china, international business, and the criminal...

China, International Business, and the Criminal Law1

Vivienne Bath*

INTRODUCTION ............................................................................................ 1 I. FOREIGN BUSINESS AND THE CHINESE LEGAL SYSTEM .......................... 3 II. CASES ................................................................................................... 8 III. PROCESS ..............................................................................................11 IV. COURT PROCESS AND EVIDENCE ......................................................... 16 V. CONDUCT OF THE TRIAL ..................................................................... 19 VI. LEGAL REASONING ............................................................................. 21 VII. WHO IS ON TRIAL? .............................................................................. 24 VIII. THE ROLE OF AUSTRALIA-U.S. GOVERNMENTS.................................. 25 IX. COMMENT ........................................................................................... 26 CONCLUSION .............................................................................................. 33

INTRODUCTION

Traditionally, commercial lawyers focus on the laws and regulatory

regime directly related to the establishment and operation of business

relations. The practice of commercial law cannot, however, be conducted

without reference to the risks presented by activities that may incur

criminal liability. In many jurisdictions, breaches of the relevant company

law and securities laws regimes involve the possibility of criminal liability.

In China, rapid economic growth has coincided with an increase in

prosecutions for financial crimes and the creation of new offences.2 White

1 This paper is based on a presentation given at the University of Hawaiʻi on

April, 16, 2011, in the Inaugural Joint Symposium on Asian Law between the William S.

Richardson School of Law and the University of Sydney Law School, at University of

Hawaiʻi. Some of the material in this article has previously been published online: Post

by Vivienne Bath to http://www.asiabizblog.com/archives/2009/08/guest_post_vivi.htm

(Aug. 19, 2009); Comments by Vivienne Bath quoted in Elizabeth Lynch, A Response to

Rio Tinto – A Different Opinion from Australia, CHINA LAW AND POLICY, Apr. 20, 2010,

http://chinalawandpolicy.com/tag/stern-hu/; Vivienne Bath, The Chinese Legal System

and the Stern Hu Case, EAST ASIA FORUM, Mar. 28, 2010,

http://www.eastasiaforum.org/2010/03/28/the-chinese-legal-system-and-the-stern-hu-

case/.

* Director of the Centre for Asian and Pacific Law in the University of Sydney;

Chair, China Studies Centre Research Committee, University of Sydney; B.A. (Asian

Studies) (honors) and LL.B (honors), Australian National University; LL.M., Harvard.

2 According to the 2010 Report by the Supreme People’s Court, there were

27,751 cases of embezzlement, bribery and malfeasance, an increase of 7.1% over the

previous year, and sentenced 28,652 persons, an increase of 9.25%. Highlights of the

Supreme People‟s Court Report, CHINA DAILY, Mar. 11, 2011,

2 Asian-Pacific Law & Policy Journal [Vol. 13:1

collar crimes, which include securities offences, fraud, false bankruptcy,

stealing state secrets, stealing business secrets, bribery and numerous other

possible criminal acts, may be subject to punitive criminal penalties,

particularly when they involve corruption and the payment or receipt of

bribes.3 Several well-publicized cases in China involving the prosecution

and conviction of foreign nationals on charges relating to their business

activities have highlighted the risk of criminal prosecution. The purpose

of this article is to examine the legal handling of a number of recent

criminal cases involving foreign businesses and businessmen. It will then

consider what, if any, conclusions can be drawn in relation to the

interactions between foreign business, politics and the judicial system in

China.4

http://www.chinadaily.com.cn/china/2011npc/2011-03/11/content_12157831.htm; Zui

Gao Renmin Fayuan Gongzuo Baogao [Work Report of the Supreme People’s Court],

DFFY.COM, (Mar. 11, 2010),

http://www.dffy.com/sifashijian/ziliao/201003/20100311163408.htm. Changes to

legislation include amendments to Zhonghua Renmin Gongheguo Xing Fa [Criminal Law

of the People’s Republic of China] (promulgated by the Nat’l People’s Cong., Mar. 14,

1997, effective Oct.1, 1997; amended in 1999, 2001, 2002, 2005, 2006, 2009 and 2011).

For example, Zhonghua Renmin Gongheguo Xing Fa Xiu Zhang An (Wu) [Fifth

Amendment to the Criminal Law of the PRC] (promulgated by the Standing Comm. Nat’l

People's Cong., Feb. 28, 2005), expands offences relating to credit card fraud (Article

177). Zhonghua Renmin Gongheguo Xing Fa Xiu Zhang An (Qi) [Seventh Amendment

to the Criminal Law of the PRC] (promulgated by the Standing Comm. Nat’l People's

Cong., Feb. 28, 2009) (added more detailed provisions relating to insider trading) (Article

180).

3 In a controversial case, a businesswoman named Wu Ying was condemned to

death at first instance for crimes involving illegal fund-raising. Tang Xiangyang and

Tang Ruoji, Considered Opinion: The Wu Ying Case, ECONOMIC OBSERVER, Apr. 19,

2011, http://www.eeo.com.cn/ens/Politics/2011/04/19/199377.shtml. The Supreme

People’s Court issued an interpretation on illegal fund-raising and financial fraud in

December 2010. Guan yu shen li fei fa ji zi xing shi an jian ju ti ying yong fa lü ruo gan

wen ti de jie shi [Interpretation on the Specific Application of Laws in the Trial of

Criminal Cases of Illegal Fundraising], (Sup. People’s Ct., Dec. 13, 2010, effective Jan. 4,

2011) (P.R.C.). In 2011, the Criminal Law was amended to remove the death penalty in

relation to thirteen economic crimes. Zhonghua Renmin Gongheguo Xing Fa Xiu Zhang

An (Ba) [Eighth Amendment to the Criminal Law of the P.R.C.] (promulgated by the

Standing Comm. Nat’l People's Cong., Feb. 25, 2011, effective May 1, 2011). See

generally Zhao Yinan, China Abolishes 13 Crimes from Death Penalty List, ASIA NEWS

NETWORK, Feb. 26, 2011, http://www.asianewsnet.net/home/news.php?id=17615&sec=1.

4 For this article, I have had to rely mainly on foreign press reports in relation to

the cases discussed, although I have had the advantage of a detailed judgment issued by

the Shanghai First Intermediate People’s Court in the Stern Hu case, reproduced in

Chinese (with an English translation). See Michael Sainsbury, 'Conflict of interest' in

focus in trial of Rio Tinto's Stern Hu, THE AUSTRALIAN, Apr. 19, 2010,

http://www.theaustralian.com.au/business/mining-energy/conflict-of-interest-in-focus-in-

trial-of-rio-tintos-stern-hu/story-e6frg9df-1225855615105. I have indicated in the text or

footnotes places where reports are contradictory or otherwise unsubstantiated.

http://www.dffy.com/sifashijian/ziliao/201003/20100311163408.htm

2011] Bath 3

I. FOREIGN BUSINESS AND THE CHINESE LEGAL SYSTEM

Chinese law accords differential treatment to foreign businesses

and investors in a number of significant respects. Some of this treatment

was originally designed to attract foreign investors and has been very

much to the advantage of foreign companies, as well as to China,

continues to attract immense amounts of foreign investment.5 As time has

passed, many of these special benefits have disappeared, but the separate

structure for foreign participation in the Chinese economy remains.

First, the Chinese regulatory system handles both the establishment

and the on-going operations of foreign companies and foreign-invested

operations in China differently to companies that are purely Chinese

owned. Foreign investment must go through a separate verification and/or

approval process (and now, potentially, a national security review)6 in

order to be admitted into China. Foreign investors must generally make

their investments through specially designated foreign investment entities,

which are subject to their own legal regime.7 The Chinese government

regulates the types of industry into which investment may be made, and

actively encourages some forms of investment and restricts and prohibits

others. Investment in industries that are not categorised is considered to

be permitted. In addition, there are restrictions placed on the right of

foreign investors to hold a controlling interest in particular types of

investments or on the amount of interest that foreign companies may

hold.8 Once established, foreign investment companies are subject to

ongoing monitoring by virtue of their foreign investment status.9 In

5 According to the Ministry of Commerce, new foreign investment in China in

2010 was US $105.735 billion. Ministry of Commerce, Statistics of China‟s Absorption

of FDI from January to December 2010,

http://english.mofcom.gov.cn/aarticle/statistic/foreigninvestment/201101/2011010738164

1.html .

6 Guan yu jian li wai guo tou zi she bing guo jing nei qi ye an quan shen chan

zhi du de tong zhi [Notice on Launching the Security Review System for Mergers and

Acquisitions of Domestic Enterprises by Foreign Investors] (promulgated by the General

Office of the State Council, Feb. 3, 2011, effective Mar. 5, 2011) (imposes an additional

layer of review for mergers and acquisitions involving key industries).

7 See generally Kay-Wah Chan, Foreign Investment Law in China, in CHINESE

COMMERCIAL LEGAL SYSTEM 207-240 (Patricia Blazey and Kay-Wah Chan eds., 2008);

Vivienne Bath, The Company Law and Foreign Investment Enterprises in the PRC –

Parallel Systems of Chinese-Foreign Regulation, 30(3) UNSW LAW J. 774-85 (2007);

infra note 27, 81-214.

8 See Wai shang tou zi qi ye mu lü [Foreign Investment Industry Catalog]

(promulgated by the National Development and Reform Commission and Ministry of

Commerce, Oct. 31, 2007) (includes requirements and limitations on structure and

ownership levels in relation to foreign investment in certain industries).

9 See, e.g., Guan yu kai zhan 2011 nian wai shang tou zi qi ye lian he nian jian


essence, this system attempts to maintain the separate regime for foreign

participation in the economy that was originally established in 1979 when

foreign investment was first permitted.10

It is questionable, however,

whether such a separation is still necessary, in view of the increasing

sophistication of Chinese businesses and the rapid development of

Chinese business law. For example, the Chinese government has

developed a detailed corporate and securities regime in response to the

growth of a strong private sector in China,11

rationalised the corporate

income tax regime by standardising the taxation of foreign, foreign-

investment and Chinese companies.12

In the course of these reforms, most

of the principles relating to Chinese private companies regulation and

governance have been extended to the foreign investment sector.13

Differences in treatment also extend to dispute resolution. It has

been clear from the early days of foreign investment that foreign-related

civil and commercial disputes can bypass the Chinese court system and be

referred to arbitration either inside or outside China.14

Most foreign-

related civil and commercial cases, as well as criminal cases involving

foreign nationals, will initially be heard by an Intermediate People’s Court

rather than a Basic level court.15

Similarly, the financial levels at which

gong zuo de tong zhi [Notice on Commencing the Joint Annual Inspections of Foreign-

Invested Enterprises in 2011] (issued by the Ministry of Commerce et al, Feb. 23, 2011)

10 Zhonghua Renmin Gongheguo zhong wai he zi jing ying qi ye fa [Chinese-

foreign Equity Joint Venture of the PRC] (promulgated by the Nat’l People’s Cong., July

9, 1979, as amended) provided for the creation of a separate joint venture entity, which

was to have limited liability (Article Four). Pursuant to Article Two of the Zhonghua

Renmin Gongheguo zhong wai he zi jing ying qi ye fa shi shi tiao li [Chinese-foreign

Equity Joint Venture Implementing Regulations] (promulgated by the State Council, Sept.

20, 1983, as amended), an equity joint venture was considered to be a Chinese legal

person. New forms of foreign investment enterprise were subsequently created by

Zhonghua Renmin gongheguo zhong wai he zuo jing ying qi ye fa [Chinese-foreign

Cooperative Joint Venture Law] (promulgated by the Nat’l People’s Cong., Apr. 13, 1988,

as amended) and Zhongguo Renmin Gongheguo Wai Zi Qiye Fa [Wholly Foreign-Owned

Enterprise Law of the P.R.C.] (promulgated by the Nat’l People’s Cong., Apr. 14, 1986,

as amended).

11 Zhonghua Renmin Gongheguo Gongsi Fa [Company Law of the P.R.C.]

(promulgated by the Stand. Comm. Nat’l People’s Cong., effective Dec. 29, 1993);

Zhonghua Renmin Gongheguo Zhengquan Fa [Securities Law of the P.R.C.]

(promulgated by the Stand. Comm. Nat’l People’s Cong., Dec. 29, 1993, as amended).

12 Zhonghua Renming Gongheguo Qiye Suodeshui Fa [Law of the PRC on

Enterprise Income Tax] (promulgated by the Nat’l People’s Cong., Mar. 16, 2007,

effective Jan. 1, 2008).

13 See Company Law, supra note 11, Art. 218.

14 Zhonghua Renmin Gongheguo Susong Fa [Civil Procedure Law of the PRC]

(promulgated by the Nat’l People’s Cong., Apr. 9, 1991, as amended), Art. 255.

15 See Civil Procedure Law, supra note 14, at Art. 19. It provides that

intermediate people’s courts shall have jurisdiction over major cases involving foreign

2011] Bath 5

foreign-related civil cases will be elevated to a hearing before a higher

court are lower than those applicable to purely Chinese disputes.16

The

intention behind this is presumably to ensure a higher level of judicial

attention and competence for foreign-related cases. Chinese statistics are

rather imprecise, but annual reports of the Supreme People’s Court suggest

that the overall number of cases before the courts involving foreigners is

relatively small,17

although the number of international arbitration cases

appears to be increasing.18

It is not clear how many criminal cases in

China involve foreigners. The Australian Department of Foreign Affairs

and Trade stated that, in June 2011, there were twenty-five Australian

citizens serving prison sentences in China, including Stern Hu and James

Sun (convicted for spying for Taiwan), and ten Australian citizens in

detention.19

The Chinese state plays a major role in all aspects of foreign-

owned business operations in China. Different parts of government may

fill any one or more the following roles: the approving authority for

investments and projects, the regulator, the supervising entity or the land

owning authority. Different levels of government – central, provincial,

municipal or local – may play a role in the business sphere, directly

elements. See also Guanyu Tiaozheng Gaoji Renmin Fayuan He Zongji Renmin Fayuan

Guanxia Diyi Shenmin Shangshi Anjian Biaozhun De Tongzhi [Notice on Adjustments of

Jurisdiction Standards of High People's Courts and Intermediate People's Courts over

Civil and Commercial Cases of First Instance] (promulgated by the Sup. People’s Ct.,

Feb. 3, 2008) (providing for cases involving foreigners or persons from Taiwan, Hong

Kong or Macao to be held at a higher level than purely Chinese cases involving

equivalent amounts of money). See also Article 20(3) of the Zhongguo Renmin

Gongheguo Xingshi Susong Fa [Criminal Procedure Law of the People’s Republic of

China] (promulgated by the Nat’l People’s Cong., July 1, 1979 as amended) (providing

that the Intermediate People’s Court should have jurisdiction when the defendant is a

foreigner).

16 Id.

17 2010 Supreme People’s Court Report, supra note 2. It refers to 20,258

foreign-related and maritime cases. The 2009 Report refers to 11,000 foreign-related

civil cases. See also Anne Davies and John Garnaut, Accused spy one of 39 Australians

held in Chinese jails, SYDNEY MORNING HERALD, (Feb. 2, 2011),

http://www.smh.com.au/national/accused-spy-one-of-39-australians-held-in-chinese-jails-

20110201-1ack7.html#ixzz1VAQvpCPm.

18 Chong Lee Liong & Qin Zhiqian, The Rise of Arbitral Institutes in Asia, THE

ASIA-PACIFIC ARBITRATION REVIEW, 2011,

http://www.globalarbitrationreview.com/reviews/31/sections/110/chapters/1189/the-rise-

arbitral-institutes-asia/ (last visited Aug. 23, 2011).

19 Department of Foreign Affairs and Trade (Australia), Senate Foreign Affairs,

Defence and Trade Legislation Committee Budget Estimates 2011–2012; 1-2 June 2011,

93, answer of Mr. Patrick Suckling, First Assistant Secretary, Consular, Public Diplomacy

and Parliamentary Affairs Division, Department of Foreign Affairs and Trade,

http://www.aph.gov.au/hansard/senate/commttee/s87.pdf.


through ownership and operation of state-owned enterprises, or indirectly

as a result of strong links between a local enterprise and local government

officials or part of a local government.20

A part of government may

therefore operate as a business partner or owner of a partner or as a

competitor or owner of a competitor or as a strong supporter. In addition,

there is a constant stress in the Chinese system between the different levels

of government. This is manifested in the courts, the procuratorate, and the

police, which, although theoretically subject to supervision and control at

a vertical level, are generally funded by, and subject to supervision

exercised at, the local government level.21

For the courts and the

procuratorate in particular, this double and sometimes conflicting system

of supervision and control is incorporated in the Constitution,22

which

requires the Supreme People’s Court and the Supreme People’s

Procuratorate (which deals with prosecution of crimes) to supervise the

administration of justice and the work of procuratorates at the lower levels,

respectively, but gives power to the people’s congresses at the same level

as the lower level courts and procurators to appoint, remove and oversee

the work of those courts and procurators. An additional element in

criminal cases is the role of the Communist Party Commission for

Discipline Inspection. The Commission plays an active role in

investigating acts of corruption and disciplinary breaches by Communist

Party members. For this purpose it employs harsh powers of detention

and investigation based on internal Party regulations rather than on law.23

The role of the Committee has been highlighted in the Matthew Ng case,

where foreign reports have claimed that the Chinese co-defendants were

both subjected to the shuanggui (双规) system of Party detention and

investigation before the trial.24

Under Chinese law, there are a number of offences specially

related to business for which both foreign individuals and foreign or

foreign investment enterprises and Chinese businessmen and companies

20

See generally Randall Peerenboom, CHINA’S LONG MARCH TOWARD RULE OF

LAW 188-238 (Cambridge University Press, 2002).

21 See He Xin, Court Finance and Court Responses to Judicial Reforms: A Tale

of Two Chinese Courts, 31(4) LAW & POLICY 463-86 (2009).

22 XIANFA art. 102, 103, 127, 123 (1982).

23 See Flora Sapio, Shuanggui and Extra-legal Detention in China, 22(1) CHINA

INFORMATION 7 (2008) (a more detailed discussion of the origins and nature of the

shuanggui system).

24 See infra, note 38. Pursuant to the shuanggui system, the Party can detain and

interrogate persons who may be guilty of corruption before, or even instead of,

investigation by the police or the Procuratorate pursuant to the Criminal Procedure Law.

Since the Party follows its own regulations rather than the procedural restraints in the law,

the shuanggui process is essentially extra-judicial, which poses obvious risks for persons

subjected to it.

2011] Bath 7

can be prosecuted. These are offences of general application, rather than

offences specifically directed at foreigners.25

Zimmerman outlines a

number of areas of potential concern for foreign businesses, including

director and officer liability for offences relating to company (foreign

investment enterprise) registration, industrial accidents, insider trading,

market manipulation and so on; intellectual property offences;

environmental pollution; bribery and corruption. 26

An important point

which was of particular relevance in the Stern Hu case, is the fact that

Chinese law imposes personal liability on individuals who are considered

to be responsible for corporate acts – as the legal representative, the

responsible person or person in charge. Article Thirty of the Criminal Law

provides that any company, enterprise, institution, State organ or

organisation which commits an act that may endanger society and which is

prescribed by law as a unit crime will bear criminal responsibility. In that

case, the unit is subject to a fine under Article Thirty-One and the persons

directly in charge, or who are directly responsible for the crime, will be

given criminal punishment. As a result, commentators have highlighted to

foreign businesspeople operating in China the possibility that they may be

subject to personal liability for actions taken in the course of their business

activities.27

A related issue for concern is the fact that where a case has

been or will be brought against a company, the relevant Chinese court is

both able and often willing to issue orders preventing foreign the legal

representative or foreign corporate officers from leaving China.28

There have been a number of high-profile cases involving the

prosecution of foreign defendants over the last thirty years. In this article,

I examine four recent cases that have received extensive coverage in the

international press – three involving Australian citizens and one involving

a United States citizen. All of these three defendants were born in China

and subsequently obtained foreign citizenship.

25

While a number of articles of the Criminal Law refer to foreigners, the

relevant offences are targeted at Chinese nationals: Art 102 (collusion with a foreign

state to endanger the sovereignty, territorial integrity and security of the PRC); Art 325

(unlawfully giving or selling cultural artifacts to foreigners); Art 394 (government

functionaries accepting gifts from foreigners and failing to declare them).

26 James M. Zimmerman, Esq., China Law Deskbook: A Legal Guide for

Foreign-Invested Businesses 1037-65 (ABA Section of International Law 3rd ed.), ABA

Section of International Law, 2010) (1999).

27 See, e.g., Jake Stratton, The Straight and Narrow, 25(1) CHINA BUSINESS

REVIEW 24; Laura Young, Don‟t get caught in red corner, LEXISNEXIS,

http://www.wangandwang.com/news-articles/articles/dont-get-caught/.

28 See, e,g., RHK Legal, Excuse me Sir a Stop Order is in place preventing you

from leaving China, Aug. 2011,

http://www.rhklegal.cn/attachment/attachment_2011811121821504.pdf .


II. CASES

In mid-2009, Aluminium Corporation of China (Chinalco)

withdrew its bid to buy a substantial stake in Rio Tinto. This followed and

the acrimonious collapse of the annual iron ore negotiations between

Chinese buyers and the major international sellers.29

In early July 2009,

Stern Hu (Hu Shitai), an Australian citizen, and three fellow employees of

Rio Tinto, an Australian-based mining multinational company, Liu Caikui,

Ge Minqiang and Wang Yong (all Chinese citizens), were detained in

Shanghai. They were formally arrested on August 11, 2009 and the

Shanghai First Intermediate People’s Court accepted the case on February

10, 2010.30

The trial commenced on March 22, 2010.31

Hu and his

colleagues were charged with infringing on commercial or business secrets

and engaging in “non-State-owned enterprise” bribery by accepting

payments from Chinese enterprises and persons.32

Rio Tinto was not

charged at any stage.

All defendants were found guilty on the charges of accepting

bribes (Article 163 of the Criminal Law) and the charges of stealing

business secrets (Articles 219 and 220). The cumulative sentences (after

deduction of concessions for some of the defendants for pleading guilty)

ranged from seven years to fourteen years. Stern Hu himself received a

sentence of ten years – seven years for the business secrets charge and five

years for the bribery charge, with a reduction of two years for admitting

his guilt on the bribery charge, as well as substantial fines on both

charges.33

The other defendants received large fines and prison terms of

29

Rio Tinto, Chinalco, Update on Chinalco Transaction, June 5, 2009,

http://www.riotinto.com/media/news_18207.asp; C.T. Johnson, A Looming Panic for Iron

Ore by China's Steelmakers, July 8, 2009, http://www.chinastakes.com/2009/7/a-

looming-panic-for-iron-ore-by-chinas-steelmakers.html.

30 Hu Shi Tai deng si ren bei Shanghai Jian Cha ji guan pi zhun dai bu [Arrest of

the Stern Hu four approved by Shanghai Police], CAIJING.COM.CN, Aug. 12, 2009,

http://www.caijing.com.cn/2009-08-12/110223010.html; John Garnaut, Rio 'spy' case:

Stern Hu officially charged, THE SYDNEY MORNING HERALD, Aug. 12, 2009,

http://www.businessday.com.au/business/rio-spy-case-stern-hu-officially-charged-

20090812-ehc0.html; Rio Tinto employees charged with bribery, infringing business

secrets, ENGLISH.XINHUA.COM, http://news.xinhuanet.com/english2010/china/2010-

02/10/c_13171260.htm.

31 AAP, Trial date of March 22 set for Rio Tinto executive Stern Hu in China,

THE AUSTRALIAN, Mar. 17, 2010, http://www.theaustralian.com.au/news/nation/trial-

date-of-march-22-set-for-rio-tinto-executive-stern-hu-in-china/story-e6frg6nf-

1225842031360.

32 John Garnaut, Rio Tinto “spy” case – Stern Hu officially charged, THE AGE,

Aug, 12, 2010, http://www.theage.com.au/business/rio-spy-case-stern-hu-officially-

charged-20090812-ehc0.html.

33 Michael Sainsbury, Questions remain after Rio Tinto executive sentenced says

2011] Bath 9

fourteen years (Wang Yong), eight years (Ge Minqiang) and seven years

(Liu Caikui).

Xue Feng, a citizen of the United States who was born in China,

was convicted and sentenced in 2010 to eight years imprisonment for the

theft of state secrets, in his case, a database relating to the Chinese oil

industry.34

His appeal to the Beijing People’s High Court was rejected in

early 2011.35

Matthew Ng, an Australian citizen of Chinese background, went on

trial on August 9, 2011 in the Guangzhou People’s Intermediate Court

after nine months in detention along with a Chinese director of NG’s

company, Et-China, Zheng Hong, and the finance officer, Kitty Yang. Ng

was accused of embezzlement, bribery and falsifying documents (relating

to registered capital of the companies in the group).36

Ng was Chief

Executive Office of Et-China International Holdings Ltd, a company

working in the Chinese travel industry that had been listed on the AIM

Market in London (a listing which has now been cancelled).37

Both Ng’s

lawyer and Ng’s wife have claimed that the litigation was instituted by a

local company, Guangzhou Lingnan International Enterprise Group,

backed by local government, which is attempting to obtain the transfer of

Et-China’s majority interest, Guangzhou GZL International Travel

Services.38

The trial finished on August 11, 2011, with a forceful plea by

Ng’s high-profile lawyer, Chen Youxi.39

Stephen Smith, THE AUSTRALIAN, Mar. 29, 2010,

http://www.theaustralian.com.au/politics/questions-remain-after-rio-tinto-executive-stern-

hu-sentenced-says-stephen-smith/story-e6frgczf-1225847140925.

34 American geologist Xue Feng jailed in China for eight years, THE TELEGRAPH,

July 5, 2010, http://www.telegraph.co.uk/news/worldnews/asia/china/7871740/American-

geologist-Xue-Feng-jailed-in-China-for-eight-years.html.

35 Associated Press, US Geologist Xue Feng loses China Appeal,

GUARDIAN.CO.UK, Feb. 18. 2011, http://www.guardian.co.uk/world/2011/feb/18/us-

geologist-xue-feng-loses-china-appeal/print.

36 Huey Fern Tay. The full story…Chinese justice, ABC CORRESPONDENTS

REPORT, Aug. 13, 2011,

http://www.abc.net.au/correspondents/content/2011/s3292727.htm; Michael Sainsbury,

Canberra slams China over trial of businessman Matthew Ng, THE AUSTRALIAN, Aug. 9,

2011, http://www.theaustralian.com.au/news/world/chinese-court-bans-media-from-

trial/story-e6frg6so-1226111832302.

37 Et-China, Cancellation from Trading on AIM., Dec. 31, 2010, http://et-

chinalimited.com/content/media/archive/2010/311210.asp.

38 John Garnaut, Australian business leader arrested in China, THE AGE, Nov.

26, 2010, http://www.theage.com.au/business/australian-business-leader-arrested-in-

china-20101125-1894x.html.

39 John Garnaut, Ng‟s defiance places China on the defensive, THE SYDNEY

MORNING HERALD, Aug. 14, 2011, http://www.smh.com.au/national/ngs-defiance-places-

china-on-defensive-20110813-1iryj.html. On Dec. 6, 2011, after this article was

completed, the Guangzhou Intermediate Court unexpectedly handed down its verdict on


Charlotte Chou, an Australian citizen of Chinese background, was

detained on June 24, 2008, and subsequently convicted of and imprisoned

for bribery.40

Upon her release in December 2009, she was immediately

detained again. Her trial on embezzlement charges commenced in

Guangzhou on August 30, 2011 and lasted for two days.41

Why are these cases worthy of a more detailed review? These

cases have received a great deal of publicity, due to the fact that the

defendants are foreign, the facts of the cases are disputed and the

prosecution and court process has been strongly criticized by the press

coverage. Clearly, four cases in a system which deals with almost 800,000

criminal cases each year does not constitute evidence of general Chinese

judicial practice.42

They do, however, provide some interesting

perspectives on the prosecution of criminal cases and court process for a

number of reasons. First, the cases – particularly the Stern Hu case –

involve foreign citizens and can be expected to be subject to scrutiny both

by the Australian and United States governments and by the foreign media.

Secondly, the cases have been or are being conducted in three of China’s

major cities. Beijing, Shanghai and Guangzhou are all rich and highly

developed areas of China, where the courts are better resourced and can

reasonably be expected to be of a higher standard than elsewhere in

the Matthew Ng case: a total of thirteen years imprisonment (commuted from 14.5 years)

for misappropriation of company funds (two years), false registration of company capital

(2.5 years), work unit bribery (two years) and embezzlement (two years). His co-

defendants were also found guilty of bribery and embezzlement and given sentences of

4.5 years commuted 3.5 years (Kitty Chan) and seventeen years commuted to sixteen

years (Zheng Hong). John Garnaut, Shock verdict: China jails Aussie for 13 years, THE

AGE, Dec. 6, 2011, http://www.theage.com.au/national/shock-verdict-china-jails-aussie-

for-13-years-20111206-1ogiv.html. The defendants have indicated that they will appeal.

Reports in the Chinese press indicate that the focus of the verdict was on the conduct of

Zheng Hong in relation to the transfer of ownership of GZL Travel. Attention was also

given to the “unlawful” manner in which Ng obtained control of this entity, although

none of the charges (with the possible exception of the charge relating to falsification of

the registered capital) appear to relate directly to the transfer of control. See

http://People.com.cn, Guang zhi lu yuan dongshichang Zheng Hong yi shen bei pan 16

nian, aozhou jie dongshi bei pan 13 nian 广之旅原董事长郑烘一审被判 16 年澳洲籍董事被判 13 年 Guangzhou Travel original Chairman, Zheng Hong, sentenced to 16

years; Australian director sentenced to 13 years], Dec. 6, 2011,

http://legal.people.com.cn/GB/188502/16519213.html.

40 John Garnaut, Australian businesswoman falls foul of China‟s legal system,

THE SYDNEY MORNING HERALD, Aug. 23, 2011,

http://www.smh.com.au/world/australian-businesswoman-falls-foul-of-chinas-legal-

system-20110822-1j6ve.html.

41 John Garnaut, Charges are a put-up job, says businesswoman, THE SYDNEY

MORNING HERALD, Aug. 31, 2001, http://www.smh.com.au/national/charges-are-a-putup-

job-says-businesswoman-20110830-1jk96.html.

42 2010 Supreme People’s Court Report, supra note 2.

2011] Bath 11

China.43

Thirdly, the cases involve businessmen and women operating in

China and demonstrate very clearly that foreign citizenship does not grant

immunity from criminal action.

III. PROCESS

The cases raise a number of important questions about judicial

process. The Criminal Procedure Law sets out in some detail the time

limits and procedures that should be followed in relation to detention,

arrest, and trial. It also allocates responsibilities in relation to criminal

matters between the various branches of government – generally the police

(under the Ministry of Public Security), the procuratorate (in charge of

prosecution) and the judiciary. Elizabeth Lynch comments that in the

Stern Hu case the Chinese authorities appeared to follow the letter of the

Criminal Procedure Law.44

Regular visits by the Australian consul were

allowed, as was access to lawyers. Time limits were apparently observed,

although it appears that the investigating authorities sought and obtained

all available extensions of time.45

The trial date was announced less than a

week before the trial was due to commence, however,46

and the entire trial

lasted only three days.47

Remarkably, a sixty-eight page judgment was

43

See Xin He, supra note 22 (differences in funding levels between the

Shanghai courts and rural courts). Xin He’s research also indicate that the enforcement

of commercial judgments and the working of the courts is noticeably better in developed

urban areas of China than in rural areas. Xin He, Rule of Law in China: Chinese Law and

Business, The Enforcement of Commercial Judgments in China, THE FOUNDATION FOR

LAW, JUSTICE AND SOCIETY (undated),

http://www.fljs.org/uploads/documents/Xin%20He%231%23.pdf.

44 Elizabeth Lynch, The Rio Tinto Trial in China – A Miscalculation about Rule

of Law? CHINA LAW AND POLICY, Apr. 19, 2010, http://chinalawandpolicy.com/tag/rule-

of-law/page/2/.

45 The Criminal Procedure Law sets out a number of time limits with which the

investigating and arresting bodies must comply and the permitted extensions of time. For

detention prior to formal arrest: three days, plus an extension of four days, with a possible

extension up to thirty days in very limited circumstances (Article Sixty-Nine) and seven

days for the procuratorate to decide whether to approve the arrest (Article Sixty-Nine);

for the investigation period: two months, plus one month extension with approval from

the next highest level of the procuratorate (Article 124), or an extension of two months

plus another two months for very severe cases, with approval from the provincial level

procuratorate) (Articles 126 and 127). An indefinite extension may be obtained for

particularly grave and complex cases with the approval of Supreme People’s

Procuratorate (Article 125). When the police have recommended prosecution, the

procuratorate has one month to decide whether to proceed to trial plus one half-month

extension (Article 138). Pursuant to Article 150, the court will accept the case if the bill

of prosecution contains clear facts of the crime, together with lists of witnesses, and

copies of the evidence.

46 AAP, supra note 32.

47 AAP, Stern Hu trial ends without verdict, ADELAIDE NOW, Mar. 24, 2010,


produced on March 29, 2010 – a week after the first day of the trial –

which provides rare insights into the trial process and detailed reasons for

the decision.48

However, according to reports, the Ministry of State Security

(which is responsible for cases involving endangerment of state security)

instigated the initial investigation, rather than the police or the

Procuratorate (which deals with corruption cases).49

A statement

attributed to the National Administration for the Protection of State Secrets

accused Rio Tinto of causing massive damage to China’s economic

interests by buying and otherwise obtaining intelligence about the Chinese

steel sector.50

By the time of the formal arrest, the Shanghai police were

in charge of the case and the accusations relating to paying bribes to obtain

state secrets had become charges that the defendants had unlawfully

obtained business secrets and accepted (rather than paid) bribes.51

These

changes were significant. Stealing State secrets for a foreign power is a

major offence under the Criminal Law, with penalties ranging up to life

imprisonment in a particularly serious case,52

and the defendant’s rights in

the investigation and the court case are significantly abridged.53

Infringing on commercial secrets and engaging in commercial bribery are

much less serious offences, although they may (and in fact did) result in a

significant gaol sentence.54

The downgrading of the charges after the

http://www.adelaidenow.com.au/business/stern-hu-trial-to-begin-in-china/story-e6frede3-

1225843712521.

48 Copies of the judgment, in English and Chinese, are available at: Michael

Sainsbury, Conflict of interest in focus of trial of Rio Tinto‟s Stern Hu, THE AUSTRALIAN,

Mar. 29, 2010, http://www.theaustralian.com.au/business/mining-energy/conflict-of-

interest-in-focus-in-trial-of-rio-tintos-stern-hu/story-e6frg9df-1225855615105.

49 Chinese President behind Stern Hu 'spy' probe, NEWS.COM.AU, Jul. 13, 2009,

http://www.news.com.au/chinese-president-behind-stern-hu-spy-probe/story-0-

1225748997935.

50 Shanghai Daily, Watchdog on Secrets: Rio caused “huge loss,” Aug. 10,

2010, http://www.china-embassy.org/eng/zt/t577753.htm.

51 John Garnaut, Rio Tinto “spy” case – Stern Hu officially charged, THE AGE,

Aug, 12, 2010, http://www.theage.com.au/business/rio-spy-case-stern-hu-officially-

charged-20090812-ehc0.html. See also Michael Sainsbury, infra note 34.

52 See Criminal Law, infra note 2, Art. 111.

53 See Criminal Law, infra note 2, Article Ninety-Six (a defendant in a case that

involves state secrets must obtain approval from the investigation organ to appoint a

lawyer and subsequently to meet with his lawyer. Under Article 152 of the Criminal

Procedure Law, a state secrets case is not heard in open court).

54 See Criminal Law, infra note 2, Article 219 (providing for a penalty of up to

seven years imprisonment in a particularly serious case. This concept is elaborated on by

Article Seven of Guanyu Banli Qinfan Zhishi Shanquan Xingshi Anjian Juti Yingyong

Falü Ruogan Wenti De Jieshi [Interpretation on Certain Issues Concerning the

Application of Law in Handling Criminal Cases Involving Infringement of Intellectual

2011] Bath 13

widespread publicity relating to the case has not been explained, although

it seems likely that Chinese authorities at a higher level became concerned

about the implications of the case for China’s long-term relations with

Australia, which is an important trading partner. Certainly the Australian

government was actively involved in making representations to the

Chinese government in relation to the case, which became a major public

issue in Australia.55

In Matthew Ng’s case, it is not clear whether the process followed

the formalities in the Criminal Procedure Law relating to detention,

although the period of detention suggests that it may have. Ng was

detained in November 2010, formally arrested and charged two weeks

later, in December 2010, and his trial commenced in August 2011.56

Ng

has had access to consular assistance and a lawyer.57

In contrast,

newspaper reports state that prior to her trial in late August 2011, Charlotte

Chou was held in detention for approximately twenty-one months, a

period which is well in excess of the periods set out in the Criminal

Procedure Law, even if all available extensions were granted.58

The

Australian government is reported to have complained repeatedly about

the lengthy period of pre-trial detention.59

She was finally given access to

a lawyer, Chen Youxi, although reports indicate that when she was

Property Rights] (promulgated by the Sup. People’s Ct. and the Sup. People’s

Procuratorate, Dec. 8, 2004, effective Dec. 22, 2004)).

55 See comments by Vivienne Bath quoted in Elizabeth Lynch, A Response to

Rio Tinto – A Different Opinion from Australia , CHINA LAW AND POLICY, Apr. 20, 2010,

http://chinalawandpolicy.com/tag/stern-hu/; Vivienne Bath, The Chinese Legal System

and the Stern Hu Case, EAST ASIA FORUM, Mar. 28, 2010,

http://www.eastasiaforum.org/2010/03/28/the-chinese-legal-system-and-the-stern-hu-

case/.

56 The period of detention for Ng suggests that either a number of extensions

were granted or the period for detention was exceeded. See infra note 47.

57 John Garnaut, Top Australian entrepreneur jailed in China over

'embezzlement', THE SYDNEY MORNING HERALD, Nov. 26, 2010,

http://www.smh.com.au/business/top-australian-entrepreneur-jailed-in-china-over-

embezzlement-20101125-1892z.html#ixzz1VGhSUbZP.

58 See infra note 53 (sets out the requirements of the Criminal Procedure Law on

periods of detention). Another Australian, James Sun, is currently serving a life sentence

(commuted from a suspended death sentence) for spying for Taiwan. According to the

newspaper reports, he was detained and interrogated for twenty-two months prior to trial.

Ann Davies, The interrogation and conviction of an Australian businessman is a chilling

story, THE SYDNEY MORNING HERALD, Feb. 2, 2011, http://www.smh.com.au/world/plea-

for-husband-swallowed-by-chinese-system-20110201-1ach5.html.

59 Michael Sainsbury, Canberra presses China on jailing of Australian business

woman, THE AUSTRALIAN, Aug. 23, 2011, http://www.theaustralian.com.au/national-

affairs/canberra-presses-china-on-jailing-of-australian-business-woman/story-fn59niix-

1226120030059.


originally arrested prior to her conviction for bribery, she was denied

access to a lawyer for six weeks.60

In the Xue Feng case, according to reports, there was a gap of

more than three years between the date on which Xue was detained and

his ultimate conviction, during which all of the applicable time limits

under the Criminal Procedure for detention, arrest and trial were

exceeded.61

The United States Embassy was not given of his detention in

a timely fashion and Xue Feng also claimed that he had been tortured

during detention.62

He was permitted to retain legal counsel, although

only after a significant delay (one year after he was first detained).63

The practice of detaining defendants for lengthy periods is not

confined to foreign defendants.64

Indeed, in 2010, the State Compensation

Law was amended to make clear that defendants are entitled to

compensation if they are wrongfully detained, or detained for periods in

excess of the legally permitted time period, where the case is subsequently

withdrawn or the defendant is found innocent.65

For defendants who are

not found innocent, there appears to be no redress other than the deduction

of time spent in detention from their sentences.66

In none of these cases were any of the defendants granted bail,

although that this is not unusual in the Chinese system.67

In addition,

during the period of their detention, neither Stern Hu nor Matthew Ng was

60

John Garnaut, Another Australian hits China‟s legal wall, THE AGE, Aug. 23,

2011, http://www.theage.com.au/national/another-australian-hits-chinas-legal-wall-

20110822-1j6s0.html?from=age_sb.

61 Jerome A. Cohen, The US – China Consular Convention: Need for Greater

Protection for Individuals, U.S. ASIA LAW INSTITUTE, Aug. 4, 2011,

http://www.usasialaw.org/?p=3918; Jerome A. Cohen, Criminal Justice for Foreign

Business People in China? U.S. ASIA LAW INSTITUTE, Mar. 2, 2011,

http://www.usasialaw.org/?p=5138. Consular Convention between the United States and

the People‟s Republic of China, Art 35(5), Sept. 17, 1980, U.T.S. Vol. 33, TIAS 10209, p.

2973.

62 Id.

63 Id.

64 Sarah Biddulph, The Field of Crime Control and Social Order: Prospects for

Criminal Procedure Reform in China, in EXAMINING PRACTICE, INTERROGATING THEORY:

COMPARATIVE LEGAL STUDIES IN ASIA 109-46 (Penelope (Pip) Nicholson and Sarah

Biddulph eds., 2008).

65 Guanyu Xiugai <Zhonghua Renmin Gongheguo Guojia Peichang Fa> De

Jueding [Decision on Revising the "State Compensation Law of the People's Republic of

China”] (promulgated by the Standing Comm. of the Nat’l People’s Con., Apr. 29, 2010,

effective Dec. 1, 2010).

66 See infra note 32 (each of the defendants was given credit for their time in

detention).

67 See Changlin Li, Bail and Residential Surveillance in the Investigation State

NO 2 CRIMINAL LAW REVIEW 153-80 (2009).

2011] Bath 15

permitted to have visits from their wives or families.68

It should also be

noted that the relatively short periods from the announcement of the date

of the trial to the commencement of the hearing comply with Article 150

of the Criminal Procedure Law, which provides that the court should

deliver a copy of the bill of prosecution to the defendant no later than ten

days before the opening of the court and inform the defendant that he may

appoint a defender if he has not already done so. These time periods are,

however, very short if the case is complex and the defendant is not aware

of the case that the prosecution proposes to bring.69

The Criminal Procedure Law and the Lawyers Law grant a person

the right to retain a lawyer after the date on which he is interrogated by an

investigatory organ for the first time, or after compulsory measures (强制

措施) are adopted in relation to the person.70

However, the Criminal

Procedure Law (Article Ninety-Six) also provides that in a case “involving”

state secrets, the approval of the investigation organ is required both for

the appointment of a lawyer and for meetings with the lawyer. Article

Ninety-Six also gives the investigation organ the right to be present at

meetings between a lawyer and his client, which can make it difficult for

the defendant properly to prepare his defence.71

Indeed, in the Ng case,

68

John Garnaut, After nine months, China lets wife speak to accused Aussie

husband, THE SYDNEY MORNING HERALD, Aug. 10, 2011,

http://www.smh.com.au/world/after-nine-months-china-lets-wife-speak-to-accused-

aussie-husband-20110810-1ilvw.html; John Garnaut, Stern Justice, THE AGE, Mar. 22,

2010, http://www.theage.com.au/business/world-business/stern-justice-20100321-

qo1u.html.

69 See infra note 80.

70 Criminal Procedure Law, Article 96; Zhonghua Renmin Gongheguo Lüshi Fa

[Law on Lawyers of the People’s Republic of China] (promulgated by the Stand. Comm.

Nat’l People’s Cong., May 15, 1996, as amended) (Article 33) (P.R.C.). Compulsory

measures are covered in Chapter Six of the Criminal Procedure Law, Article Fifty which

provides that the police or Procuratorate may issue a warrant to compel the appearance of

a criminal suspect or defendant, order him to obtain a guarantor or subject him to

residential surveillance. Draft proposed amendments to the Criminal Procedure Law,

Zhonghua Renmin Gongheguo Xing Shi Su Song Fa Xui Zheng An (Cao An)

[Amendment to the Criminal Procedure Law of the People's Republic of China (Draft)]

(issued by the Nat. People’s Cong., Aug. 30, 2011) (Articles 3 and 7) would require that a

suspect or defendant be notified of his right to a lawyer or defender, and gives increased

rights to the suspect or defendant to meet with the defender.

71 See Sida Liu & Terence C. Halliday, Dancing Handcuffed in the Minefield:

Survival Strategies of Defense Lawyers in China‟s Criminal Justice System, CENTER ON

LAW AND GLOBALIZATION RESEARCH PAPER NO. 08-04, May 14, 2008,

http://ssrn.com/abstract=1269536 (an interesting account of the extreme difficulties

experienced by defense lawyers in relation to meetings and obtaining evidence). The

draft amendments referred to above provide that meetings with defense lawyers may not

be monitored, although the lawyer would have to obtain permission from the

investigative organ to meet with his client in the case of “crimes endangering the State

security, of terrorism or joint crimes involving grave bribery.” See infra note 80, Article


the defence lawyers complained that they were given only two working

days to read substantial amounts of evidence.72

Charlotte Chou’s

representative claimed that although there were bank records and

documents which could prove that the amounts she was accused of

embezzling constituted repayment of personal loans, she was not given

access to them for the purposes of her defence.73

IV. COURT PROCESS AND EVIDENCE

The Criminal Procedure Law provides that trials should be held in

an open court except in limited circumstances,74

and recent interpretations

by the Supreme People’s Court support the principle of openness in the

administration of justice and the requirement to provide an open court.75

China also has consular agreements with both the United States and

Australia that guarantee consular access at the trials of nationals. Article

152 of the Criminal Procedure Law, however, provides that cases

involving state secrets will not be heard in public. In the Xue Feng case,

which related to the unlawful acquisition of state secrets, the court was

closed, including to the United States consular representative.76

The court

disregarded claims from the United States government that the refusal to

allow consular representation in court breached the Consular Agreement

between China and the United States and past practice.77

The Stern Hu

case involved business secrets. Article 152 of the Criminal Procedure Law

requires a closed court for cases involving state secrets and private affairs

of individuals, but the court closed the part of the hearing that related to

business secrets nonetheless.78

It also refused to allow the Australian

consular representative to attend this part of the trial, again arguably in

7, proposed Article 37.



74 See infra note 53, Article 152.

75 E.g., Article Two of Guanyu Sifa Gongkai De Liu Xiang Guiding [Six

Provisions on Judicial Transparency] (promulgated by the Supreme People’s Court, Dec.

8, 2009) (“The people's courts shall formulate and improve upon rules for the observation

and reporting of trials in an orderly, open and effective manner, thereby eliminating the

relevant barriers and enabling the public and news media to have proper access to the

relevant information and exercise their right to monitoring.”).

76 See Cohen, infra note 70.

77 See Consular Convention, infra note 70, Art 35(5).

78 Stephen McDonell, AM-Stern Hu Case to be heard behind closed doors, ABC,

Mar. 22, 2010, http://www.abc.net.au/am/content/2010/s2852121.htm.

2011] Bath 17

contravention of the Australia-China Consular Agreement.79

Protests by

the Australian government were ineffective to change this decision.80

The

Australian Consul-General was present at the part of the trial that related

to the bribery charges.81

Representatives of the Australian media were not

permitted to attend any part of the hearing (other than the handing down of

the verdict). The then Australian Prime Minister, Kevin Rudd, criticised

China for its lack of transparency in holding part of the trial in secret.82

In the Ng case, the court was open in accordance with Chinese

rules. However, reports indicate that the court moved the trial to a

courtroom that was too small for the potential audience,83

despite

assurances to the Prime Minister of Australia, Julia Gillard, by Premier

Wen Jiabao that the court would be open.84

This was presumably in order

to ensure that the foreign media would be unable to attend the trial.

Interestingly, the Supreme People’s Court has taken several steps to

require openness and transparency in the courts85

and in 2010 instituted a

program to encourage judicial transparency pursuant to which certain

“demonstrative” courts for the purpose of judicial transparency were

nominated as demonstrative courts and awarded points for satisfying

certain requirements. These include admitting close relatives, the public

and the media to trials, and ensuring that a courtroom of a suitable size is

made available for high-profile cases.86

The Guangzhou Intermediate

79

Agreement on Consular Relations between Australia and the People's

Republic of China, AUSTRALIAN TREATY SERIES [2000] No. 28, Art. 1(f). See also

Donald Clarke, The closing of the Stern Hu trial: a legal analysis, Mar. 21, 2010,

http://lawprofessors.typepad.com/china_law_prof_blog/.

80 Phillip Hudson, Australian government defends handling of Stern Hu case

after Rio Tinto executive sentenced to 10 years' jail in China, HERALD SUN, Mar. 30,

2010, http://www.heraldsun.com.au/news/rio-tintos-stern-hu-found-guilty-in-chinese-

court-and-sentenced-to-10-years-jail/story-e6frf7jo-1225847086701.

81 Michael Sainsbury, The world watches Stern Hu case as media coverage is

gagged, THE AUSTRALIAN, Mar. 29, 2010,

http://www.theaustralian.com.au/business/media/the-world-watches-stern-hu-case-as-

media-coverage-is-gagged/story-e6frg996-1225846613332.

82 AAP, China‟s Hu sentence dent global image: Rudd, THE AGE, Mar. 30, 2010,

http://www.theage.com.au/business/chinas-hu-sentence-dents-global-image-rudd-

20100330-r9eq.html.


84 Why we still need to make things: to survive, THE AGE, Aug. 24, 2011,

http://www.theage.com.au/opinion/editorial/why-we-still-need-to-make-things-to-

survive-20110823-1j8ae.html.


86 Guanyu Queding Sifa Gongkai Shifan Fayuan De Jueding [Decision on

Determining Demonstrative Courts for Judicial Transparency] and Sifa Gongkai Shifan

Biaoyuan Biaozhun (Standards for Demonstrative Courts for Judicial Transparency),

(both issued by the Sup. People’s Ct, Oct. 15, 2010).


People’s court is not one of the demonstrative courts but it is of course

subject to the requirements relating to transparency set out in the law and

in the Supreme People’s Court interpretation on judicial transparency.87

After a stream of complaints and representations to the central government,

representatives of the Australian and the Chinese media were allowed into

the courtroom.88

As a consequence, the western press has published

detailed reports on the conduct of the trial.

The response of the courts in these cases raises a number of issues.

First, consular representation is an important protection both for foreign

citizens in China and Chinese citizens abroad. The refusal by the courts in

the Xue Feng and Stern Hu cases to admit the consular representative to

the trial means that the foreign government concerned cannot monitor the

conduct of the trial or confirm that it is fair and complies with Chinese or

international standards. It also appears that the Chinese government is

establishing a pattern of refusing to allow consular representatives to be

present in “sensitive” cases. Reports on the trial of Australian citizen,

James Sun, who was convicted of spying, also indicate that the Australian

consular representative was not permitted to attend the hearing, reportedly

on the grounds of “national security.”89

Second, the reluctance of the

courts to allow the press or the public into the courtroom to hear the

proceedings is certainly counter-productive, even where it is lawful.

Among other things, it gives the impression to the world at large that

Chinese legal requirements and the recent Supreme Court Interpretation

relating to judicial transparency are not being taken seriously within the

Chinese court system. It is encouraging, however, that close relatives, the

Australian consul and ultimately the press were permitted to attend and to

report on the Matthew Ng trial, despite the case being moved to a smaller

courtroom and despite attempts by Guangzhou Lingnan International

Enterprise Group (which is allegedly behind the charges being brought) to

fill all of the available seats.90

87

See infra note 96,

88 Michael Sainsbury, Canberra slams China after trial of businessman Matthew

Ng, THE AUSTRALIAN, Aug. 9, 2011,

http://www.theaustralian.com.au/news/world/chinese-court-bans-media-from-trial/story-

e6frg6so-1226111832302.


90 See infra note 38. John Garnaut, Australia protests against media

blockade at China trial, Australia protests against media blockade at China trial, THE

SYDNEY MORNING HERALD, Aug. 10, 2011, http://www.smh.com.au/national/australia-

protests-against-media-blockade-at-china-trial-20110809-1ikz7.html#ixzz1c2l4ml9o.

2011] Bath 19

V. CONDUCT OF THE TRIAL

In all cases, the duration of the trials was quite short and the court

decided the facts essentially on the basis of the written documents. Article

Forty-Seven of the Criminal Procedure Law, however, refers to witnesses

being made available for cross-examination. Similarly, Article Two of the

Six Provisions of the Supreme People's Court on Openness in Judicial

System issued in 2009 states that unless laws or an Interpretation provides

that a witness need not appear in court, the court should summon

witnesses and expert witnesses to appear in court.91

However, in

accordance with what appears to be standard practice in China,92

witnesses

did not appear in person at the Stern Hu trial.93

Indeed, the devastating

claim by one witness, Du Shuanghua, that he had paid one of the

defendants RMB seventy million as a bribe was given in writing (although,

according to reports, defendant Wang Yong indignantly asked in court that

Du appear in person so that he could be cross-examined).94

In the Matthew Ng case, both of Ng’s co-defendants had been

subjected to the shuanggui process, which involves detention and

investigation by the local Communist Party Committee for Discipline and

Inspection without the benefit of the protections set out in the Criminal

Procedure Law,95

even although, according to reports, Yang was not a

Party member.96

Clearly, it was potentially disadvantageous for Ng to

91

See infra note 61. See also Liu and Halliday, infra note 81.

92 Article Forty-Seven provides as follows: “The testimony of a witness may be

used as a basis in deciding a case only after the witness has been questioned and cross-

examined in the courtroom by both sides.” See also Ye Doudou, How China Justifies

Empty Witness Chairs, CAIJING.COM.CN, June 21, 2009,

http://english.caijing.com.cn/2009-06-26/110189954.html; in Chinese, Zui gai chu ting

de ren zai na li?, http://magazine.caijing.com.cn/2009-06-21/110187313.html. In the

notorious attempt to put lawyer Li Zhuang on trial for a second time, the court apparently

responded in relation to challenges to the evidence and its acceptance of written witness

testimony that "court notices failed to reach the witnesses and the rest of witnesses were

either unwilling or unable to testify on trial." He Xin, Prosecutors Withdraw Charges

against Li Zhuang, CAIXIN ONLINE, Apr. 22, 2011, http://english.caing.com/2011-04-

22/100251500.html.

93 The judgment sets out the evidence presented by the prosecution, which

consisted of written testimony, emails, reports, confessions and other documents. See

infra note 56, 8 (page numbers refer to the Chinese judgment).

94 Peter Lee, More than bribery: Wealth, power and Rio Tinto, ASIA TIMES, Mar.

31, 2010, http://www.atimes.com/atimes/China_Business/LC31Cb01.html.

95 John Garnaut, Hopeful lawyer says Ng prosecution case a fabrication of guilt,

THE SYDNEY MORNING HERALD, Aug. 8, 2011, http://www.smh.com.au/national/hopeful-

lawyer-says-ng-prosecution-case-a-fabrication-of-guilt-20110807-1ihii.html.

96 John Garnaut, Justice denied in Chinese pursuit of Australian, THE AGE, Aug.

14, 2011, http://www.theage.com.au/world/justice-denied-in-chinese-pursuit-of-


have the confessions allegedly made by the other two defendants in the

course of their time under the shuanggui process97

presented as evidence

against him, since his ability to challenge the circumstances under which

they were made was limited. However, in the Ng case, having all of the

defendants’ cases heard at once may have been advantageous to Ng, since

Zheng Hong reportedly challenged the accuracy of part of his “confession”

himself in the course of the trial.98

In the Xue Feng case, similarly, the

defence could not call witnesses or challenge written statements by

prosecution witnesses.99

The judgment in the Stern Hu trial relies several times on “judicial

expert position papers,” and reports provided to the court to prove not only

that the information in question was not known to the public at large on a

particular date, but also that the documents had been kept in confidence,

the information was of practical use, the documents were illegally

obtained and disclosure would cause loss to the owner of the

information.100

All of these elements are crucial to the determination

whether an offence had been committed and would appear to be matters to

which the court itself should direct its mind.101

This raises the question of who within the court is responsible for

making the final decision on sensitive cases. Although Article 147 of the

Criminal Procedure Law generally provides for a collegiate panel of three

judges (which may include lay assessors), pursuant to Article 149 of the

Criminal Procedure Law, each court has a judicial or adjudicatory

committee (shen pan wei yuan hui, 审判委员会 ), to which difficult,

complex or major cases may be referred if the collegiate panel cannot

make a decision. The committee consists of the president and vice

president of the people's court and the chief judges of the divisions of the

people's court as well as “several experienced judges who do not hold

leading posts, and have good political quality, rich experience in trial and

australian-20110813-1isaf.html.




100 See infra note 56 (for example, 38, (Shanghai Hengping Judicial

Authentication Center on the disclosure of information); 39 (Beijing Guoke Intellectual

Property Rights Centre on practical use); and 57 (Assets Appraisal Report of China

United Assets Appraisal Co. Ltd. on the illegality of the measures taken by the defendants

and loss)).

101 Similarly, a report on the James Sun spying case indicates that the evidence

included “certificates from the Beijing State Security Bureau that certified Sun was an

agent of the Taiwan Military Information Bureau.”

Anne Davies, Plea for husband swallowed by Chinese system, THE SYDNEY MORNING

HERALD, Feb. 2, 2011, http://www.smh.com.au/world/plea-for-husband-swallowed-by-

chinese-system-20110201-1ach5.html#ixzz1W0vozKYQ.

2011] Bath 21

adjudication, with a higher theoretical level of law and diploma of higher

education in law.”102

The judicial committee has both supporters and

detractors. Some commentators see it as a form of quality assurance, since

senior and more experienced judges review all difficult cases. Others see

it as an opening for interference by the Party or an avenue for

corruption.103

If a case is referred to the committee, the final decision in

the case may not be made by the judges who actually heard it. In this case,

of course, oral evidence by witnesses will play a considerably reduced role.

It is not necessarily clear in a particular case whether it has been referred

to the judicial committee, although in sensitive cases such as the ones

discussed in this article, it is likely that the committee would be convened.

104

VI. LEGAL REASONING

The Shanghai First Intermediate People’s Court presented a very

comprehensive and detailed judgment in the Stern Hu case that provides

an unusual opportunity to review the court’s findings on the evidence and

the reasons given for the final judgment. In particular, the judgment

contains comprehensive material on the payments that were allegedly

made to the defendants, which, when combined with admissions by

various of the defendants, constitutes very persuasive evidence of bribery.

In fact, after the trial, Rio Tinto dismissed the employees for taking bribes,

on the basis that this contravened Rio’s “strong ethical culture.”105

The

provision of such a detailed judgment is in marked contrast to Xue Feng’s

case, where information on the court’s reasoning is very limited. In

102

Article Six, Guanyu Gaige He Wanshan Renmin Fayuan Shenpan

Weiyuanhui Zhidu De Shishi Yijian [Implementing Opinions on the Reform and

Improvement of the Judicial Committee System], issued by the Sup. People’s Ct, Jan. 11,

2010. The Opinions reiterate the importance of the judicial committee but aim to ensure

the quality of its members and clarify its functions.

103 Randall Peerenboom, China‟s Long March toward Rule of Law, 323-25

(Cambridge University Press, 2002).

104 It should also be noted that it is often not clear in China whether a judicial

decision is made within the court, or whether it is made, for example, by the Communist

Party legal-judicial committee or by some other influential person or body. See

comments by Jerome Cohen in Rowen Callick, New China deal to aid understanding: A-

G, THE AUSTRALIAN, Sept. 11, 2011, http://www.theaustralian.com.au/business/legal-

affairs/new-china-deal-to-aid-understanding-a-g/story-e6frg97x-1226127645131.

105 Rio Tinto, 2010 Annual Report, Chief Executive‟s Statement,

http://www.riotinto.com/annualreport2010/overview/ceo_statement.html (last visited Aug.

25, 2011): “In March 2010, four employees based in Shanghai were convicted of

receiving bribes and obtaining commercial secrets. This disappointing and unacceptable

behaviour violated the Group’s strong ethical culture as well as Chinese law, hence their

employment was terminated.”


particular, reports indicate that the court dismissed what would appear to

be a strong defence claim that Xue Feng was not guilty of the theft of state

secrets because the database was officially declared to constitute a state

secret only after it was acquired (and after Xue Feng was detained).106

Under Article 219 of the Criminal Law, it is necessary to prove a

number of elements to make out the charge of infringing on business

secrets. First, the information must be technological or business

information that is unknown to the public, can bring about economic

benefits to the rights owner, isof practical use[,] and is information with

regard to which the owner has taken measures to maintain confidentiality.

Second, it must be shown that the defendant has infringed on the business

secrets by, in this case, obtaining an obligee's business secrets by stealing,

luring, coercion or any other illegitimate means. Third, this infringement

must have caused severe loss to the owner. The determination of the court

as to penalty if all of these facts are made out is based on the severity of

the consequences.

The bribery charges against Stern Hu and his co-defendants were

simplified by the production by the prosecution of large amounts of

documentary evidence relating to the transfer of funds and by the

confessions of the defendants. The business secrets charges, however,

caused the court more difficulty, and the analysis in the judgment has a

number of significant weaknesses. Although the lengthy judgment is a

little vague on exactly which articles of the Criminal Law were relied

upon to convict the defendants, it appears that the defendants were

charged under Article 220 of the Criminal Law, the provision that

criminalises theft of business secrets under Article 219 by a unit and

persons “directly in charge” or otherwise directly responsible.107

Indeed,

defendant Wang Yong claimed that since he worked for a different

company to Stern Hu, and the unit for which he worked had not been

identified as having committed theft of business secrets, it was unlawful to

charge him under Article 220.108

The court held, however, that all of the

defendants were guilty. Stern Hu was convicted in his capacity as the

unit’s directly responsible person in charge, and the other three as persons

directly responsible.109

The court aggregated the actions of the defendants

in order to make a determination on both infringement and loss.

Once the court had found that the relevant information did

constitute business information, had been kept confidential[,] and was of

practical use, the court also needed to find that it had been unlawfully

obtained. However, it appears that no evidence was presented to the court

106

See infra note 35.

107See infra note 56, at 66.

108 See infra note 32, at 11.


2011] Bath 23

to show that payments were made for the information. The court therefore

held that Stern Hu and his colleagues had acquired confidential

information “by bribery and other illegal means” because “Rio Tinto . . .

mostly occupied the advantageous position in the trade of iron ore with

China, so the [relevant] persons of the Chinese steel enterprise would

satisfy their demands as possible when the plaintiffs inquired about the

information involved in the case.”110

This suggests, however, that any

request by an employee of a major company for information from a

customer or other business contact effectively constitutes coercion and

could attempt to unlawful conduct.

The next required step in proving liability is to show that heavy

losses were caused “to the obligee” – that is, the owner of the business

secrets. A significant problem in the case is that the link between the

ownership of the business secrets and [the] losses sustained by each of the

owners is never made clear. Finally, the determination that the damage

caused by the theft of business secrets was “huge” was significant both in

order to determine liability and in relation to sentencing. For theft of

business secrets[,] the range of penalties is three to seven years

imprisonment only if the “consequences are particularly serious.”111

Pursuant to Article Seven of the 2004 Supreme People’s Court

Interpretation, consequences are particularly serious if the losses caused to

the owner of the business secrets exceed RMB 2,500,000.112

The

imposition of a five-year sentence for Stern Hu in relation to the business

secrets was reportedly based on the conclusion of the court that:

The above acts of the defendants Hu Shitai, Wang Yong, Ge

Minqiang, and Liu Caikui have seriously affected and

damaged the competitive interests of the relevant iron and

steel enterprises of China, put them into a disadvantageous

position in iron ore import negotiations, and resulted in the

abrupt suspension of the iron ore price negotiation between

Chinese iron and steel enterprises and Rio Tinto Company,

causing enormous economic losses to relevant iron and

steel enterprises of China. In relation to this, more than 20

work units, including Shougang International Trade and

Engineering and Laiwu Steel International Trade and

Engineering Company and so on paid extra advances

amounting to RMB 1.018 billion, and the interest losses of

the second half of 2009 alone reached more than RMB

110

See infra note 32, at 64.

111 Criminal Law, Art. 219.



11.7030 million.”113

Support for the proposition that the acts of the four defendants

caused the collapse of the iron ore talks appears to come mainly from an

Assets Appraisal Report submitted by an entity called China United Assets

Appraisal Ltd.114

There were of course many possible reasons for the

collapse of the iron ore talks between China and the suppliers, including

the widely reported agreement by the Japanese buyers to accept a higher

price than the China Iron and Steel Association was seeking, the

incoherent nature of the Chinese market[,] and many other factors.115

In

view of the long and acrimonious history of the negotiations, a

determination that the negotiations collapsed because of the acquisition of

secret commercial information by the four Rio employees, thus resulting

in a quantifiable loss to the Chinese state-owned buyers, is overreaching.

This finding of the court bears a strong resemblance to reported claims

when Hu was first detained that “Mr. Hu bribed steel companies on such a

scale that he caused huge losses to China's national economic interests.”116

The court’s conclusions thus provide fodder for the view that the trials

constituted a form of retribution for the collapse of the iron ore

negotiations in mid-2009.

VII. WHO IS ON TRIAL?

It is noteworthy that apart from the initial outburst referred to

above in relation to state secrets, Rio Tinto has not been implicated or

involved in any of the criminal investigations, although Hu and his

colleagues are employed by Rio and, one would assume, any state secrets

or commercial secrets obtained by them in China would have been

acquired and used for the benefit of Rio. Article 220 of the Criminal Law

states that where a unit commits a crime under Article 219, it shall be

fined and the person directly in charge and the other persons directly

responsible shall be punished under Article 219. However, the unit – Rio

Tinto – was not charged, convicted or fined, although the judgment

113

See infra note 32, at 57.


115 John Garnaut, Iron Ore price talks with China in tatters, THE SYDNEY

MORNING HERALD, June 30, 2011, http://www.smh.com.au/business/iron-ore-price-talks-

with-china-in-tatters-20090629-d2i1.html; Peter Yuan Cai, The China „spygate‟ affair and

China‟s steel industry chaos, EAST ASIA FORUM, July 19, 2010,

http://www.eastasiaforum.org/2009/07/19/the-china-spygate-affair-and-chinas-steel-

industry-chaos/.

116 John Garnaut and Michelle Grattan, Bribe claim baseless; Rio, THE AGE, July

11, 2009, http://www.theage.com.au/national/bribe-claim-baseless-rio-20090710-

dg3n.html#ixzz1V9EnSf5H.

2011] Bath 25

certainly indicates that the court was satisfied that through the action of its

employees it was guilty of theft of business secrets and hence responsible

for the substantial losses attributed to the disclosure of the business secrets.

Interestingly, those who paid bribes or traded business secrets were,

on a whole, not put on trial.. In particular, Du Shuanghua was not put on

trial for paying such a substantial bribe, although paying bribes to officers

of a corporation is also an offence under Article 164 of the Criminal Law

and subject to a penalty of up to ten years.117

According to a report in the

Chinese press,118

the court decided that Du did not bear legal

responsibility – presumably under Article 164(3), which allows for a

mitigated punishment or exemption from punishment where a person

voluntarily confesses to bribery prior to prosecution. However, two

Chinese executives, Wang Hong Jiu and Tan Yixin, were prosecuted in a

closed trial held concurrently with that of Stern Hu and his colleagues.

They were convicted for leaking business secrets and sentenced to three

and a half and four years imprisonment respectively.119

VIII. THE ROLE OF AUSTRALIA-U.S. GOVERNMENTS

The role played by the Australian and United States governments is

particularly interesting. Both countries were active in providing consular

representative, attending the trials (when permitted to do so), and making

representations to the Chinese government at different levels. Clearly, the

role of the home government can only be to ensure that their citizens are

accorded rights under the relevant Consular agreements and that they are

accorded a fair trial under Chinese law. However, as discussed above, the

Australian and U.S. governments had difficulty even in enforcing their

rights under their consular agreements with China.

Similarly, the ability of the Australian and United States

governments to have any impact on the political forces in the Chinese

government driving the cases appears to have been very limited. As noted

above, the Australian press reported that the Prime Minister, Julia Gillard,

had received an assurance from Premier Wen Jiabao himself that the trial

of Matthew Ng would be fair and open. This did not stop the Guangzhou

117

John Garnaut, A year on, secrets, lies and corruption remain at the heart of

Rio Tinto case, THE SYDNEY MORNING HERALD, July 6, 2010,

http://www.smh.com.au/business/a-year-on-secrets-lies-and-corruption-remain-at-the-

heart-of-rio-tinto-case-20100705-zxll.html.

118 Wang Wen Yan, Lita si yuan gong huo xing hou bei “chao xian ke”? Bu fen

xing hui qi ye jiang ling an chu li [Four officers of Rio Tinto “fired” after conviction;

part of the bribery business handled in a separate case], NBD.COM.CN, Mar. 30, 2010,

http://www.nbd.com.cn/newshtml/20100330/20100330023810861.html.

119 Id.


court from attempting to restrict access to the trial. Similarly, complaints

by the Australian government that Chou has been held without trial for an

excessive period of time have been disregarded.120

In addition, statements made by the Chinese official spokesman

on the cases were clearly provocative and hardly designed to promote

international comity. On March 18, 2010, for example, Qin Gang, a

spokesman for the Chinese Foreign Ministry reportedly said that the Stern

Hu case should not be politicized or negatively impact Australia-China

relations.121

There were, he said, “all kinds of voices” coming out to

“disturb the judicial system.”122

The case was just an “individual business

case.” The same Qin Gang remarked in relation to the Xue Feng case that

"[t]he case is China's internal affair. Other countries cannot interfere with

it and China's judicial sovereignty."123

IX. COMMENT

In the thirty years since the inception of the “Open Door” policy,

the Chinese government has put considerable time and effort into the

development of its legal system. Indeed, the government claims in a

recent white paper published by the Information Office of the State

Council that by the end of 2010, China had put in place a socialist system

of law.124

During the last thirty years, the government has established a

full court system, opened law schools, trained thousands of lawyers and

judges and promulgated, revised, and amended a full system of laws –

including a comprehensive system of criminal law and criminal procedure.

The Criminal Law was substantially revised in 1997 and subsequently to

acknowledge a number of important principle; in particular, the basic

principle set out in Article 3, that no one can be punished for a crime

which is not created by law. Similarly, the Criminal Procedure Law was

revised in 1997 to set out relatively clear principles relating to detention,

arrest, and prosecution, although there has been considerable criticism of

the way in which these principles have been implemented.125

The

120

See infra note 45.

121 China Daily, Don‟t politicise Rio Tinto trial, China urges, SINA ENGLISH, Mar.

18, 2010, http://english.sina.com/china/2010/0318/309648.html.

122 Id.

123 China Daily, China defends sentence of US spy geologist, PEOPLE’S DAILY

ONLINE, July 7, 2010,

http://english.peopledaily.com.cn/90001/90776/90883/7054998.html.

124 China Daily, Socialist democracy milestone,

http://www.chinadaily.com.cn/china/2011-10/28/content_13992489.htm, attaching the

text of the white paper.


2011] Bath 27

Supreme People’s Court has also played an active role in the development

of the legal system.

The cases discussed in this article, however, raise a number of

significant issues. The first is the decision by Chinese authorities to

prosecute these particular cases. Statistics issued by the Supreme People’s

Court make clear that white collar and financial crime is an issue in China.

126 The government has shown its concern through recent amendments

to the Criminal Law.127 In particular, the Criminal Law criminalises

bribery and corruption and other forms of malfeasance by government

functionaries, including by state units or state-owned enterprises.128

Articles 163 and 164 of the Criminal Law criminalise the payment or

receipt of bribes by employees of a company, enterprise or other unit

(commercial bribery). The Supreme People’s Court and the Supreme

People’s Procuratorate have issued interpretations that attempt to clarify

and strengthen definitions of bribery.129

The Criminal Law was recently

extended to add the offence of bribing foreign officials.130

Reported cases

in China relating to bribery generally involve the acceptance of bribes by

government officials, such as Xu Maiyong and Jiang Renjie, former vice-

mayors of Hangzhou and Suzhou respectively, who were executed for

taking huge amounts of bribes and abusing their official powers.131

They

also include the acceptance of bribes by heads of statutory corporations,

such as the head of the Beijing Capital Airport Corporation, Li Peiying,

who was executed for taking approximately sixteen million U.S. dollars in

bribes.132

A number of these cases appear to involve foreigners – and, in fact,

a report much-cited by the Chinese press issued by the Chinese research

center, Anbound Group, in 2009 claimed that, “China has investigated at

126

See infra note 2.


128 Criminal Law, Articles 382 to 396.

129 For example, Guanyu Banli Shouhui Xingshi Anjian Shiyong Falü Ruogan

Wenti De Yijian [Opinions on Certain Issues Concerning the Application of Law in

Handling Criminal Cases of Acceptance of Bribes], issued by the Sup. People’s Ct. and

Sup. People’s Procuratorate, July 8, 2007; Guanyu Banli Shangye Huilu Xingshi Anjian

Shiyong Falü Ruogan Wenti De Yijian [Opinions on Certain Issues Concerning the

Application of Law in Handling Criminal Cases of Commercial Bribery] issued by the

Sup. People's Court and Sup. People's Procuratorate, Nov. 20, 2000.

130 See infra note 3. Interestingly, this amendment was included in Article 162,

which deals with bribery of corporate officers, rather than Article 390, which covers

bribery of government officials generally.

131 Wang Jingqiong, Two former officials executed, CHINA DAILY, Aug. 25, 2011,

http://www.chinadaily.com.cn/cndy/2011-07/20/content_12939151.htm.

132 Xinhua, Former CAH chief gets death penalty for bribery, CHINA DAILY, Feb.

11, 2009, http://www.chinadaily.com.cn/business/2009-02/11/content_7465249.htm..


least 500,000 corruption cases over the past decade, sixty-four percent of

which involved international trade and foreign businesses.”133

However,

much of the investigation and prosecution of major multinational

companies for paying substantial bribes appears to have been carried out

mainly by foreign governments which have signed up to the OECD

Convention on Combating Bribery of Foreign Officials in International

Business Transactions.134

Article 1(1) of the Convention requires the

parties to ensure that it is an offence for a citizen or corporation of that

country to pay or offer bribes to foreign officials (including officers of

international organisations) for the purpose of obtaining a business or

other improper advantage. The United States is particularly active in

pursuing cases under the Foreign Corrupt Practices Act (“FCPA”),135

which increasingly relate to bribery within China, although Germany,

Hungary, Italy, Korea and Japan have also undertaken a significant

number of cases under the Convention.136

Australia has been slower to

initiate prosecutions under its legislation, although it has recently

prosecuted two Australian companies and six individuals for alleged

bribery of foreign officials in Indonesia, Malaysia and Vietnam under

Division Seventy of the federal Criminal Code, which incorporates the

provisions of the OECD Convention into Australian law.137

Prosecutions (and settlements) by the United States Justice

Department under the FCPA relating to China include settlements with

UTStarcom Inc. (provision of travel and other things of value to Chinese

officials),138

Rockwell Automation Inc (payment of bribes to state-owned

133

Major commercial bribery cases of multinationals in China People’s Daily

Online, Aug. 6, 2009,

http://english.peopledaily.com.cn/90001/90778/90857/90860/6720259.html. Also cited

by Ji Beibei and Chen Xiaoduan, Foreign graft on the rise. GLOBAL TIMES, Apr. 15, 2011,

http://www.globaltimes.cn/NEWS/tabid/99/articleType/ArticleView/articleId/661458/For

eign-graft-on-the-rise.aspx; SHANGHAI DAILY, Police quiz former Shen-mei staff, Sept.

14, 2009, available at http://www.china.org.cn/business/news/2009-

09/14/content_18519360.htm.

134Convention on Combating Bribery of Foreign Public Officials in

International Business Transaction, OECD, Nov. 21, 1997,

http://www.oecd.org/dataoecd/4/18/38028044.pdf. The Convention entered into force on

15 November 1999 and has thirty-eight parties, which do not include China. Directorate

for Financial and Enterprise Affairs, OECD,

http://www.oecd.org/document/21/0,3746,en_2649_34859_2017813_1_1_1_1,00.html

(last visited Aug. 25, 2011).

135 The Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq. (1977).

136 OECD, Working Group on Bribery Data on Enforcement of the Anti-Bribery

Convention (June 2010), http://www.oecd.org/dataoecd/11/15/45450341.pdf.

137 Criminal Code Act, 1975 (Austl.). For a summary of the charges, see

Australian Federal Police, Media Release, July 1, 2011, http://www.afp.gov.au/media-

centre/news/afp/2011/july/foreign-bribery-charges-laid-in-australia.aspx.

138 Department of Justice, UTStarcom Inc. Agrees to Pay $1.5 Million Penalty

2011] Bath 29

enterprises)139

and Siemens AG (bribes to foreign government officials to

obtain business in various jurisdictions, including China).140

The Siemens

bribery cases have also resulted in the conviction and sentencing of a

number of Chinese former senior executives of state-owned enterprises in

China. Shi Wanzhong received a suspended death penalty in June 2011141

and Zhang Chunjiang, former party secretary of China Mobile received

the suspended death penalty in July 2011 for taking bribes.142

According

to Chinese reports, information on Chinese personnel involved in bribery

in the Siemens case was sent to China by diplomatic channels.143

In view of these issues, it would be logical to expect a substantial

increase in well-publicised investigations and cases involving foreign-

invested companies and their employees in China to deal with the issue of

bribery. Indeed there have been some cases of this kind. Toyota Motor

Finance (China) was reportedly fined in China in 2010 for bribing

dealers.144

A 2009 article in the China Daily Online enumerates a number

of bribery cases involving foreign companies – most of which were

prosecuted outside China.145

Indeed an opinion piece in China.org.cn

(which describes itself as “the authorized government portal site to

China”)146

comments favourably on the FCPA and laments that in China

for Acts of Foreign Bribery in China, Dec. 31, 2009,

http://www.justice.gov/opa/pr/2009/December/09-crm-1390.html.

139 Rockwell Automation, Rockwell Automation settles with SEC, REUTERS, May

3, 2011, http://www.reuters.com/article/2011/05/03/idUS174137+03-May-

2011+BW20110503.

140 U.S. Securities and Exchange Commission, SEC Charges Siemens AG for

Engaging in Worldwide Bribery, Dec. 15, 2008,

http://www.sec.gov/news/press/2008/2008-294.htm.

141 Luo Jieqi & Zhao Hejuan, Siemens Bribery Scandal Ends in Death Sentence,

CAIXIN, June 30, 2011, http://english.caing.com/2011-06-30/100274546.html.

142 Dylan Bushell-Embling, Ex-China Mobile exec sentenced to death, TELECOM

ASIA NET, July 25, 2011, http://www.telecomasia.net/content/ex-china-mobile-exec-

sentenced-death.

143 See also Stan Abrams, Siemens Bribery Case And The Anti-Corruption New

World Order, BUSINESS INSIDER, June 30, 2011,

http://www.businessinsider.com/siemens-bribery-case-and-the-anti-corruption-new-

world-order-2011-6#ixzz1VEvvZUcl.

144 Toyota faces charges of corporate bribery in China, PEOPLE’S DAILY ONLINE,

Sept. 21, 2010, http://english.peopledaily.com.cn/90001/90778/90860/7147437.html.

Interestingly, the commentary suggested that there was a connection with the standoff

between China and Japan in relation to the East China Sea.

145 Major commercial bribery cases of multinationals in China, PEOPLE’S DAILY

ONLINE, Aug. 6, 2009,

http://english.peopledaily.com.cn/90001/90778/90857/90860/6720259.html.

146About us, CHINA.ORG.CN, http://www.china.org.cn/2009-

09/28/content_18620394.htm (last visited Aug. 25, 2011) (“The authorized government


“there are no laws concerning domestic business corruption and bribery.

What we have are only some relative items or regulations in Anti-unfair

Competition Law and Criminal Law.”147

China undoubtedly has the right to prosecute offences committed,

whether by Chinese or foreigners within its territory148

and to prosecute

foreigners in some cases for a crime committed outside China against

China or Chinese citizens (provided that it is also an offence in the place

where committed).149

According to one report, the Australians currently in

gaol, or on trial, in China are being held for “a broad range of offences,

including fraud, drug crimes, embezzlement, murder and espionage.”150

The American Embassy website indicates that “[S]everal Americans

currently incarcerated in China have been implicated in financial fraud

schemes involving falsified bank or business documents, tax evasion

schemes and assisting alien smuggling, including selling passports to

provide aliens with travel documents.”151

The cases involving foreign defendants discussed in this article,

however, reflect different concerns, as well as the involvement of different

parts of the Chinese government and the business community. The cases

on state and business secrets reflect a heightened government emphasis on

the secrecy of sensitive information. The fact that Stern Hu and his

colleagues were originally investigated for theft of state secrets indicates

that where state-owned enterprises and important international business

transactions are involved, the difference between state secrets and business

secrets is a fine one. Indeed, following the Stern Hu trial, the State-owned

Assets Supervision and Administration Commission issued new

regulations on the business secrets of state-owned enterprises that

essentially conflated business secrets of state-owned enterprises with state

secrets.152

At a minimum, both the Stern Hu case and the Xue Feng case

portal site to China, China.org.cn is published under the auspices of the State Council

Information Office and the China International Publishing Group (CIPG) in Beijing.”).

147 Hua Xiao, China should respond to foreign company‟s bribery (translated by

Li Shen), CHINA.ORG.CN, Jan. 6, 2010, http://www.china.org.cn/opinion/2010-

01/06/content_19190732.htm.



150 Australian Department of Foreign Affairs, quoted in Michael Sainsbury,

Emerson trade mission hits a cloud, THE AUSTRALIAN, Aug. 15, 2011,

http://www.theaustralian.com.au/news/world/emerson-trade-mission-hits-a-cloud/story-

e6frg6ux-1226114778174.

151 Embassy of the United States, Beijing, China, Emergency Assistance,

http://beijing.usembassy-china.org.cn/acs_eme.html (last visited Aug. 25, 2011).

152 Zhongyang Qiye Shangye Mimi Baohu Zanxing Guiding [Interim Provisions

on the Protection of Centrally-Administered Enterprises' Trade Secrets] (promulgated by

the State-owned Assets Supervision and Administration Com., Mar. 25, 2010).

2011] Bath 31

highlight the difficulty of operating in the Chinese environment, where

state-owned enterprises dominate large sectors of the economy (pursuant

to government policy) and accurate information can be difficult to come

by.

Second despite the comments of the Chinese government

spokesman, the cases of Stern Hu, Matthew Ng and Charlotte Chou

suggest that different parts of the Chinese government are actively

involved in the judicial process. In the Stern Hu case, it is clear from the

judgment of the court that the case was closely related to the failure of the

iron ore negotiations in 2009. The targeting of Rio’s employees while Rio

Tinto itself was not convicted or fined is also suggestive. If the reports

relating to the Ng case are correct, the main aim of the Communist Party

was to force Ng to transfer back to his business partner the assets that his

company had originally acquired. Yet the acquisition of state-owned

assets is strictly regulated by law, which requires a valuation and various

government approvals.153

A legal challenge could be brought if the

acquisition were unlawful.154

If the assets were owned by the Communist

Party itself, as has been suggested,155

use of the Party’s internal

disciplinary process and court action to regain control of them is a most

improper use of the judicial system. It should of course be noted here that

the Australian press has quite strongly presented Matthew Ng’s defence. It

is not clear what evidence the prosecution has presented in relation to the

bribery and other charges. The Chou case is also allegedly related to a

business dispute.

The conduct of these trials also raises a number of questions.

These questions include witnesses not being available for cross-

examination, claims in Ng’s case that important evidence was produced at

the last minute, and above all, the lack of an open trial. The refusal to

allow consular representation in the Xue Feng case and part of the Stern

Hu case was particularly questionable. In both the Xue Feng case and the

Charlotte Chou case, it seems clear that the defendants were detained for

periods well in excess of the periods permitted by law, despite the frequent

protests of their governments.

Third these cases have received widespread publicity, at least in

the home jurisdictions of the persons tried and convicted. The reporting of

each case has the effect of subjecting the Chinese criminal system to

international scrutiny and the conclusions have not been favorable. The

153

Zhonghua Renmin Gongheguo Qiye Guoyou Zichan Fa [Enterprise State-

owned Assets Law of the People’s Republic of China] (promulgated by Stand. Comm.

Nat’l People’s Cong, Oct. 28, 2008, effective May 1, 2009 (Art. 72) (P.R.C.).

154 Id.

155 Case of state-sponsored extortion harms China‟s progress, THE SYDNEY

MORNING HERALD, Aug. 13, 2011, http://www.smh.com.au/opinion/editorial/case-of-

statesponsored-extortion-harms-chinas-progress-20110813-1is1u.html.


Economist commented that “[l]ocal employees of multinationals are likely

to draw the chilling conclusion that unpleasant consequences will follow if

ever they fall afoul of China’s interests.”156

The Washington Post

described the Xue Feng case as a “case that underscored how the Chinese

government will use the legal system to protect the business interests and

competitive edge of its state-run firms.”157

In the Matthew Ng case, the

emphasis is rather different, but equally critical: “Beijing should

demonstrate its supposedly growing political maturity by intervening in

this process, rather than allowing the bullying of local cadres to dissuade

international investment and undermine its relationship with Australia. So

far we have seen little more than a case of state-sponsored extortion.”158

Another issue that comes out of the cases is the fact that all of the

defendants in these and many other cases are ethnic Chinese, generally

foreign nationals who were born in China. There are a variety of possible

reasons for this. Ethnic Chinese speak Chinese, understand Chinese

business culture and are often better able to make contacts to acquire

information.159

The need to maintain the relationships that support their

businesses may mean that ethnic Chinese are more subject to requests for

bribes or to pressure to engage in questionable activities. It is also

possible that Chinese government agencies feel free to target ethnic

Chinese because they regard them as Chinese, and because they believe

that the relevant foreign governments are not concerned about the fate of

ethnic Chinese in China.160

The Chinese press also appears to have drawn a range of lessons

from the Stern Hu trial. Some commentators have concluded that China’s

laws on bribery relating to multinationals are insufficient.161

Others

support the official line that the cases are purely a matter for the Chinese

justice system and criticise the approach of the Australian government,

while a third group takes a more critical approach by discussing the

156

The Rio trial leaves unresolved questions about China‟s rule of law, THE

ECONOMIST, Mar. 29, 2010, http://www.economist.com/business-

finance/displaystory.cfm?story_id=15807361.

157Keith B. Richburg, China sentences American geologist to 8 years for

stealing state secrets, THE WASHINGTON POST, July 5, 2010,

http://www.washingtonpost.com/wp-

dyn/content/article/2010/07/05/AR2010070500859.html.

158 Case of state-sponsored extortion harms China's progress, THE AGE, Aug. 25,

2011, http://www.theage.com.au/opinion/editorial/case-of-statesponsored-extortion-

harms-chinas-progress-20110813-1is1u.html#ixzz1V9LhJNeP.

159 Jake Stratton, see infra note 27.

160 Black hole of Chinese law, THE SYDNEY MORNING HERALD, Aug. 24, 2011,

http://www.smh.com.au/opinion/editorial/black-hole-of-chinese-law-20110823-

1j882.html.


2011] Bath 33

Chinese court system and commenting on the mismanagement of the

Chinese steel industry.162

Western commentators have also used the cases as a basis for

criticising both the Australian and the United States governments for their

approach to China. Bernstein takes the Xue Feng case as evidence that the

United States’ “quiet diplomacy” in dealing with China is ineffective.163

Greg Sheridan, a conservative Australian commentator, takes the view that

“the contempt with which Beijing is treating the Rudd government is

evident in the continued process of the Stern Hu trial . . . . Every serious

observer knows that there is no integrity in the Chinese legal system and

that the charges against Hu are entirely politically driven.”164

Jerome

Cohen, perhaps a more thoughtful observer of the Chinese legal system,

comments that “[t]he prosecution of naturalized American citizen Xue

Feng, which concluded on February 18, is a vivid reminder that China’s

abuses of criminal justice can reach even those who steer clear of politics

and human rights.”165

Ann Kent takes the view that the Stern Hu case,

among other things, represents an attempt by the Chinese government to

punish Rio Tinto and issue a warning about corruption not just to foreign

companies but to the Chinese domestic steel industry.166

The assumption underlying all of these comments is that a variety

of political and business-related factors drive both the decision to

prosecute a foreign national in China and the result of the case.

CONCLUSION

As noted above, these cases do not represent an indicative

sampling of the Chinese justice system. China has a right, and indeed a

responsibility, to prosecute crimes that take place in China, whether

committed by Chinese nationals or by foreigners. Indeed, it can be argued

that China has been quite reticent in prosecuting foreign companies that

162

See Sheo Nandan Pandey, Chinese Fourth Estate and the Rio Tinto Episode,

SOUTH ASIA ANALYSIS PAPER NO. 3816, May 17, 2010,

http://www.southasiaanalysis.org/%5Cpapers39%5Cpaper3816.html.

163 Richard Bernstein, Beijing‟s Bluster, America‟s Quiet: The Disturbing Case

of Xue Feng, NY TIMES REVIEW OF BOOKS, NYR BLOG, Oct. 6, 2010,

http://www.nybooks.com/blogs/nyrblog/2010/oct/06/disturbing-case-xue-feng/.

164 Greg Sheridan, Rudd‟s approach to China and Stern Hu, a lesson in

cowardice, THE AUSTRALIAN, Mar. 20, 2010,

http://www.theaustralian.com.au/news/opinion/rudds-approach-to-china-and-stern-hu-a-

lesson-in-cowardice/story-e6frg6zo-1225842986389.

165 Jerome A. Cohen, Criminal Justice for Foreign Business People in China?,

U.S. ASIA LAW INSTITUTE, Mar. 2, 2011, http://www.usasialaw.org/?p=5138.

166 Ann Kent, Stern Hu and China‟s Rule of Law, EAST ASIA FORUM, Feb. 5,

2010, http://www.eastasiaforum.org/2010/02/05/stern-hu-and-chinas-rule-of-law/.


bribe Chinese officials. It generally satisfies itself with prosecuting the

Chinese officials and allows the United States and other countries to

pursue the persons paying the bribes. It should also be acknowledged that

China has made significant progress both in developing and improving its

criminal law and criminal procedure law and in establishing and staffing

an extensive system of courts in China. The fact that the court in the Ng

case was finally opened to the public and that Ng and Chou have both had

access to a prominent Chinese lawyer with an acknowledged ability to

conduct a spirited defence are also promising developments.

However, as these cases involved foreign nationals and two quite

significant companies, it could be expected that the cases would attract

significant publicity. It is therefore of concern that the Australian and

United States governments were not able to obtain access to the trials in

the Stern Hu and Xue Feng cases. Combined with the major procedural

issues in the trials despite international publicity, particularly the alleged

mistreatment of Xue Feng, indicate either that the Chinese government is

indifferent to the international impact of these cases,167

or that the central

government is not able or is not willing to stop government agencies or

state-owned enterprises from using the courts for their own political or

business purposes. They also suggest that the higher level courts,

procuratorates, and public security agencies are similarly unwilling or

unable to ensure that the requirements of the Criminal Procedure Law are

followed at the lower level.

For foreigners attempting to operate in the Chinese system, the

message is mixed. None of these cases provides any useful guidance

(other than the need to exercise extreme care) on how a foreign business

can ensure that it avoids the application of the criminal law when it is

offered or seeks to obtain the business information that is necessary to

operate in the opaque Chinese business world. The Ng case gives the

unhelpful message that the Party and well-connected local companies can

utilize a variety of means, including the court system, to win business

disputes. The cases suggest that Chinese citizens and foreign citizens of

Chinese ethnic origin may be at risk in China, but since the ability to

speak Chinese and understand the Chinese business environment is an

important job qualification, this is hardly helpful. Perhaps a more

significant message is that a side effect of the creation of a formalised

court system is the use of the courts by the powerful and well connected as

an extra weapon in a business dispute.

Regrettably, the circumstances surrounding these cases confirm the

view that despite the tremendous advances that have been made in

167

As suggested by the claim that President Hu Jintao himself approved the

Rinto Tio case going forward. John Garnaut, President backed Rio spy probe, THE

SYDNEY MORNING HERALD, July 13, 2009, http://www.smh.com.au/business/president-

backed-rio-spy-probe-20090712-dhdn.html.

2011] Bath 35

constructing a legislative system, improving the police and the judicial

bodies and raising the calibre of judges and procurators, the Party and

government as a whole are not fully committed to the implementation of a

legal and judicial system that operates in accordance with the laws and

rules that were approved by the Party and promulgated by the government.

The cases represent a lost opportunity for the Chinese government to

showcase the socialist legal system. The Chinese system of justice and the

many talented and highly qualified people who work in it also suffer from

the unfavourable publicity that the cases attract. As Chen Youxi remarked

in his closing statement in the Ng trial:

If you lose, you admit it. If you don't want others to buy

more shares of the company, then you offer a higher price.

But why arrest people? You are severely damaging the

image of China in front of the world, violating China's

commitments at the World Trade Organisation, as well as

Chinese and international law.168

168

John Garnaut, Ng‟s defiance places China on the defensive, THE SYDNEY

MORNING HERALD, Aug. 14, 2011, http://www.smh.com.au/national/ngs-defiance-places-

china-on-defensive-20110813-1iryj.html#ixzz1V9UQlR7H.

china, international business, and the criminal...

Documents