Luo Xiang: Why is the rule of law the best business environment?

Source: Hexun

What does the rule of law mean for the market economy, and why must the rule of law protect the development and growth of private enterprises?

Luo Xiang is a professor at the School of Criminal Justice and director of the Institute of Criminal Law, China University of Political Science and Law

Recently, the People's Daily launched the column "Policy Q&A: What China's Economy Will Do in 2024", and the relevant responsible comrades of the Private Economic Development Bureau of the National Development and Reform Commission responded to social concerns on the issue of "promoting the development and growth of private enterprises".

In particular, it is mentioned that it is necessary to "grasp the implementation and put down the requirements for equal treatment of state-owned enterprises and private enterprises from the system and law", and "accelerate the legislative process of the law on the promotion of the private economy, and strive to build a legal and institutional guarantee system to promote the development of the private economy, so that all kinds of ownership economies can use the factors of production equally, participate in market competition fairly, and be equally protected by the law, put an end to selective law enforcement and let enterprises 'prove their innocence' type of supervision, and create a good and stable expectation for the development of the private economy." ”

What does the rule of law mean for the market economy, and why must the rule of law protect the development and growth of private enterprises?

The following is an excerpt from the Finance China Annual Conference 2023.

NO.1

Why does a market economy need the rule of law?

First of all, the connotation of the rule of law is involved. When many people think of the rule of law, they think of severe punishment, which is actually a misunderstanding of the rule of law. The rule of law encompasses at least both substance and form.

In essence, the rule of law requires good law to be governed, and the law should pursue goodness. This kind of goodness is mainly embodied in the protection of individual freedom, the promotion of equal rights, and the fair treatment of market transaction subjects. Under the market economy, it is to protect the property rights of enterprises through good laws. The value orientation of the core values of socialism at the social level - freedom, equality, justice, and the rule of law - this order is very important, and the organic combination of freedom, equality, and justice can truly realize the rule of law.

Among them, freedom is the premise of equality, equality is the connotation of justice, and justice is the life of the rule of law.

Formally, the rule of law requires universal compliance. Rules should apply not only to the weak, but also to the strong. This also makes the behavior of both the people and the state expected, and a stable and orderly market economy needs to be carried out under the premise of predictability.

Therefore, the rule of law has a paradoxical effect, on the one hand, it must maintain social order and prevent the darkness of human nature from leading to chaos in social order. On the other hand, it also wants to prevent the alienation of the forces that maintain the social order from becoming the destructive forces of the social order. This is also why an important proposition of the rule of law is to limit the power of the state and prevent the alienation of power. The power of the government on which the market economy depends must be effective and at the same time limited, and it is not necessary to manage everything.

We often hear that the spirit of the rule of law lies in the fact that for private rights, the law does not prohibit anything, and for public rights, it prohibits everything without the authorization of the law.

Therefore, the rules must be clear and unambiguous. A clear legal rule delineates the forbidden areas of behavior, outside of which are the freedom of the individual, which can maximize the activation of individual creativity and lead to the maximum increase in social welfare. At the same time, the rule of clarity can also restrain the disorderly actions of power and prevent power from inadvertently harming individual freedom.

If the rules are vague, it is likely to lead to widespread lawlessness, on the one hand, people lack reasonable expectations of what to do and what not to do. On the other hand, vague laws cannot set clear adjudication standards for the holders of power, which can easily lead to selective enforcement and abuse of power.

NO.2

How does the rule of law increase entrepreneurs' sense of security?

The mainland constitution clearly stipulates that the non-public economy is an important component of the socialist market economy. "The State protects the legitimate rights and interests of the individual, private, and other non-public economies. The State encourages, supports, and guides the development of the non-public economy, and exercises supervision and management over the non-public economy in accordance with the law. ”

We often say that we want to create a good business environment for private enterprises, but what we need is not special legal treatment, but a fair and just environment under the law. This fair and just environment requires the existing legal system to untie the development of private enterprises, so that private entrepreneurs can eliminate hidden worries.

My specialty is criminal law, and I will give you a general overview of my views on this issue from the perspective of criminal law.

First of all, to optimize the environment for the development of private enterprises and break down the institutional obstacles for private enterprises to participate in market competition fairly, the most important thing is to protect rights, not to increase obligations. There is no obligation without rights, and there is no right without obligations, and it is unreasonable to talk about equality of obligations when the rights are not equal.

Second, there is the clarity of the criminal law, that is, the principle of legality of crimes. It is not a crime unless there is an express provision in the law, and there is no punishment in the absence of an express provision in the law. The spirit of the criminalization of crimes lies in the use of clear rules to limit the penal power of the State, to prevent judicial arbitrariness and to protect individual freedom.

According to the principle of legality of crimes, what is stipulated in the law must be clear and must not be ambiguous. For example, for the crime of illegal business operation, some places believe that as long as the business behavior violates the administrative license, then it is illegal business operation, and if it reaches a certain amount standard, it constitutes the crime of illegal business operation, and this understanding may not conform to the principle of legality of crimes.

The main question here is how to understand the illegal, what is the law? criminal law, civil law, Xi customary law, moral law, or your opinion. Article 96 of the Criminal Law stipulates that the term "violation of state regulations" as used in this Law refers to violations of laws and decisions formulated by the National People's Congress and its Standing Committee, as well as administrative regulations, administrative measures, and decisions and orders issued by the State Council. Therefore, the departmental rules issued by the various ministries and commissions of the State Council and the local regulations issued by the localities cannot be used to infringe on the power of punishment.

Breaking the law is not necessarily a crime, none of us has not violated the law, and it is also illegal to run a red light, if you say that you have not violated a red light, then I suggest you take a look at Article 44 of the Education Law, students should work hard to study Xi and complete the prescribed Xi tasks, you dare to say that you have not violated Article 44 of the Education Law since you were a child. In short, breaking the law, that is, breaking the law is not the same as committing a crime.

Let me talk about a case, let's call Zhang San, opened a training class, specializing in teaching people to dance square dance, and was later reported, and the public security organs believed that Zhang San constituted the crime of illegal business operation. The reason is that there is no license for training, so it is illegal, and it also collects money, which is a business, illegal plus business, and the turnover is more than 50,000 yuan, so it is an illegal business.

Teaching people to dance also belongs to private non-academic education, so you can go to the "Private Education Promotion Law", Article 12 of the law does stipulate that the opening of academic education and non-academic education must be approved by the relevant administrative departments. Dance training institutions belong to private non-academic education, and shall be established with the approval of the administrative departments for education and other institutions, and the establishment of art training institutions without permission is an illegal act in violation of the "Law on the Promotion of Private Education".

Article 64 of the Law on the Promotion of Private Education stipulates the consequences of illegally running schools...... It shall be ordered to stop running the school, refund the fees charged, and impose a fine of not less than one time but not more than five times the amount of the illegal gains on the organizers; if an act of violating the administration of public security is constituted, the public security organ shall impose a public security administrative penalty in accordance with the law, and if a crime is constituted, criminal responsibility shall be investigated according to law. ”

Therefore, it seems that the public security organs actually have a legal basis. However, if you carefully examine the law, you will find that the premise of this article is "violation of relevant state regulations", and the law does not use "violation of this law", so it must refer to the relevant provisions of other countries other than the "Law on the Promotion of Private Education". Article 2 of the Law on the Promotion of Private Education stipulates: "This Law shall apply to social organizations or individuals other than state institutions that use non-state financial funds to organize the activities of schools and other educational institutions for the public." Where there are no provisions in this Law, it is to be implemented in accordance with the Education Law and other relevant education laws. ”

Legislators specifically used the word "law" rather than "statute". Laws specifically refer to laws formulated by the National People's Congress and its Standing Committee, and administrative regulations are promulgated by the State Council. This means that matters related to private education, in the absence of provisions in the Law on the Promotion of Private Education, can only be implemented in accordance with the Education Law and other relevant education laws, excluding administrative regulations, let alone departmental rules. In addition to the Law on the Promotion of Private Education and the Education Law, the relevant education laws include the Compulsory Education Law, the Law on the Standard Spoken and Written Language, the Regulations on Academic Degrees, the Teachers Law, the Higher Education Law and the Vocational Education Law promulgated by the Standing Committee of the National People's Congress. However, none of the eight laws considers the unauthorized establishment of training schools to be criminally liable.

Therefore, starting from the principle of legality of crimes, there is no "national provision" for investigating the criminal liability of illegal business operations for private dance training institutions.

Thirdly, it is the miscriminalization and leniency of criminal law, that is, the transformation from the previous heavy punishment doctrine to the light punishment doctrine, especially corporate criminal compliance. I have also roughly sorted out the provisions on crimes involving private entrepreneurs, and I would also like to put forward relevant suggestions for corporate compliance from the perspective of our legal professionals, so as to eliminate the worries of private entrepreneurs.

According to a survey by a research institution, the top 10 high-frequency crimes of entrepreneurs in 2022 include the crime of illegally absorbing public deposits, the crime of embezzlement, the crime of misappropriation of funds, the crime of accepting bribes by non-state workers, the crime of collusion in bidding, the crime of fraud, the crime of contract fraud, the crime of fund-raising fraud, the crime of embezzlement, and the crime of refusing to pay labor remuneration. Among them, there are many crimes, such as the crime of embezzlement and misappropriation of funds, which are because entrepreneurs lack modern enterprise concepts and equate the company's money with their own money. However, there are also some judicial organs that have a mechanical understanding of the law, holding that as long as a private entrepreneur takes advantage of his position to embezzle the company's property or misappropriate funds, it constitutes the crime of embezzlement or misappropriation of funds, completely ignoring the essence of this crime of infringing on property rights.

For example, Zhang San was originally a shareholder of a one-person company, but because he only accounted for 10% of the shares in the industrial and commercial registration, the nominee shareholder accounted for 90% of the shares, Zhang San failed to properly comply with the accounting system and used the company's property for personal expenses, and Zhang San was later charged with the crime of embezzlement. For another example, Li Si is the owner of a sole proprietorship company, accounting for 100% of the company's equity, and transferred 1 million yuan to buy a car for Xiao San, and Xiao San's ex-boyfriend reported Li Si for misappropriating funds. On the surface, Zhang San and Li Si both violated the provisions of the Company Law and obstructed the company's management order. However, the crimes of embezzlement and misappropriation of funds are all crimes against property, which clearly shows that the legislator considers them to be mainly crimes against property rights. Since Zhang San is the de facto sole shareholder of the company, his act of embezzlement cannot infringe on the property of the shareholders and naturally does not constitute a crime. In the same way, Li Si owns 100% of the company's shares, and his misappropriation cannot infringe on the property rights of the sole shareholder of the company, so he should naturally be punished not guilty.

It is not a crime unless there is an express provision in the law, and there is no punishment in the absence of an express provision in the law. For example, in accordance with Article 61 of the General Rules for Loans issued by the People's Bank of China, "enterprises shall not handle loans or disguised lending and financing business in violation of state regulations." "Lending between companies may be illegal. However, loans are generally departmental rules, not laws or administrative regulations, and cannot stipulate crimes and punishments. Therefore, even if a corporate loan is illegal, it is not necessarily a crime.

One of the well-known cases is the case of Zhang Wenzhong's misappropriation of funds, which was selected as one of the "Ten Typical Cases of the Supreme People's Court Issuing by the Supreme People's Court to Help the Construction of a National Unified Market". On May 31, 2018, the Supreme People's Court publicly pronounced the verdict in the retrial of the original defendant Zhang Wenzhong's case of fraud, bribery, and misappropriation of funds, revoking the original judgment and changing the verdict to acquit Zhang Wenzhong. Zhang Wenzhong, the former chairman of Wumart Group, was sentenced to 12 years in prison and fined RMB 500,000 by the Hebei Provincial High People's Court in March 2009 for fraud, bribery, and misappropriation of funds, and was released in February 2013.

Regarding the case of misappropriation of funds, Zhang Wenzhong's retrial defense lawyer held that Zhang Wenzhong's conduct was misappropriated by a unit, not for personal use, and did not constitute a crime. This defense opinion was supported by the Supreme People's Court, and the person in charge of the Supreme People's Court pointed out that in order to constitute the crime of misappropriation of funds, in addition to the act of misappropriating funds, it is also necessary to prove that the misappropriated funds are for personal use. If it cannot be proved that it is for personal use, it does not constitute the crime of misappropriation of funds. Article 272 of the Criminal Law describes the crime of misappropriation of funds as "a staff member of a company, enterprise or other unit who takes advantage of his position to misappropriate the funds of his or her unit for personal use or to lend to others......

Judging from this textual description, lending to others and personal use seem to be juxtaposed, and the use of the convenience of an enterprise by an enterprise personnel, whether for the purpose of pursuing personal interests or for the sake of the enterprise, misappropriating the funds of their own unit to lend to others may literally meet the constitutive elements of the crime of misappropriation of funds. However, the crime of misappropriation of funds infringes upon the property rights of the unit and the property rights of the shareholders behind it, and if it is misappropriated in the name of the unit, it is impossible to infringe on the property rights of the unit, and naturally it does not constitute this crime.

At present, there are many entrepreneurs involved in the crime is a statutory offense, the statutory offender is not a violation of ethics and morality, but because of the provisions of the law so it has become a crime, such as buying a few parrots to constitute the crime of endangering precious and endangered wild animals, catching dozens of geckos, which may constitute the crime of illegal hunting, fishing with loaches, and some places believe that it constitutes the crime of illegal fishing of aquatic products.

With regard to a large number of statutory offenses in the economic field, because they are not strong in anti-morality, there is a mistake in the understanding of the law, and they can be exempted from responsibility, and those who do not know about it are not guilty? If a mistake is likely to be committed by ordinary people, it naturally should not constitute a crime. Of course, there is a contradiction here, everyone who is arrested will say that they don't know the law, so what to do. One suggestion is that the statutory offender is not held accountable for the first offense, since the statutory offense is not very immoral, then it can give people a chance to make mistakes. The Administrative Punishment Law, amended in 2021, also added the provision of "no penalty for the first violation", and if the first violation is violated and the harmful consequences are minor and corrected in a timely manner, administrative punishment may not be imposed. The boundary between statutory offenses and administrative offenses is already very blurred, and in order to limit the application of statutory offenses, it is also necessary to promote the system of non-punishment for first offenses in the criminal law. The failure to pursue criminal liability for statutory offenses and first-time offenders can also provide assistance for the implementation of the criminal compliance system of enterprises.

In short, for the development of private enterprises, the rules of the law should be as clear as possible, fewer arrests and cautious prosecutions, lenient sentences and prison sentences, and empty prisons, so as to provide reasonable expectations for the development of enterprises and protect their legitimate rights and interests.

NO.3

Why has the problem of fines and confiscations against private enterprises become more and more prominent in recent years?

There may be two issues worth pondering here, one is the attribution of confiscated income, and the other is the theoretical basis of the confiscated income system.

First, the first question. In recent years, there has been an upward trend in forfeiture revenues.

In 2022, the national revenue from fines and confiscations will be 428.398 billion yuan, and the total national fiscal revenue will be 20,364.929 billion yuan, accounting for 2.1% of the revenue. The revenue from fines and confiscations was 371.195 billion yuan in 2021, 311.387 billion yuan in 2020, 306.209 billion yuan in 2019, and 265.918 billion yuan in 2018. In 2019, it exceeded 300 billion yuan, in 2017 it exceeded 200 billion yuan (239.414 billion yuan), and in 2010 it exceeded 100 billion yuan (107.464 billion yuan).

Localities account for the lion's share of the revenue from fines and confiscations. Taking 2022 as an example, of the 428.398 billion yuan of national fines and confiscation revenue, 59.689 billion yuan will be from the central government and 368.709 billion yuan from the local government, accounting for 86%. In 2022, the general budget revenue of the local government will be 10,876.215 billion yuan, of which the revenue from local fines and confiscations will be 368.709 billion yuan, accounting for 3.34%. In 2022, the local fiscal real estate tax will be 359.035 billion yuan, which is less than the revenue from fines and confiscations.

Therefore, the revenue from fines and confiscations has gradually become one of the important sources of revenue for local finance, and the revenue from fines and confiscations in some provinces even accounts for about 7-8% of the general budget revenue of local governments (that is, the total tax and non-tax revenue). In some cities, it even exceeds 10 percent, or even higher.

Some scholars have shown that at present, although the judicial organs have adopted the separation of revenue and expenditure, the revenue from fines and confiscations is not directly at the disposal of the judicial organs, and the judicial organs hand over the revenues from fines and confiscations to the local finances, and the local finances return the revenues from fines and confiscations to the judicial organs according to the situation, and the revenues from fines and confiscations are used to supplement judicial funds. Some scholars believe that, in a certain sense, the more fines and confiscations the judicial organs have, the more office expenses will be subsidized, which is an important reason for the recognition of ordinary illegal acts and even ordinary economic disputes as crimes. This phenomenon must arouse the widespread attention of the whole society.

The revenue from fines and confiscations includes two departments, one is the fines and confiscations of administrative organs, such as fines for traffic violations, and the other is the fines and confiscations of judicial organs, such as Zhang San was sentenced to a fine for the crime of illegal business operation and the illegal gains were recovered.

Therefore, the question worth pondering now is whether the revenue from fines and confiscations should be returned to the central government to avoid profit-seeking law enforcement in some localities, and this is an issue that needs to be carefully considered. It may be possible to adopt a compromise argument that administrative fines and confiscations still go to the localities, but judicial fines and confiscations go to the central government.

The second issue is the current scope of confiscated revenues, which some scholars believe should be applied to the general theory of negative prevention, prohibiting anyone from benefiting from crime and related acts, as is the case in some places. The so-called passive general prevention, in layman's terms, is deterrence, killing one to set an example. Profits obtained through illegal and criminal means, regardless of the final increase in value, shall be fined and confiscated. In this way, we can deter the people to the greatest extent and prevent them from committing illegal crimes, otherwise they will be empty.

For example, Zhang San bribed the leader and obtained the qualification to buy an egg, bought the egg through the market value, and then the egg gave birth to chickens, and the chickens laid eggs, and after years of hard work, the egg became a large-scale chicken farm, and the chicken farm became a large-scale playground. However, due to the illegal initial procedure, it is very likely that the entire chicken farm will be confiscated. Whether this approach is justified or not is worth examining, as it completely ignores the cost of the labour, intellect, and opportunity of entrepreneurs. The so-called positive general prevention means that the reason why people do not commit crimes is because they respect the norms of the law from the bottom of their hearts. Whether this practice of confiscating all chickens and eggs can win the people's inner approval is also a question worth studying.

Those of us who study law often say that the rule of law, while not an optimal way to govern, is a suboptimal option to avoid the worst outcome. The core spirit of the rule of law is the restriction of public power and the guarantee of individual freedom. In today's ever-changing world, we hope that the rule of law will give us relative certainty. This certainty stems from the desire for justice, respect for human dignity and freedom. I hope that the rule of law can foster a better market economy, and I hope that we can build a market economy on the basis of the rule of law.

The rule of law is the best place to do business.