Tuesday, May 30, 2006

Shakedown at High Honest Plaza: Mobocracy update II

Well, our favorite restaurant has finally given up. They, along with every other business in the plaza that used to be home to the High Honesty Supermarket, have closed and are looking for new locations.

The small businesses had shown some fight against the attempts of the landlord to close them down so the plaza could be renovated. The landlord wired shut all the gates to the plaza, but the businesses opened them again. The landlord shut off their electricity and water, so they pooled their money and bought a generator. They also hired a lawyer to contest their case, and hung protest banners on their storefronts. But they had made a crucial mistake in not insisting that their rental contracts include the landlord's oral assurances that the property would not be redeveloped until the end of 2008. They also felt that they could not count on help from the government because the plaza is owned by the Railroad Bureau, which the High Honesty Supermarket group is a subsidiary of. Still, they were determined to fight it out.

legal noticeBut their fight didn't last very long. Little more than a week after our last update, we found that all but one of the gates to the plaza had been closed again, this time with chains accompanied by a notice from the Public Security Bureau. The notice did not say anything more than that everyone should obey the law and settle disputes peacefully, but it seemed like the police's stamp of approval on the gate closings. Some parts of the buildings attached to the former supermarket and the old warehouse have already been reduced to rubble and picked over by recyclers. Some stubborn business owners had not yet emptied their shops of their inventory, and protest banners still hung from many storefronts, but none of the shops were open. A few vegetable sellers remained in the old warehouse, where they sleep as well as vend, so we went there to buy something to cook for dinner. They seemed surprised to see a customer. 'How'd you find us?', one woman asked.

A few days ago we went back for some vegetables, and found not much changed from our previous visit. The vegetable sellers were still there in the warehouse, sleeping and selling amidst broken walls and piles of bricks. The business were still closed, though demolition had not proceeded much. A new notice was pasted on the doors of some of the businesses. It was from the manager of the High Honesty Supermarket, inviting the owners to one last meeting in an attempt to resolve the dispute. If they did not come, said the notice, then the manager was not responsible for anything that happened after that.

demolition at High HonestyIn my first post on this topic, I linked this local dispute to one involving a Western magazine entrepreneur and used them both to characterize the current political and economic situation as neither capitalism nor socialism, but rather a 'mobocracy,' where political connections were paramount in determining business success, and where any profitable private concern, especially a small business, was vulnerable to poaching by government officials or those well-connected with them. China Law Blog wrote in the comments on Lumpenlogocracy posts (here, here and here) to correct that view, saying that in his experience the courts in China are more fair than unfair to private litigants, and that though Chinese law is needlessly complicated, it can be safely navigated through with a good lawyer as a guide, making businesses in China not as insecure against the state or bands of stick-wielding thugs than I had suggested. Reason binds me to privilege his interpretation of the situation in China over my own, as I lack knowledge of and experience with the law, though I am not as bullish on China as he.

I could not resist the overblown rhetoric of the title, but it might be more accurate to describe this situation as a legal dispute settled peacefully more-or-less within the confines of the law: if the restauranteurs are to be believed, the landlord did not have the legal right to shut the gates and turn off the power, but because of their poor contract negotiating, the business owners did not have much recourse beyond their protest banners. It's not a fair that the landlord misled them about when the demolition would begin, but it appears to be legal. It is their perception that the cards were stacked against them, regardless of the contract, because of the landlord's connections to the government. Whether this was a factor in determining their case I cannot say.

What I can say is that the perception of unfairness in the Chinese economy is widespread among the Chinese I have discussed the issue with. Our social circle is mainly among university students and professors, but also includes some working in private business and the law. One young computer programmer had his own business close some years ago, and still bitterly resents the interference of government officials that he blames for the failure. A Chinese law student I met with recently said the law was changing slowly, but that still, money and connections to the state mattered a great deal in business matters. A Chinese lawyer I spoke with had recently lost his Chinese investments, and blamed the inadequate regulation of companies in China for his losses. He wanted to invest in foreign markets from now on because, he said, 'there is no security here.' I don't know anything about the details of these cases. It could be that the government, an inadequate legal system and an unfair system of connections make a convenient scapegoat for personal or professional mistakes. Taken together, though, I think these individual perceptions indicate that though China is improving its legal and economic structures, it has a way to go.

Our former favorite restaurant

1 comment:

ChinaLawBlog said...

I would never dispute that money and connections oftentimes greatly influence court outcomes in China, particularly at the lower levels of the court system and particularly in the less commercial cities and regions. But, by the same token, if one does not have a good contract, one is only making it easier for the other side to prevail, either with or without payoffs.

Let's step away from China for a moment and discuss Russia. I am aware of a city in Russia where 12 of the 15 judges are said to be on the take. This being the case, what is the point of having a good contract? Plenty, and here's why.

First off, you might get one of the three honest judges. Secondly, the better your contract and the better your case, the more your opponent will have to pay the judge to prevail. Judges tend not to be crazy and they know their cases sometimes get reviewed.

So let's say all this means is that the other side will have to pay the judge $100,000 instead of $15,000. How does that help you? Plenty. You should easily be able to settle the case for $90,000 instead of $10,000.

I know there is corruption out there. Of course there is. Yet countless times people use corruption as an excuse for their own failure to do things right.

One of my favorite examples of this is the person who called me to ask our assistance in pursuing a lawsuit in China involving a large sum of money given to a "female friend." According to the caller, he gave this money to a friend so they could start a business together and the friend kept all of the money, claiming it was a gift. I asked the caller if he had any written evidence indicating it was not a gift. He said, "no," becuase he had heard that the Chinese courts don't enforce written agreements in any event. Now how crazy is that? He's calling me to bring a lawsuit based on an oral contract and yet he is of the view that the Chinese courts don't enforce even written agreements. But is he really of that view, or is that just his excuse for having checked his brains at the gate?

The same is often true of trademark "violations" in China. The American company complains and complains about his trademark having been "stolen" in China, but further examination reveals that the company never registered it in China so it wasn't stolen at all.

It's always so much easier to blame others and there is nobody better and easier to blame than the system. But unless the proper steps have been taken, blaming the system isn't fair.

Again, though, there are times where everything is done right and the system is completely at fault. I did a post on that here: http://www.chinalawblog.com/chinalawblog/2006/05/chinas_third_sh.html

China's court system isn't good, but it isn't as bad as advertised either.