2022 Legal Inquiry Response: Localities Lack Legislative Authority over Personal Bankruptcy—Except Shenzhen?

On January 28, 2023, the Legislative Affairs Commission (LAC) of the NPC Standing Committee (NPCSC) released one of the “legal inquiry responses” [法律询问答复] it had issued during the past year. As discussed in depth here, such responses clarify the applicable law in real-world scenarios at the request of central governmental bodies or provincial legislatures. They are not universally binding, but are considered highly persuasive—hence a form of “soft law”—because of the LAC’s pivotal role in lawmaking.

The sole response released on Saturday concerns the division of legislative powers between central and local authorities. In May 2022, an unnamed provincial legislature[1] wrote to the LAC that the minors protection legislation it was reviewing would touch on (1) guardianship of minors, and that it was also mulling legislation on (2) intellectual property protections for porcelain and (3) personal bankruptcy. May it legislate on those matters, it asked, or are they within the national legislature’s exclusive purview?

Pertinent to its inquiry was Article 8 of the Legislation Law [立法法]. (Article 8 is being amended; for the proposed changes, please see this chart.) It currently provides that the national legislature has exclusive legislative authority in the following ten broad areas (plus a catch-all category):

(1) matters of state sovereignty;
(2) the establishment, organization, functions, and powers of the various levels of people’s congresses, people’s governments, people’s courts, and people’s procuratorates;
(3) the system of ethnic regional autonomy, the systems of special administrative regions, and the system of grassroots self-governance;
(4) crimes and criminal punishments;
(5) deprivation of citizens’ political rights as well as compulsory measures and punishments that restrict physical liberty;
(6) basic systems for taxation such as the establishment of taxes, determination of tax rates, and collection and management of taxes;
(7) expropriation and requisition of non-state-owned assets;
(8) basic systems of civil law [民事基本制度];
(9) basic economic systems, and basic fiscal, customs, financial, and foreign-trade systems;
(10) systems of litigation and arbitration;
(11) other matters on which laws must be formulated by the [NPC] or its Standing Committee.

Thus, with only a few exceptions not relevant here, the foregoing areas are beyond the legislative authority of all other governmental bodies. Some of those areas were intentionally kept broad and indefinite as a result of extensive debates and compromises between the national legislature and its local counterparts in the lead-up to the Legislation Law’s enactment in 2000.[2]

Responding to the anonymous provincial legislature’s inquiry, the LAC concluded that the three matters concerned—guardianship of minors, intellectual property protections, and personal bankruptcy—all fall within the category of “basic systems of civil law.”

As to the first two matters, this conclusion should come as no surprise. It is the LAC’s long-held view that “basic systems of civil law” encompass rules on intellectual property and domestic relations. But because the national legislature has already enacted laws on those issues, the LAC wrote, local legislatures may still prescribe “specific implementing provisions” based on local realities, as long as they do not contravene or simply repeat national provisions (see Legislation Law arts. 72–73).

As for personal bankruptcy, the response was the LAC’s first public comment on the issue’s relationship to Article 8 categories. Though unexplained, the LAC’s conclusion was not unexpected, either. As one local legislative official has written in a semi-classified publication for official reference, “it is generally difficult to deny [personal bankruptcy’s] attributes as a basic system of civil law” because bankruptcy makes “major adjustments to the general system of civil liabilities, especially insofar as it involves the cancellation of debts.” It is therefore “inappropriate” to enact local regulations on personal bankruptcy, the LAC added, especially when (or perhaps for the independent reason that) some form of national personal bankruptcy legislation was in the works. It was likely referring to proposed revisions to the Enterprise Bankruptcy Law [企业破产法] that reportedly would include “skeleton” [原则性的] provisions on personal bankruptcy.

To those familiar with developments in China’s bankruptcy law, the LAC’s response would naturally raise one question: why was Shenzhen allowed to enact pioneering personal bankruptcy legislation in August 2020? It is true that Shenzhen, as a special economic zone (SEZ), has broader legislative powers than most provinces (not to mention cities). “SEZ regulations” [经济特区法规] may “vary” [变通] (i.e., contradict) national laws as long as they follow the latter’s “basic principles,” whereas ordinary “local regulations” [地方性法规] (legislation enacted by most local people’s congresses) must not contravene national laws.

Still, it appears to be the consensus among scholars[3] and legislative officials (including those from the LAC) that an SEZ’s “varying power” does not trump the national legislature’s exclusive authority under Legislation Law Article 8. In other words, Article 8 matters are beyond the reach of SEZs, just as they are for other localities. The aforementioned article for internal reference specifically questioned the Shenzhen personal bankruptcy legislation’s apparent exemption from Article 8. Even the Shenzhen legislature itself in 2017 disavowed any authority to pass such legislation precisely because of Article 8’s prohibitions.

What changed between then and 2020? The legislative records of Shenzhen’s personal bankruptcy legislation reveal that the LAC endorsed the bill in early 2020, commending its “positive significance.” The city’s legislature also relied on a 2019 joint opinion by the Central Committee and the State Council that supports Shenzhen in experimenting with a range of reforms, though the opinion does not mention personal bankruptcy. A follow-on central policy document issued in October 2020, two months after the Shenzhen legislation had already passed, did purport to (retroactively) authorize Shenzhen to “take the lead in piloting a personal bankruptcy system.”

But Shenzhen’s first-in-the-nation personal bankruptcy legislation is still ultra vires, in our view, if the national legislature (whether the NPC or the NPCSC) has not delegated the necessary legislative power itself. Neither the LAC’s endorsement nor the central policy documents—authoritative as they are—could legally authorize what the Legislation Law prohibits. It appears, then, there is now an unwritten “Shenzhen exception” to Article 8—at least when personal bankruptcy is concerned.

[1] The inquirer was probably the Jiangxi provincial legislature because the province’s minors protection regulations were revised in September 2022, a few months after the inquiry was made, and because Jiangxi is home to Jingdezhen, China’s “Porcelain Capital.”

[2] See Li Yahong, The Law-Making Law, A Solution to the Problems in the Chinese Legislative System?, 30 H.K.L.J. 120, 126 & nn.31–37, 127 & nn.39–40 (2000).

[3] See, e.g., Yang Feng, Examining Legislation in China’s Special Economic Zones: Framework, Practice and Prospects, 47 H.K.L.J. 585, 597 (2017) (“[The] 11 matters [under Article 8], such as ‘the basic economic system’, should be outside the scope of the [SEZs’] modification power.”).

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