China’s Broken Legal System

China has managed to become the world’s second largest economy, attracting a significant portion of foreign direct investment and accounting for a substantial amount of global exports. However, these statistics hide the serious issues underlying China’s economic growth, such as its legal system, which is notoriously deficient, providing little protection for individuals or businesses. In particular, the relationship between attorneys and clients is severely compromised in China, as there is no attorney-client privilege. This lack of protection not only leaves individuals vulnerable, but it also poses a potential risk to the interests of the state, including the ruling Chinese Communist Party (CCP).

Despite these shortcomings, China has been successful in luring foreign investors and buyers by creating a false sense of security through its legal system. According to most accounts of foreign professionals operating in China, hiring a local law firm may give foreign executives the illusion of trust and confidentiality, but it does little to safeguard their interests. The decisions and actions of foreign executives are only given plausibility back home because of their Chinese legal team’s approval. The concerns of boards of directors and management at headquarters overseas are assuaged by knowing that their Chinese legal team has reviewed a particular situation, approved the language in a contract, or successfully obtained a Chinese trademark based on the lawyer’s understanding of the Chinese bureaucracy. China’s legal system may be convenient for foreign investors, but it does little to protect them from the risks inherent in doing business in a country with such a deficient legal system.

It is alarming to note that all information involved in legal transactions in China can be accessed by authorities and competitors, should a Chinese lawyer choose to disclose it. Unfortunately, this gaping hole in China’s legal protections is not widely known or acknowledged. Even foreign lawyers in China, who are forbidden from practicing law in the country, have spoken out about this issue. American attorney Fred Rocafort wrote in a 2019 blog post for Harris Bricken that “China does not have an attorney-client privilege.”

Rocafort cites another American lawyer, Brad Luo, who previously pointed out that China’s ethical rules for lawyers do not require them to remain loyal to former clients. This means that Chinese lawyers are free to turn on their former clients and share confidential information with others, without any ethical or legal repercussions. Rocafort provides several examples of how this can be exploited: “Perhaps your Chinese lawyer has another client who would just love to take a look at that new patent application of yours. Perhaps your Chinese law firm stands to benefit by tipping off your competitor before it files your trademark application – we have many times heard of this happening.” Both Luo and Rocafort have concluded that it is unwise for clients to share certain information with their Chinese lawyers, given the lack of legal protections. This revelation is deeply concerning and should serve as a warning to those considering doing business in China.

The remarkable growth of China’s economy over the past three decades is often lauded, but the statistics used to measure this progress can obscure deeper issues. While China has become the world’s second-largest economy, accounting for 17.51 percent of global GDP in 2021, its legal system remains inadequate, offering insufficient protection for businesses and individuals. One glaring example is indeed the absence of attorney-client privilege in China, which not only fails to protect the interests of clients but is viewed as a potential threat to the state and the ruling Chinese Communist Party (CCP).

Despite this fundamental flaw, China has managed to attract foreign investment and buyers by creating a facade of legal protection. However, foreign lawyers who are barred from practicing in China have pointed out that everything involved in completing legal transactions is available to authorities and competitors if a Chinese lawyer is either compelled or motivated to reveal it, as they are not obliged to remain loyal to former clients. In turn, clients cannot trust Chinese lawyers with sensitive information and risk losing their intellectual property rights and trade secrets.

Even when a Chinese lawyer is sincere and trustworthy, they may not have any choice but to surrender information on foreign companies and their interests in China to government or party officials who demand it. Chinese law is designed to prioritize the state’s interests above those of individuals, corporations, or companies. Therefore, attorney-client privilege cannot exist in a state where all information is fair game for the government to possess.

In China, as in most authoritarian countries, any information that potentially affects national security is covered by a large umbrella. Even if a Chinese lawyer is supposed to protect their clients’ trade secrets, if that trade secret is related to a technology design designated by the Chinese government as a matter affecting national security, it is no longer a secret. The information will be processed and potentially adopted by the Chinese state without the foreign company’s knowledge. As a result, foreign companies are not aware that their lawyers may be responsible for the loss of their intellectual property rights.



China, West, Legal System