Duke Law in China: Tsinghua Conference
A look at intellectual property and business law in China
Twenty years ago, it was not uncommon for people from Korea, Hong Kong,
and Taiwan–including panelist Ken Yun ‘88–to have never stepped foot in China. Today, China is running a $30 to $40 billion trade surplus and has become a magnet for foreign
investment and for foreign lawyers, with over 157 foreign law offices having been opened in recent years across China.
Exploring emerging themes in this transformation, Panel 1 of the Duke Law School conference at Tsinghua University in Beijing on June 11, took on the topic, “Corporate Governance and Investing in China.” This panel was moderated by Duke Professors James Cox and Stephen Wallenstein. Panelists included Professor He Meihuan (Betty Ho) of the Tsinghua law faculty, and Duke graduates Li Xiaoming '90, currently a partner in White & Case in Beijing; Dan Scheinman '87, senior vice president for corporate development of Cisco and one of the first Duke Law students to study in China; and Yun Young-Gak (Ken Yun) '88, president of Samjong KPMG in Seoul, Korea.
Panelists discussed how China continues to try to attract foreign investment, while also attempting to build economic independence. They also explored the emergence of a strong competitor to China–India–and some of India's advantages in terms of technological superiority and a more reliable legal system.
Restrictions on law practice by foreign law firms (they may not employ Chinese lawyers, nor practice Chinese law), and changes in the concept of lawyering in China–from the lawyer's role to strengthen the motherland, to the lawyer's obligation to represent a client's interests–were also discussed.
Among the challenges in doing business highlighted by the panelists were the high level of state ownership of Chinese enterprise, the lack of a tradition of shareholder's interests apart from the party or the state, growing disparities in wealth in China, lack of stability in the law, a staggering $170 billion of non performing loans, a declining stock market, poor accounting practices, and various cultural attitudes and practices which make it difficult for Western models of corporate governance regulation to take hold in China.
A second panel, "Intellectual Property in China," continued some of the same themes, specifically focusing on intellectual property protection. Professor James Boyle kicked off the session by drawing a parallel between the much-criticized lack of intellectual property protections in China today, and similar resistance to such protections 200 years ago in the U.S., when intellectual property interests from abroad were disregarded, and joint ventures were used to lure foreign investments and then to obtain technology secrets for domestic companies. He discussed whether, in the context of this past, U.S. objections to Chinese disregard of U.S. intellectual property law was a matter of (1) hypocrisy, (2) different circumstances calling for different laws, or (3) moot, concluding that each of these explanations had some force. He focused on the dilemma that both too little IP protection, and too much, can be problematic for a developing economy, drawing a comparison between Route 128 in Massachusetts and Silicon Valley in California to show how an intellectual property regime that looks great on paper (the Route 128 example, with greater IP protections, more vertical economic integration, and more restrictions on job hopping) might not actually operate to achieve the desired ends as well as a “softer” regime with greater mobility of ideas and workers. He also addressed the apparent advantages, and the hidden disadvantages of harmonization, which deprives society of the kind of natural experiments (like Silicon Valley) that can inform us about where to draw the right property protection lines.
Bharat Dube '86, head of IP Enforcement at Richemont International SA in Geneva, gave a powerful presentation about the huge subsidies to Chinese business that occur through runaway counterfeiting operations, and discussed various issues relating to this problem from the perspective of the business interests whose property is being stolen. Speaking in strong language, he charged that no one seemed to be willing to take on China, even though its disregard for intellectual property protections was devastating to other countries.
Kenji Kuroda '89, founding partner of Kuroda Law and Patent Offices (Tokyo and Shanghai) provided a comprehensive analysis of a series of "China risk" factors that he has identified in the course of his practice with firms doing business in China. These risks include China's relatively low respect for law, persistent protectionism, the low level of judicial independence in China, and poor interpretation of Japanese patents in China. He discussed the huge losses to Japanese business interests of Chinese counterfeiting, and agreed with Dube that it was critical for the world to control the misuse of the intellectual property of others by business in China.
Professor Wang Bing of Tsinghua built on Professor Boyle's analysis, to conclude that finding the right balance both between an inventor's owner and the public, and between developed and developing countries, required China to do more to tighten up and enforce intellectual property protections. He noted that, even from China's standpoint, the legal regime needed to stimulate the people in China to be creative innovators, not just copiers.
The panels culminated in a lunchtime talk by Professor Gao Xiqing, '86, vice chairman of the National Council for Social Security Fund. Professor Gao outlined the challenges of establishing a social security fund in China, identifying various demographic factors associated with China's aging population, and featuring data on the tremendous disparities in China of standard of living and life expectancy that, in some respects, create parallel challenges in the U.S. One advantage in China, he noted, is that the state still owns potentially productive enterprises which, if sold, would produce the funds necessary to make solvent the Social Security Fund in China (and be more productive, in private hands). The sale of licenses for third generation mobile telephone technology might also produce funds that could be used to support the Social Security Fund, although there are other claims on these funds as well.
The conference and lunch talk were sponsored by Duke's Global Capital Markets Center, The Center for the Study of the Public Domain, Tsinhgua University Law Faculty, Duke Law School, and Richemont. It was attended by faculty and students of Tsinghua, and several members of the Board of Visitors of Duke Law School.
"I was very impressed by the willingness of the conference's Chinese participants to speak frankly about their government and economic system without fear of reprisal," said Board of Visitors member Candace Carroll '74. "While business conditions in China are certainly not perfect, it appears that the climate for business and investment has greatly improved over the past few years, and will likely continue to improve."
Added Bob Montgomery '64, "The experience of interacting on a personal level with many Chinese executives and scholars was so extraordinary that in retrospect, it seems almost unreal. Never in my wildest imagination could I have expected to be in a situation where I would be lectured by Chinese (albeit, in good humor) that our U.S. government should have more confidence in the free market system and discontinue its paternalistic interference through tariffs and restrictive regulations."