Programs, Georgetown University Law Center

Panelists:

Kevin O’Brien, Partner, Baker & McKenzie
Dr. Albert Wai-Kit Chan, Managing Partner, DeHeng Chen Chan, LLC
Elaine T.L. Wu, Attorney-Advisor, U.S. Patent and Trademark Office
Tim Punke, Partner, Preston Gates, Ellis, LLP

Date: Thursday, June 23, 2005
Time: 8:30–11:30 AM at Georgetown University Law Center
Place: 600 New Jersey Avenue, NW Washington DC
Cost: $25 China Institute Members; $40 Non-Members

Contact: William Krents, 125 East 65th Street, New York. Tel: 212-744-8181 x 125 Fax: 212-628-4159; E-mail: wkrents@chinainstitute.org

The American Bar Association, Section of International Law, China Committee, will present a breakfast and CLE (pending) in Shanghai.

Topic: Interpreting the NDRC Rules
Presenter: Yingxi Fu-Tomlinson, Partner, Kaye Scholer
Date: Friday, June 24, 2005
Time: 7:30 – 9:30 AM
Place: Squire, Sanders & Dempsey L.L.P., Kerry Centre, Suite 1207
1515 Nanjing Road West, Shanghai, Phone: 21-6103-6300

"Obtaining the Ministry of Commerce's (or its predecessor's) approval of projects has been key for foreign investors wishing to access the PRC market. In July of last year, the State Council issued its Reform of the Investment System Decision, which appeared to signal an important role for the National Development Reform Commission (“NDRC”) and perhaps a significant step in development of a registration system instead of an approval system. However, the Decision was broadly worded and left open the specific procedures to be applied by the NDRC.

Of keen interest to foreign investors is how the NDRC registration process will in fact fit with the MOFCOM approval process. The NDRC subsequently adopted the Administration of the Verification of Foreign-invested Projects Tentative Procedures (issued October 9 2004), with the apparent aim of clarifying matters. However, significant questions still remain."

Ms. Fu-Tomlinson will present respecting the new NDRC rules and their impact on the approval process for foreign-invested projects.

Register for this program.

For more information: Jessica Elliot

I include below the original of a press release found at the PRC Ministry of Justice site and also carried more or less verbatim in the Chinese online media, which claim that Taiwanese courts have for the first time recognized the validity of a PRC judgment.

However, I am as yet unable to verify the validity of the assertions in this article. Interestingly, it does not show up on media sites outside of China -- the meaning of which is as yet uncertain. I welcome anyone with information relating to this story.

[Rapid translation of the MOJ release immediately below. Original text directly below that.]

First Recognition by Taiwan Court of Chinese Judgment

Zhejiang Enterprise Crosses Taiwan Straits to Collect on Debt
Case in Taiwan Exhausts Appeal Process

(May 19) Zhejiang (PRC) Textile Import Export Group sued Taiwan’s Changrong International Storage and Transport Corp. to enforce rights to collect on a debt. Taiwan’s Supreme Court denied an appeal by Changrong, ruling that the judgments of the Shanghai Court of Admiralty and the High People’s Court of Shanghai were valid in Taiwan.

This case, involving a mainland Chinese company’s attempt to collect a large sum owed to it, has thus progressed to actual enforcement. It is believed to be the first case in which a Taiwan court, relying upon Article 74 of the “Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area,” recognized the judgment of a mainland court to enforce rights to collect a debt, and which exhausted the Taiwan appeals process.

[Editor's note: The Mainland Affairs Council can be accessed at this URL.]

In the fourth quarter of 2000, Zhejiang Textile hired Lirong Shipping to ship transport to Iraq in 21 bills of lading with a total value of over US$2.6 million. Zhejiang Textile did not receive payment, and upon investigation, discovered that Lirong, after shipping the cargo to Iraq, failed to deliver it to the correct receiver based on the original bill of lading. Zhejiang Textile sued Lirong, demanding damages of US$2.6 million and RMB6.36 million.

In December, 2002, the Shanghai Court of Admirality ordered Lirong to pay damages to Zhejiang Textile in the amount of US$2.6 million and RMB3.11 million, as well as interest accrued. Lirong then appealed to the High People’s Court of Shanghai.

On the eve of the judgment, Lirong merged into Changrong International Storage and Transport. Zhou Jiang-xiung, Assistant Managing Director of Zhejiang Textile, told this reporter that the company had originally planned upon enforcing the judgment by seizing Lirong’s ships in China. It was not foreseen that Lirong would dissolve, passing on its debt to Changrong, as well as its transport operations in China to another firm.

In September, 2003, the Shanghai City High Court sustained its original ruling, and the case entered the enforcement stage. Then the court discovered that Changrong had no assets in China upon which to enforce the judgment and the enforcement documentation could not be successfully sent to Taiwan, as both mailings had been returned. The judgment entered a period of stalemate.

This cross-straits debt collection case became known to the Taiwan Liaison Office in Zhejiang Province. Ma Li-hua of that Office told this reporter that in July 1992 the Taiwan Region promulgated the “Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area.” Article 74 of that act reads:

To the extent that an irrevocable civil ruling or judgment, or arbitral award rendered in the Mainland Area is not contrary to the public order or good morals of the Taiwan Area, an application may be filed with a court for a ruling to recognize it. Where any ruling or judgment, or award recognized by a court's ruling as referred to in the preceding paragraph requires performance, it may serve as a writ of execution.

This regulation clearly allowed for a breakthrough in this case. Despite the lack of a similar prior case, in the end, it had to be attempted.

The case thereafter formally began the debt collection process in Taiwan. In August, 2004, a Taoyuan (Taiwan) Local Court recognized the mainland court judgment. Changrong’s appeal was denied. Changrong then attempted to appeal once again to Taiwan’s Supreme Court. On May 19, 2005, that court denied Changrong’s second appeal. At this point, this cross-straits debt collection case entered the actual enforcement stage.

Zhejiang Textile’s Zhou Jian-xiung said that, even though three and one half long years had passed since the suit was filed, everyone could finally seeing the light at the end of the tunnel. They praised the Taiwan Region court’s ability to uphold the law and the judgment that safeguards the legal rights of mainland Chinese businessmen.

This reporter has come to understand that mainland courts have already ruled on judgments of Taiwanese courts. In 1998, the Regulation of the High Peoples Courts Regarding People’s Court Recognition of Taiwan Region Civil Judgments was promulgated. [In Chinese.] The Zhejiang Province, Taizhou Intermediate People’s Court, recognized for the first time the judgment of a Taiwan Nantou Local Court regarding the status of adoptive relationship between a Taiwanese and his nephew in Tiantai. In 1998, the Shanghai First Intermediate People’s Court recognized and enforced the judgment of the Taiwan Kaohsiung Local Court, in a case involving the repayment of a debt between Xu Ling-wen and Taiwan Changtaiyen Construction Development Company.

Fom 1998 until March of this year, cross-straits indirect trade exceeded US$420 billion. In 2003, cross-straits trade exceed US$50 billion, and last year exceeded US$70 billion.

Ma Li-hua of the Zhejiang Taiwan Liaison Office told this reporter that, in the recent few years, cross-straits trade grows daily, and that cooperation between mainland and Taiwan courts with regards to similarities in civil law processes to help safeguard the legal rights of individuals, legal persons and enterprises may become a possibility. Thus, the risk-related costs of cross-straits trade will decrease, helping to stimulate that trade and popular interaction.

台湾法院首次认可大陆法院裁决

浙江一企业大陆跨海峡追赔案在台走完三审程序

　　本网讯　记者余东明5月19日，浙江纺织品进出口集团有限公司诉台湾长荣国际储运股份有限公司执行债权一案，台湾最高法院判决驳回长荣公司的再抗告，最终裁定了上海海事法院、上海市高级人民法院关于此案的判决在台湾有效。至此，这起大陆企业跨海峡追付巨额赔偿案在台取得了阶段性的进展，进入实际执行债权阶段。据悉，此案是台湾法院根据《两岸关系条例》第74 条规定认可大陆法院裁决执行债权成功的首例案件，也是第一个在台湾走完三审程序的案子。

　　2000年四季度，浙纺公司委托立荣海运股份有限公司运输21票提单项下价值260多万美元的服装至伊拉克，此后浙纺公司一直没有收到货款，经过查询，浙纺公司发现，立荣公司将货物运到伊拉克后，没有凭正本提单就将货物交给了他人。为此，浙纺公司一纸诉状将立荣公司告上法庭，要求赔偿损失260 万美元和 636万元人民币。

　　2002年12月，上海海事法院作出一审判决，判决立荣公司赔偿浙纺公司260万美元和311万人民币及相应的利息损失。立荣公司遂向上海高级人民法院提起上诉。

　　一审判决前夕，立荣公司与长荣国际储运公司合并，长荣公司成为续存公司。浙纺公司副总裁周建雄告诉记者，原本他们打算在法院进入执行程序后，可以直接扣留立荣公司在大陆的船只进行执行。没想到立荣公司注销了，它把债权债务转给了长荣公司，将大陆的运输业务转给了另一家公司。

　　2003年9月，上海市高级人民法院作出“维持原判”的终审判决，该案进入执行程序。然而正如周建雄所介绍的，一方面，法院发现长荣公司在大陆无财产可供执行；另一方面，执行文书又无法成功送达到台湾，法院两次邮寄都被退回。执行陷入僵局。

　　这起跨海峡巨额追赔案在咨询了浙江省台湾事务办公室后峰回路转。浙台办的马礼华告诉记者，1992年7月，台湾地区曾出台《台湾地区与大陆地区人民关系条例》，该条例第74条规定：“在大陆地区作成之民事确定裁判、民事仲裁判断，不违背台湾地区公共秩序或善良风俗者，得声请法院裁定认可。前项经法院裁定认可之裁判或判断，以给付为内容者，得为执行名义。”这条规定显然给此案的执行找到了突破口，虽然此前，没有同类案件进入过司法实践，但毕竟得尝试一下。

　　此后，该案的追赔程序正式在台湾启动。2004年8月，台湾桃园地方法院裁定，对大陆法院的判决予以认可。长荣公司遂向台湾高等法院提起抗告，被驳回；此后，长荣公司又向台湾最高法院提起再抗告。今年5月19日，该院驳回了长荣公司的再抗告。至此，这起大陆公司跨海峡巨额追赔案进入实际执行阶段。

　　浙纺公司周建雄表示，此案从起诉开始，虽然历经长达三年半的时间，但毕竟让人们看到了成功的曙光。他们对台湾地区法院能尊重法律、维护大陆商人合法利益的裁定表示赞赏。

　　记者了解到，此前大陆法院曾对台湾法院的判决做过裁定。1998年，《最高人民法院关于人民法院认可台湾地区有关法院民事判决的规定》出台，浙江省台州中级人民法院首次裁定认可了台湾南投地方法院关于台湾人褚春裁对天台侄儿褚金绸收养关系的裁定。1998年，上海第一中级人民法院还裁定认可了台湾高雄地方法院关于高雄人许玲雯诉台湾长泰庄建设开发有限公司有偿借款纠纷一案的判决，并进行了强制执行。

　　有资料显示，自1998年至今年3月，两岸间接贸易总额累计超过4200亿美元，2003年两岸贸易额突破500亿美元，而去年这一数字突破700亿美元。

　　浙台办马礼华告诉记者，近几年来，两岸经贸活动日趋频繁，大陆法院和台湾法院类似的司法程序合作使依法保障两岸公民、法人、企业的合法权益成为可能，从而降低了两岸间贸易的风险成本，对推动两岸经贸发展和民间交流有着积极的作用。

Click the little triangle to hear a summation of the post below.

You may remember the experiment to test the "unwinding" of the state's interest in the Chinese stock markets. See this post for a refresher.

Investors of two of the four companies involved have voted on proposals to offload state shares. IHT reports that Tsinghua Tongfang investors rejected the proposal put to them; Sany investors accepted theirs. Partial success for Chinese regulators.

The Financial Times of London paints a very different portrait:

"China's plan to reform the complicated shareholder structure of its stock market has suffered a setback as investors in one of the four companies involved in its pilot programme rejected the proposals." [Subscription required.]

Is it accurate to call this a "setback?" Possibly. As I explained in my May 11 post, companies were carefully selected to ensure the "experiment" succeeded. And yet FT didn't even bother to tell its readers of the nearly 100% vote in favor of the plan at Sany.

The Sany proposal passed with 99.9% of the vote of tradeable shares -- flying colors -- Tsinghua Tongfang's failed by only 4 percentage points. Why? Perhaps we might come up with an answer as investors talk to the Chinese press in the next few days.

Crazy old Xinhua must have been smoking something. The (Hong Kong) Standard adds -- in the final paragraph of the IHT/Bloomberg article run otherwise word for word -- Xinhua's first report, make that incorrect report, of the passing of Tsinghua Tongfang proposal passed:

Tsinghua Tongfang's statement contradicts a report from Xinhua news agency, which said the plan was approved by 93.4 percent of shareholders of the tradable stock at the meeting. Xinhua Saturday corrected its report ``after checking with the company's board.''

What a great line: "after checking with the company board." Touché!

Click the little triangle to hear today's update post on developments in the PRC plan to sell state shares in the Chinese stock markets.

[Editor's Note: For today's guest column, we welcome back Sam Park with the New York investment and business development advisory service of R. W. Wentworth & Co. Sam's post of March 9, 2005, "Dealing with Greenspan's Conundrum," may be found here. Many thanks as well to Mr. Alan Rude, President of R. W. Wentworth, as well as his staff, for permission to post.]

Can't Blame the Fed for Everything

The Fed's Duties

Contrary to the belief of many bullish investors, the Fed has not increased rates simply to put an end to the party. Greenspan has been marked as the villain because he¹s an easy target to blame for the flattening yield curve. It is true that the Federal Open Market Committee's decision to push short-term rates higher contributed to the flattening curve. However, it is highly doubtful that the Fed ever intentionally tries to put an end to a good thing. If anything, one key word is probably in the forefront of the FOMC's thinking minds, and that word is stability.

According to Jack Guynn, President of Federal Reserve Bank of Atlanta, the Fed must strategically "act before the appearance of widespread price increases to keep inflation and inflation expectations firmly in check." The objective, which eludes laymen, is to make preemptive moves before excessive inflation is present. If high inflation appears in core inflation benchmarks, then the Fed has not moved aggressively enough. By then it would be too late, and the Committee would be forced to take a tighter stance and make steeper hikes.

However, the Fed does not always make all the right moves. The Committee has in the past pushed rates too high, which have triggered a slowdown or even a recession. Monetary policy is not an exact science; indeed it is more like chess match with the outcome in doubt. While the Fed carefully and diligently observes relevant data, and develops a strategy that they feel is best, the outcome is not always what is desired. The following topics are some matters that the Fed and Wall Street are taking into consideration before they make their moves.

For the background to this post, click here.

The China Securities Regulatory Commission (CSRC) 中国证券监督管理委员会 announced an extension of its plan to sell the non-tradeable state shares of 42 listed companies. This Bloomberg article lists the companies involved.

FT also reported on the announcement, noting briefly that

"The State-owned Assets Supervision and Administration Commission (SASAC) 国务院国有资产监督管理委员会, which controls the state's equity holdings, said at the weekend it would engage in the shareholder reform plan, but added that the state would maintain controlling positions in many state-owned enterprises."

Hmm... That's a frighteningly contradictory assertion.

The finance magazine Caijing deals with this idea in greater depth:

"...in spite of...optimistic pronouncements the plan still faces major obstacles. Most notably, it must overcome the “lack of policy harmony” among its proponents on key issues. Since the plan’s announcement, some shareholders have attempted to claim compensation from the reforms, pointing to the losses they suffered during the 15-year development of China’s stock market. Until now, the State-owned Assets Supervision and Administration Commission (SASAC), which manages all state-owned property, has made no formal declaration regarding whether and how to compensate these shareholders.

The conduct of the SASAC has left some analysts pessimistic about whether the CSRC’s plan will ultimately survive: “the SASAC has made many statements supporting [the floating of untradeable state shares], but with no concrete action. The CSRC, on the other hand, could resort to one desperate last measure, slamming more restrictions on the future fundraising efforts of those companies who haven’t solved their untradeable shares problem,” said one analyst from Boshi Fund Management. 'The CSRC appears to be pushing aggressively, but it is doubtful whether a unilateral action would succeed.'”

[ABI editor's ellipsis. NB: I have been unable to locate original Chinese version of this article on the Caijing site, and have put in a query for the link with the editors.]

Is it possible that some firms will divest their non-tradeable state shares and others will not?

That aside, the market -- at least the Chinese financial media -- appears to understand that an intractable inter-agency dispute at the highest levels may ultimately affect the execution of CSRC's share sale plan.

Why a continuing dispute over an issue of major proportions? The issue is this: who, if anyone, will compensate investors when share lots of gargantuan proportions come on the market? Perhaps no one can offer anything near a satisfactory answer. It is a hot potato question that everyone fears and few career bureaucrats would dare to touch. No wonder the inter-agency dispute.

Despite this, it appears that the CSRC has thrown down the gauntlet, having decided -- forgive my mixed metaphors -- to blaze a trail. It could be that the CSRC, having failed to come to terms with SASAC, has simply opted for the capitalistic notion that the market must take the pain now for future benefit. It is a decision based either on careful planning and analysis, complemented by a dose of courage and the support of some on the State Council -- or sheer foolhardy cheek.

Given the extraordinarily intelligent and well-trained Chinese peppering the ranks of the bureaucracy, I would tend towards the former. But knowing that the ranks can be otherwise salted, the latter remains a distinct possibility.

Click the little triangle to hear an audio summary of the post directly below.

Greenspan informs U.S. Congress that revaluing the renminbi will not increase manufacturing activity or jobs in the United State.

Listen to the entire testimony to the Senate Panel on U.S.-China Economic Relations. It was a spirited debate, with Greenspan and Snow face to face in the ring. One, and only one, of them at his rhetorical finest.

Several senators jumped on the pile, as they are wont to do. One performed an execrable impression of Mike Tyson chewing on Holyfield's ear. (Holyfield won, nonetheless.) Worth your time, if only for entertainment value.

[Editor’s Note: We are now able to confirm the validity of a portion of the press release discovered on the P.R.C. Ministry of Justice website. A P.R.C. company, suing on a P.R.C. judgment, has for the first time won a judgment relating to a business transaction against a Taiwanese corporation in the Taiwan High Court. See this post for background. This ruling may have substantial ramifications for the legal relationships of businesses involved in cross-strait trade. We will continue to post on developments in this case.]

We turn to a guest columnist for a discussion of High Court’s decision and its possible implications. Peihuan Benjamin Kao, currently attending the University of Minnesota Law School as a Juris Doctor (J.D.) candidate, is our guest columnist this week. Mr. Kao was most recently a Legal Consultant to the Executive Director at a publicly listed corporation in Bangkok, having previously served as a Legal Research Fellow at the Science and Technology Law Center in Taipei. His education includes an LL.M. from Columbia Law School and Soochow Law School (Taipei), as well as an M.S. in Medical Technology from National Taiwan University.]

Ruling of the Taiwan High Court Recognizes P.R.C. Judgment

By Peihuan Benjamin Kao

On December 23, 2004, the Taiwan High Court, ruling against Changrong International Storage and Transport Corp. (“Changrong”), recognized a decision of the courts of the People’s Republic of China. [See links at end of this post for the full text of Ruling 93 抗 3089.] Reportedly, Changrong appealed this ruling to the Taiwan Supreme Court in May, 2005, and lost, leaving the judgment of the Taiwan High Court to stand. However, the decision on appeal has not yet appeared in the Supreme Court’s official database. Therefore, we don’t really know how the Supreme Court reached its ruling nor why it made the “breakthrough” at this moment, nearly 13 years after promulgation of the Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area (the “Act”).

While awaiting the publication of the Supreme Court’s official ruling, the ruling by the High Court is worth pondering. I will focus on the grounds upon which the Taiwanese High Court reached the conclusion of recognizing a P.R.C. judgment, and discuss the possible rationale of the Supreme Court’s denial of appeal.

BIRTH OF AN APPEAL

Zhejiang Textile Import & Export Group of the P.R.C. (“Zhejiang Textile”) sued Lirong in the Shanghai Court of Admiralty for Lirong’s breach of admiralty shipping contract. Zhejiang Textile won the judgment in the Shanghai Court of Admiralty and an appeal of that judgment in the High People’s Court of Shanghai. Lirong then merged with Changrong.

Because Changrong had no assets in the P.R.C. which the P.R.C. court could seize in order to enforce its judgment, Zhejiang Textile sought remedy in a Taiwan court by filing for a request of recognition and hence, enforcement, of the judgments of the Shanghai Court of Admiralty and the High People’s Court of Shanghai. Taiwan Taoyuan District Court ruled for Zhejiang Textile. Changrong appealed to the Taiwan High Court.

Zhejiang Textile filed its request based upon Article 74, Paragraphs 1 and 2 of the Act. Paragraph 1 allows for the filing of applications for recognition of irrevocable P.R.C. court rulings, judgments or arbitral awards, as long as they do not conflict with the public order or good morals of Taiwan. Once recognition is granted by a Taiwan Court, Paragraph 2 further permits P.R.C. rulings, judgments, or arbitral awards to serve as writs of execution.

DEFENDANT’S ARGUMENT ON APPEAL

Changrong on appeal based its arguments mainly on four grounds.

1) PUBLIC POLICY. Changrong argued that the decisions of the Shanghai Court of Admiralty and the High People’s Court of Shanghai were inconsistent with the “public order and good morals” of Taiwan, and thus shall be deemed as violating Article 74, Paragraph 1 of the Act. To back up its public policy argument, Changrong asserted: (1) the P.R.C. decisions breached the principle of privity of contract as stipulated in Taiwan’s Civil Code and (2) the P.R.C. decisions violated Taiwan’s Admiralty and Maritime Law regarding egulation of the Bill of Lading format requirements. By infringing these two legal principles, long enacted and upheld in Taiwan, the P.R.C. decisions were not in conformity with the public order and good morals of Taiwan.

2) LACK OF FINALITY OF THE P.R.C. DECISION. Changrong further argued that the decision in P.R.C. was not final. The company had appealed to the Supreme People’s Court of the P.R.C. and requested a retrial from the Shanghai Court of Admiralty, based on new substantive evidence which could overrule the former judgment. Hence, even if the Taiwan Court would have liked to review the P.R.C. judgment for the purpose of recognition, it should have halted until the final decision was rendered by the P.R.C. Supreme Court and the Shanghai Court of Admiralty.

3) ARGUMENT ON THE MERITS. Changrong tried to argue the merits of the P.R.C. judgments by bringing up the substantive issues, such as document forgery and maritime fraud involved in the Bill of Lading. Investigation did uncover certain evidence that might support such allegation. Changrong argued that it claimed damages against its opponent based on these allegations and that those cases werere still pending.

4) LACK OF RECIPROCITY. Changrong stipulated that based on reciprocity, the P.R.C. decisions should not be enforced in Taiwan, since P.R.C. courts have refused to enforce most of the decisions rendered by Taiwan courts to “avoid violating the One China Policy.” Even if P.R.C courts had enforced some decisions involving Taiwanese, most of those decisions favored P.R.C. citizens inheriting properties from Taiwanese citizens. Thus, it was argued, Taiwanese Courts should not recognize and enforce decisions of P.R.C. courts.

CHANGRONG’S APPEAL: THE HIGH COURT RULING

The High Court rejected all of Changrong’s arguments, ruling against it on the following grounds:

(1) The case was governed by Article 74 of the Act. The Taiwan High Court interpreted Article 74 as a rule of procedural character which applies only to cases of a non-litigation nature. This warrants the Court's review the cases on two issues: A) whether the irrevocable P.R.C. ruling/judgment/award violates Taiwanese public order or good morals, and B) whether an application can be filed in the P.R.C. courts to recognize or serve as a writ of execution of that irrevocable ruling, judgment or awards rendered in Taiwan. Therefore, the Court may not review the substantive merits of the judicial decision rendered by the P.R.C. courts. Consequently, how the P.R.C. court applies P.R.C. law to the facts adopted in that court similarly may not be reviewed by the Taiwanese court.

2) The dispute involved breach of admiralty and maritime contractual responsibility, causing damages to the shipper. The legal effects of the P.R.C. judgments and the factual and legal bases for such decisions were not in breach of Taiwanese public policy, i.e., public order or good morals.

3) Even if there were maritime fraud and forgery involved in the Bill of Lading, it was a dispute of the substantive merits and, therefore, shall not be reviewed.

DISCUSSION: POSSIBLE IMPLICATIONS OF THE RULING

Although the Taiwan Supreme Court's decision of May 2005 has not appeared officially, we might well make a reasonable guess that the Supreme Court will have adopted an approach similar to the High Court’s interpretation and application of Article 74 of the Act.

While the implication of this case might not be crystal clear at this point, its ramifications could be larger and wider than it appears at first glance. It seems a little bit too formalistic for the High Court to have rejected all the arguments of Changrong without considering the reciprocity issue which indicated that the the current practice in mainland China seems to favor the citizens of the PRC. Furthermore, the maritime fraud and forgery issues exposed by UN investigation deserve some degree of consideration under the context of public policy and good morals. It was surprising that the Taiwan High Court reached its ruling without even looking into the merits of the case decided by the P.R.C. court.

Although the Taiwan High court and Supreme Court have recognized irrevocable P.R.C. judgments and rulings since promulgation of the Act, those cases were mostly for personal disputes such as divorce and inheritance of property among citizens across the strait. Should Taiwan Supreme Court affirm the rationale of the High Court, it will have for the first time recognized and consequently enforced a P.R.C. judgment for P.R.C. corporations against a Taiwanese corporation.

With increasing volume business transactions across the strait, it is not difficult to foresee what a huge impact this ruling might have on the future transactional environment between P.R.C. and Taiwan. It may encourage corporations incorporated and based in the P.R.C. to be more willing to conduct business with their counterparts in Taiwan, bearing in mind their legal remedies available in the mainland would also be recognized and enforced in Taiwan. On the other hand, if the unilaterally tilted practice of judgment recognition and enforcement in P.R.C. courts are not balanced with reciprocity, Taiwanese corporations might suffer from from the lack of such assurance in their business transactions with P.R.C.-based corporations.

Will these Taiwanese companies hesitate to enter into transactions with P.R.C. based corporations merely for this reason? Probably not. Even without reciprocal legal protection mechanisms, Taiwanese corporations have for more than a decade flooded the industrial parks and investment triangles all over the P.R.C.

In other words, the net impact of this ruling might well be a boost to cross strait business transactions by providing legal assurances to PRC-based corporations, while not pouring too much cold water over their Taiwanese counterparts.

However, this entire discussion must be put in the context of the Taiwan Supreme Court ruling expected in the very near future.

[The Taiwan High Court Ruling is available here or on this weblog at the extended entry link directly below.]

Click the little triangle to hear an introduction to Ben Kao's guest column.

We posited this question in a prior post: will the Chinese plan to sell non-tradable shares apply to all companies? Evidently not, according to Shang Fu-lin, the chairman of the CSRC. Although all listed non-tradable shares will be converted into tradable shares, not all listed companies will sell those shares. The state will hold on to much of its holdings.

Financial Times's Geoff Dyer posits that this announcement is related to the fact that "some investors [are] afraid of a glut of new shares coming on to the market." [Subscription page.]

Not really. There is more at work here.

From the website of the embassy of the People's Republic of China in the U.S.:

"After the non-tradable shares become tradable, whether they would come into circulation or not depends not only on the shareholders' strategic choice, but also on relevant restrictions, said Shang.

He clarified the restrictions as follows: firstly, it depends on the entire strategic layout of state-owned sectors. After the reform on non-tradable shares is completed, state-owned shares can be cashed in only upon the approval of the state-owned assets authorities.

Secondly, it depends on the intention of controlling shareholders. Even though there are no restrictions in the laws and policies, the controlling shareholders will hold a substantial amount of shares in the long run in order to control the company."

Well, that clears things up: the state will choose the companies to participate in the sale of converted shares. The state will continue to hold the Ace cards as investors plaintively ask for approval.

Am I hallucinating or doesn't this latest pronouncement tend to make less valuable the publicy-owned shares of those companies whose converted non-tradable shares won't be sold? The publicly-traded shares in those companies will remain burdened by a state ownership beholden to nary a market force. They will gather at the lower end of the market, weighing it down, while the companies whose shares are more or less freely tradable will better reflect their market values.

And then, there is the further complication of H shares. There has been a report in western media that H shares will be included in the reform, but it appears that this is, as yet, just talk:

尚福林說，A股和H股分屬大陸和香港兩個市場，分別適用兩種不同的市場規則。在股權分置改革的過程中，對含有H股的公司解決其A股的股權分置問題，在具體方案的設計上要充分考慮這一因素。在境內證券市場的發展過程當中，我們有很多規則的制定都是學習和借鑒了香港市場的做法，今後我們還會一如既往地加強與香港證券監管部門及證券交易機構的溝通和交流。

So, even as the state announces cheerfully that the problems in the stock market will be resolved within one to two years, it injects further distortion and confusion into the plan to sell off state shares.

Disciple: What is this thing that is like a share, but not a share?
Master: Ah, yes. Tell me, what is the sound of one investor's hand clapping?

Click the little triangle to hear today's post.