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Legal Certainty and Trusts in China

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Legal Certainty in a Contemporary Context

Abstract

The location of ownership of trust property has been a hotly debated issue among Chinese scholars since the Chinese Trust Law was enacted in 2001. This chapter describes various conventional interpretations of Chinese Trust Law submitted by legal scholars. Moreover, it develops a new, but more practical way, to explain why Chinese trust business has expanded in spite of the uncertainty of Chinese Trust Law regarding the location of ownership of trust property, using a social capital perspective. This chapter also further tries to predict what conditions would enable and make it desirable for China to clarify the location of the ownership of trust property.

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Notes

  1. 1.

    Waters (2006).

  2. 2.

    Restatement of the Law Third, Trusts (US 2003), Part 1 Chapter 1 IN NT. See also McKinsey (2014); D’Angelo (2014).

  3. 3.

    See D’Angelo ( 2014 ); Waters (2007).

  4. 4.

    The text for each of these 53 ‘trusts’ is supplied in Lupoi ( 2000). As of the present date the number is in excess of 53. See also Waters (2006).

  5. 5.

    See Ho and Lee (2013).

  6. 6.

    See e.g. Gretton (2000).

  7. 7.

    See Bolgár (1953).

  8. 8.

    The English translation of Chinese Trust Law can be found in the Database of Laws and Regulations by the National People’s Congress of China. http://www.npc.gov.cn/englishnpc/Law/Frameset-page2.html. Accessed 29 August 2015.

  9. 9.

    Ho (2012), pp 184-185.

  10. 10.

    Ho (2012), p 201. For more details, see Bian (2002), pp 255–278.

  11. 11.

    Ho (2012), p 199. Under the Contract Law of China, an entrustment contract is “a contract whereby the principal and the agent agree that the agent shall handle the affairs of the principal”.

  12. 12.

    For example, Article 15, 20, 28, 29, 30 are inconsistent with Article 14, 16 of Chinese Trust Law.

  13. 13.

    Ho (2004).

  14. 14.

    See Ho (2012).

  15. 15.

    Property Law of the People’s Republic of China. Its English translation available at http://www.npc.gov.cn/englishnpc/Law/2009-02/20/content_1471118.htm. Accessed 14 June 2015.

  16. 16.

    See Ho (2012).

  17. 17.

    See Article 14 of Japanese Trust law: (its English translation available at http://www.japaneselawtranslation.go.jp/law/detail/?id=1936&vm=04&re=02)

    With regard to any property for which the acquisition, loss, and modification of any right may not be duly asserted against a third party unless it is registered, the fact that such property belongs to the trust property may not be duly asserted against a third party unless the fact that the property is under the trust is registered.

  18. 18.

    Ho (2012), p 199.

  19. 19.

    Ho (2004).

  20. 20.

    See Zhang (2007).

  21. 21.

    Zhang (2007).

  22. 22.

    Article 396 of Chinese Contract Law provides that:

    An entrustment contract is a contract whereby the principal and the agent agree that the agent shall handle the affairs of the principal.

    See also Lee (2009).

  23. 23.

    Chinese Trust Law 2001, Article 30 provides that:

    (T)he trustee shall handle the trust affairs in person, but if there are otherwise provisions in the trust documents or there is no alternative, the trustee may entrust others to handle the affairs on his behalf. The trustee shall bear liability for the handling of the trust affairs by others to whom he entrust the trust affairs. (Emphasis added.)

  24. 24.

    Lee (2009).

  25. 25.

    Chinese Trust Law, Article 20 provides that:

    (T)he settlor has the right to know how his trust property is managed, utilized or disposed of and the income and expenses incurred therefrom, and has the right to ask the trustee to make explanations. The settlor has the right to consult, write down or duplicate the trust accounts relating to his trust property and other documents relating to the handling of trust affairs. (Emphasis added.)

  26. 26.

    Chinese Trust Law, Article 28 provides that:

    (T)he trustee may not conduct inter transaction between his own property and trust assets or between the trust assets of different settlors. (Emphasis added.)

  27. 27.

    Chinese Trust Law, Article 29 provides that:

    (T)he trustee shall administer the trust property separately from his own property and keep separate accounting books, and he shall do the same with regard to the trust property of different settlors. (Emphasis added.)

  28. 28.

    Ho (2012), p 198.

  29. 29.

    Chinese Trust Law , Article 15 provides that:

    Trust property differs from other properties with which the trustor hasn’t established a trust. After the trust is established, if the trustor dies or disbands according to law, or is canceled or declared bankrupt according to law, and if the trustor is the only beneficiary, the trust shall terminate and the trust property shall be deemed as his heritage or liquidation property; if the trustor is not the only beneficiary, the trust shall continue to exist and the trust property shall not be deemed as his heritage or liquidation property; but if the trustor, as a joint beneficiary, dies or disbands according to law, or is canceled or declared bankrupt according to law, the beneficial right of the trust shall be deemed as his heritage or liquidation property.

  30. 30.

    See Chinese Trust Law , Article 20, 21, 22.

  31. 31.

    Ho (2012), p 199.

  32. 32.

    Graham and Steeny (2012).

  33. 33.

    There are arguments that against this opinion, stating that the ownership of trust property held by the trustee is incompatible with the concept of the ownership in civil system. See Zhang (2007).

  34. 34.

    Qu (2003). See also Lee (2009).

  35. 35.

    Chinese Trust Law , Article16 provides that:

    The trust property differs from the property owned by the trustee (hereinafter referred to as inherent property for short) and shall not be deemed as the inherent property of the trustee or become part of the inherent property. If the trustee dies or disbands or terminates as a result of being canceled or being declared bankrupt according to law, the trust property shall not be deemed as his heritage or liquidation property.

  36. 36.

    Qu (2003).

  37. 37.

    Wang (2008).

  38. 38.

    Lee (2009). See also Honor ( 1987).

  39. 39.

    Yu (2010).

  40. 40.

    Shandong Shipin Youxian Gongsi v. Jinan Yingda Guoji Xintuo Touzi Gongsi (Shandong Food Co. Ltd. v. Jinan Yingda International Trust and Investment Co, Ltd.), the Court of Shizhong District, Jinan, Shangdong, First Instance Civil Case No.1707 (2001).

  41. 41.

    Wang (2008).

  42. 42.

    Wen and Feng (2005). (There are two reasons: a. Trustee’s possession of the trust property might be terminated by the beneficiary (or the settlor), whereas the owner’s possession of the property has no time limitation and depends on his own will. B. trustee’s rights of dispose of trust property are limited within the trust contract documents and the beneficial interest.)

  43. 43.

    Lee (2009).

  44. 44.

    See e.g. Article 17 of Chinese Trust Law .

  45. 45.

    This point is mainly regulated in Article 22 of Chinese Trust Law: “If the trustee disposes of the trust property against the purposes of the trust or causes losses to the trust property due to violation of the management duties or improper handling of the trust affairs, the beneficiary has the right to apply to the people’s court for withdrawing the disposition; he also has the right to ask the trustee to revert the trust property or make compensation.”

  46. 46.

    For example, under certain circumstances, the beneficiary can demand the distribution of the profit of a trust fund, even though the trust contract between the settlor and the trustee does not have such terms.

  47. 47.

    Wang (2008).

  48. 48.

    Wen and Feng (2005).

  49. 49.

    Ho (2012), p 196.

  50. 50.

    Lou (2012).

  51. 51.

    Ho (2012), p 198.

  52. 52.

    REIT is a collective investment scheme where funds from investors are pooled and invested towards a specified goal as set out in the investment objective of the fund. In addition, a REIT is a fund that is invested in a portfolio of real estate assets or real estate-related assets.

  53. 53.

    Lou (2012).

  54. 54.

    Beijing Haidian Keji Fazhan Youxian Gongsi v. Shenzhen Xinhua Jinyuan Touzi Fazhan Youxian Gongsi (Beijing Haidian Science and Technology Development Co., Ltd. v. Shenzhen Xinhua Jinyuan Investment and Development Co., Ltd.) Chongqing High People’s Court, First Instance Civil Case No.14 (2006).

  55. 55.

    Ho (2010).

  56. 56.

    Hu and Chen (2006).

  57. 57.

    See Article 17, 20, 21, 22, 23, 28, 35, 40, 41/2, 50, 51/2, 53 of Chinese Trust Law .

  58. 58.

    One thing needs to be clarified here is that in a general sense, wealth management services provided by commercial banks, security companies, insurance companies and other financial institutions based on trust principle and trust system can be included into trust industry. But according to Chinese Trust Law , trust industry only refers to the trust business run by trust companies. In this Section, for the convenience of introduction of statistics on trust industry, the latter meaning of trust industry is taken.

  59. 59.

    KPMG (2010) China’s Trust Sector: The Next Chapter. https://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/China-trust-sector-next-chapter-201002.pdf. Accessed 6 May 2015.

  60. 60.

    China Trustee Association, http://www.xtxh.net/Trust_Statistics/19124.html (last accessed November 25, 2014).

  61. 61.

    KPMG (2010) China’s Trust Sector: The Next Chapter. https://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/China-trust-sector-next-chapter-201002.pdf. Accessed 6 May 2015; See also Meng (2015).

  62. 62.

    Field (2009), pp 15–16.

  63. 63.

    Prell ( 2012), p 62.

  64. 64.

    Prell ( 2012), p 122.

  65. 65.

    China Trustee Association, http://www.xtxh.net/xtxh/statistics/22930.htm. Accessed 15 April 2015.

  66. 66.

    See Zubi (2012) Murky Waters: The rapidly-evolving landscape of Chinese SME finance. http://www.geopoliticalmonitor.com/murky-waters-the-rapidly-evolving-landscape-of-chinese-sme-finance-4715/. Accessed 15 April 2015.

  67. 67.

    Asian Development Bank Consultant’s Report (2014) The People’s Republic of China: knowledge work on shadow banking – trust funds and wealth management products. http://www.adb.org/sites/default/files/project-document/80950/shadow-banking-trust-funds-and-wmps-prc.pdf. Accessed 6 May 2015.

  68. 68.

    Measures for the Administration of Trust Companies’ Trust Plans of Assembled Funds, Article 6 provides that:

    The term “qualified investor” as mentioned in the preceding paragraph refers to a person that satisfies any of the following conditions and is able to identify, judge and undertake the corresponding risks of a trust plan:

    1. 1.

      a natural person, legal person or any other organization established according to law whose minimum investment in a trust plan is 1 million yuan or more;

    2. 2.

      a natural person whose aggregate individual or family financial assets exceed 1 million yuan at the time when he/she subscribes the trust plan and who can provide the relevant property certificate;

    3. 3.

      a natural person whose annual income exceeds 200,000 yuan for the latest 3 years or whose total annual income of husband and wife exceeds 300,000 yuan for the latest 3 years and who can provide the relevant income certificate.

  69. 69.

    Some of the largest trusts are closely associated with banks in terms of ownership. For example, CITIC Trust and CITIC Bank are subsidiaries of the CITIC Group. CCB Trust’s controlling shareholder is the China Construction Bank. Industrial Trust’s majority owner is Industrial Bank of China.

  70. 70.

    Industrial and Commercial Bank of China (ICBC) Relationship Manager. http://www.gulftalent.com/uae/jobs/relationship-manager-167871. Accessed 30 August 2015.

  71. 71.

    China Trust Industry Growth to Slow by Half, Huabao Says (Aug. 2, 2013), available at http://www.bloomberg.com/news/articles/2013-08-01/china-trust-industry-growth-to-slow-by-half-huabao-says (last accessed June 23, 2015).

  72. 72.

    China Trustee Association (2014) Main Business Data of Trust Companies (1st Quarter 2014). http://www.xtxh.net/xtxh/statisticsEN/20044.htm. Accessed 15 April 2015.

  73. 73.

    Bloomberg (2014) China trust asset growth slows in shadow banking campaign. http://www.bloomberg.com/news/articles/2014-08-12/china-s-trust-asset-growth-slows-amid-shadow-banking-crackdown. Accessed 11 May 2015.

  74. 74.

    Mayhew and Levinger (1976).

  75. 75.

    Bachmann and Inkpen (2013), p. 460.

  76. 76.

    Smallbone and Welte (2006).

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Acknowledgments

This paper is supported by “the Fundamental Research Funds for the Central Universities”, No.AE15001_16.

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  1. Nanjing University of Science and Technology, School of Public Affairs, Department of Law, Nanjing, 210094, China

    Zhen Meng

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  1. Faculty of Law, Kyushu University, Fukuoka, Fukuoka, Japan

    Mark Fenwick

  2. Faculty of Law, Kyushu University, Higashi-ku, Fukuoka, Fukuoka, Japan

    Stefan Wrbka

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Meng, Z. (2016). Legal Certainty and Trusts in China. In: Fenwick, M., Wrbka, S. (eds) Legal Certainty in a Contemporary Context. Springer, Singapore. https://doi.org/10.1007/978-981-10-0114-7_6

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