Intro:
My topic is the law and practice of security interests in China. I choose this topic because of this book, Professor Wood's Comparative Law of Security and Guarantees. I am dissatisfied with only one page of this masterpiece of international security law, the page dealing with China. In page 6, the author is this book, who happens to have the same name with our tutor of global comparative financial law, indicated his disappointment at the Chinese law on security interests, characterizing it as "undeveloped," together with only Islamic countries.

Well, but I shouldn't complain because when Professor Wood was writing this book, there was nothing to convince him the Chinese security law was developed. But probably only a few days, maybe a few weeks, after the publication of this book, in 1995 China promulgated its first Security Law, a comprehensive code on secured transactions. Following this law, there are a number of regulations and orders issued by the Supreme Court of China, which, together with the national security law, collective constitute the security legal regime. So in my 50 minutes, I would like to give you an introduction to this law and briefly comment on some of its existing problems.

First part of this talk, the general background of the law.
There are two things worth noting in this regard. First, the law was a result and momentum of China's reform and opening door policy. China launched capitalism and market-economy oriented reform in late 1970s, that's much earlier than any of communist brothers in the world. That's probably because China broke up the Soviet Union as early as late 1950s and conducted solo practice of its own socialism that's quite apart from the conventional understanding of socialism. The Chinese reform could be characterized by two words, namely, "decentralization" and "privatization." In essence, it is a process in which state gradually relinquish control over national economy. On one hand, the state grants more autonomy to state-owned enterprises and ask them to operate for its own profit from the market. On the other hand, the state encourages the growth of private companies and private industries. There was a World Bank figure showing that, by 1999, private industries constituted 71 percent of the Chinese economy. As a result, banks, under the pressure of making profit, stopped to provide free and unchecked money to companies, and instead ask both state own enterprises and private companies to provide collaterals and guarantees in order to obtain financial support from banks. This created market need for rule of law in this area.

The second background is that the Chinese is very eager to make its commercial laws in conformity with international standards and certain Western norms in order to attract foreign investments. Foreign investors in China, when they are dealing with Chinese partners in relation to financial and commercial transactions, requires a set of legal rules that can provides certainty and protection. This is, by no means, a trivial thing but rather very strong request from a powerful group because, in the past decade, China is one of the two largest recipients of foreign investment in the whole world. Another country is the United States. And last year, foreign investment in China totaled 52 billion US dollars, that's much higher than what the U.S. received in last year.

Second Part is about the content of the security law.

In brief, the established relatively a modern legal system for creating and enforcing security over business and personal property and guarantees of debt, allowing commercial banks and financial institutions to secure their loans with collateral or guarantees. It created five different types of security devices, including mortgage, pledge, guarantees, lien, and earnest (or deposit). Generally speaking, the law integrated elements of both common law and civil. In particular it was influenced by American UCC Article 9 and German law. You may find the major provisions of the law are quite similar to those in other countries, but there are some Chinese characteristics. Such as:

" Mandatory registration for certain assets: in the U.S. and many other countries, notice filing, which is equated with Chinese registration as a matter of procedure, is generally necessary only to perfect a security interest and not mandatory. But in the Chinese law, registration is mandatory for creating security interests over land, urban buildings, transportation vehicles, forests and trees, and equipments and movables of enterprises.
" Secondly, in enforcement of security interest, there is no such thing as "self-help" remedy. According to the UCC, a lender may take possession of the mortgaged property without the consent of the debtor/mortgagor if that can be done without a "breach of the peace." But in China, if you want to realize your security interest, you must first enter into friendly negotiation with the person who owes you money to discuss the disposal of the mortgaged assets. God knows that person will not negotiate with you friendly. Otherwise you have to go to court to litigate the issue and every person would know how costly it will be.
" Third, with respect to priority issue in the process of insolvency, secured debts enjoy super-priority, ranking ahead of all other creditors, be it a priority creditor or unsecured creditor.
" There are also some other features worth mentioning but I am afraid I don't have the time.

Finally, I would like to make some comments on the Chinese security law.

First, it's still in a primitive stage and has a long way to go toward becoming a sophisticate system. In addition, Chinese courts have appeared to be very conservative in recognizing new types of securities. For example, in practice it proved very difficult to persuade Chinese court to accept the concept of independent guarantee. It takes time, I believe.

Secondly, there is a mentality behind the existing law, that is social stability is more important than creditors' rights and interests. So Chinese courts in many situations are very reluctant to help creditors to enforce and liquidate their security if that would lead to bankruptcy and massive lay-off of corporate employees.

Well, guess my time is up. Thank you.