Talk Explores How Legal System is Helping and Hindering Investment in China

Owen Nee, a lawyer who has represented many of the world's largest corporations in a variety of business transactions in China, spoke about changing trends in China investment from a lawyer's perspective at Yale SOM on September 19, 2007. Nee is currently of counsel at Jones Day and previously founded the China practice at Coudert Brothers, the first foreign firm to establish offices in Beijing and Hong Kong. The talk was part of the Greater China Club Speaker Series.

Twenty-eight years ago, Nee carried what may have been the first electric typewriter into China. There were hardly any foreign lawyers in the country at the time, and Nee had to quickly learn how to navigate the communist legal system, which bore little resemblance to the law back in the United States. Three decades later, there are more foreign law firms in China than in England, and the country is going through a major overhaul intended to make Chinese law more like that in the West. Nee, a graduate of Princeton and Columbia Law, said the outcome of these changes could help determine whether China remains open to foreign investors or takes steps to shut them out.

As an expert on and practitioner of Chinese law, Nee provided an insider’s view of changes going on in the country, an enormous market where 260,000 foreign investment enterprises employ 25 million people and produce a fifth of the total national revenue. In the last several months, laws codifying private property and bankruptcy and moving against monopolies have been approved by the government. On the surface, Nee said the new regulations should encourage foreign investors. Underneath, though, he said other intentions are at work. “The party still believes it will be able to herd [foreign investors] by using laws and regulations that look like a market economy,” he said. “When it suits the party, they can be used as levers of control.”

Despite the recognition in China of the importance of foreign investment to its economy, Nee said there is a growing movement in the country to limit the latitude of foreign enterprises. The courts, which Nee said are intimately tied to the communist party, can be used for this purpose. It’s his view that the $60 billion invested by foreigners each year provides a major engine for the economy. Clamp down on that and the economy could cool, leading to instability in a capitalistic system ruled by a single, authoritarian party. “Post Tiananmen Square, there has been a delicate balance between the army, the party, and the people,” he said. “So long as there’s a high growth rate and everybody is becoming richer, the party can stay in power. If there’s a recession, the people may ask why the party remains in control.”

An example of a way for the party to retain control, in Nee’s view, can be found in new legislation aimed at bolstering unions in foreign enterprises. So far, foreign companies have been able to open factories free from unions, which are led by party members and serve as organs of propaganda. According to Nee, the lack of unions worries Chinese leaders. “Each morning 25 million urban workers go to work in an environment the communist party doesn’t control,” he said. “The party sees unionization as a way to control urban dwellers if a major disturbance like the student uprising occurs again.”

On the whole, though, legal changes in China are designed not to interfere too much with a good thing, Nee said. Considering that the government’s greatest fear is instability, he said it’s in the interest of the party to keep the good times rolling. “So long as the economy keeps growing quickly and people have better and better standards of living,” he said, “you’re not going to have people demanding to play a part in the political process.”