VZCZCXRO0425
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0789/01 1930938
ZNR UUUUU ZZH
R 120938Z JUL 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6252
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 GUANGZHOU 000789 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
PACOM for FPA 
 
E.O. 12958: N/A 
TAGS: PGOV SOCI ECON EINV CH
SUBJECT: South China's Judicial System: Corrupt? Lacking Experience? 
Apply Today!! 
 
¶1. (SBU) Summary:  Procedural and structural flaws continue to 
impede the progress of China's judicial system, according to south 
China legal experts.  Oral testimony, a key to perjury trials and 
many arbitral disputes, remains largely unreliable and thus, 
underutilized.  Increased judicial activism provides encouragement 
for some, while lack of legal expertise -judges in South China are 
largely former policeman and government officials who typically have 
no legal training -   is a concern for all.  A lack of confidence in 
the judiciary has led many people to use alternative dispute 
resolution (ADR) mechanisms.  Unfortunately, the same issues which 
plague South China's judicial system often extend to its ADR.  End 
Summary. 
 
Legal Dispute Resolution: Procedural Inadequacies and Encouraging 
Signs 
--------------------------------------------- -------- 
 
¶2. (SBU) Corruption permeates the business climate at all levels in 
South China.  According to legal experts, this problem extends to 
the judiciary as well.  David Buxbaum, an attorney practicing in 
Guangzhou and one of the only foreign litigators admitted to argue 
before the Chinese courts, said that since there is no enforcement 
against perjury, the judiciary does not rely on oral testimony. 
Furthermore, remedies may take years to impose, leading many parties 
to resort to ADR mechanisms, such as arbitration.  Ultimately, 
however, it is the court's role to enforce the arbitrator's judgment 
against the assets of the Chinese company.  In many instances, this 
extra step only serves to nullify any judgment granted to the 
aggrieved party (see below). 
 
¶3. (SBU) Another characteristic of South China's court system is the 
low level of judicial abstention and its high level of intervention 
in the resolution process.  One American legal consultant who works 
for a Chinese firm in Guangzhou spoke of an incident in which his 
firm, upon submitting its argument, implicitly threatened the judge 
to settle the case or face an inevitable appeal.  The judge then 
spent an entire day alone with the other party, pressuring and 
negotiating until it agreed to a satisfactory settlement.  Despite 
the potential for abuse by judges, many legal observers and foreign 
legal professionals actually embrace this trend, at least in the 
absence of a more formal settlement structure.  They believe judges 
are finally demonstrating an ability to argue and, more importantly, 
a willingness to inject themselves into the judicial system. 
 
Arbitration Awards: Lack of Recognition 
--------------------------------------- 
 
¶4. (SBU) According to one prominent foreign lawyer in Guangzhou, 
foreign investors lack confidence in China's ability to enforce 
international arbitration awards because of the inexperience of its 
judiciary.  While the process of selecting judges from a pool of 
legal professionals has just recently begun to take place in areas 
like Beijing and Shanghai, judges in South China are largely former 
policeman and government officials who typically have no legal 
training.  As various legal experts in the region have pointed out, 
this should not affect the recognition of arbitration awards, since 
China is a signatory to numerous multilateral treaties, including 
the New York Convention, which essentially compels both award 
recognition and enforcement.  However, judges often ignore these 
treaties and re-litigate the issue according to Chinese law. 
 
¶5. (SBU) Courts in South China routinely ignore foreign awards 
without justification or explanation, according to Vivian Desmonts, 
managing partner for DS Law Firm.  This environment of uncertainty 
has not only had a chilling effect on potential trade, he said, but 
has also led many legal experts in the region to advise clients to 
submit to the China International Economic and Trade Arbitration 
Commission (CIETAC) for all dispute resolution, since local judges 
will often look more deferentially on its own rulings than on those 
of a foreign arbitration institution.  CIETAC's statistics suggest 
that this message is being heard.  According to Yu Jianlong, Vice 
Chair and Secretary General of CIETAC, over 981 cases were filed 
with the institution in 2006 - almost four times the amount received 
just 15 years earlier. 
 
¶6. (SBU) Others argue that the problem lies not in the courts but 
rather in the ability of Chinese companies to hide assets and the 
willingness of South China's institutional bureaucracy to enable 
them to do so. 
 
Comment 
------- 
 
¶7. (U) Confidence in South China's judicial system remains fragile 
among foreign investors.  As long as local courts refuse to 
establish reliable procedures for oral testimony, the situation is 
 
GUANGZHOU 00000789  002 OF 002 
 
 
not likely to improve.  And while arbitration is still 
overwhelmingly preferred to litigation, many have found that 
enforcement can often be equally unreliable.  Accordingly, many 
resort to local arbitration institutions, such as CIETAC, to resolve 
their disputes, since the decisions are often looked upon more 
favorably by the local Judiciary. 
 
GOLDBERG