Written by Professor SHENG Hong, Director of Unirule Institute of Economics

Translated by Mr. MA Junjie, Project Researcher of Unirule Institute of Economics

This essay was first published by FT Chinese on December 20th, 2018: http://www.ftchinese.com/story/001080753?adchannelID=&full=y

Huawei’s CFO Ms. Meng Wanzhou has caused quite a big stir. China’s Ministry of Foreign Affairs called upon the US Ambassador and the Canadian Ambassador, requesting the immediate release of Ms. Meng, and threatened with “severe consequences”. As expected, two Canadian citizens were detained later. However, I believe it is utterly wrong if people think by doing this, the crisis would be solved. As pointed out by law experts earlier, judicial independence is no joke in a common law country, such as the US and Canada. Once the judicial process is initiated, no one could interfere till the process is completed. There is an innate logic and and inertia in the judicial system, even in ancient China, we have seen such a tradition. In the Han Dynasty, someone frightened the horse of the Emperor Wen of Han, an official called Zhang Shizhi judged that person with minor offense, which offended the emperor. Zhang Shizhi explained, if this case was not handed to the judiciary, you might have been able to arbitrate anyway you’d like: “however, this case is in the jurisdiction of the judge now. And the judge serves as the balance for the universe. Once tilted, the execution of law will be influenced accordingly. How, then, would the people know how to handle themselves?” Once in the judicial system, and this system has an impact on the justice of the universe, if it is not observed, how would the people behave? Therefore, even the Emperor had to obey the result produced by the judicial system. 

There is an even more rigid tradition of judicial independence in common law countries, a tradition that finds its root in the times of Henry II of England in the 12th century. In order to set up the judiciary power for the new dynasty among the many serfdoms, Henry II sent out the circuit court. The judges lacked judicial knowledge and experience at first, but they gained the knowledge of the local conventions from the juries at the circuit court. Every year, these judges would gather and discuss the knowledge they acquired, and thus a common law tradition emerged. Over centuries, this tradition brought about two beneficial results. The first result was a group of jurists who have their own moral values and judicial skills, and comparatively more independence due to their higher income. The second result is a principle of “kings under law”, that is political leaders would also have to be abided by law, and they should not interfere with the judicial process. consequently, unless automatically concluded, the judicial process in a common law system would not be interrupted by political leaders. On the other hand, it is a felony to interfere the judiciary. For example, when President Nixon wanted to resist the investigation into the Watergate incident and relieve Archibald Cox  as an independent counsel to investigate, two consecutive Attorney Generals resigned to voice their objection, while Nixon on the other hand stepped down for his interference of the judiciary. 

The common law system is never perfect, but comparatively speaking, it is the best this world has to offer. Compared to the continental law system, the common law system dismisses the legislation by the state and holds highly of the laws that are much older and born from conventions. That is because such laws are rules tested by history. In The History of the Common Law of England, Sir Matthew Hale dedicated a whole chapter to describe the facts and reasons about why the customary laws were maintained after the Norman Conquest. This is also the proof of “kings under the law”. Such a common law system could also sustain in the test of different backgrounds of the parties involved in a case, wealthy or poor, white or black, privileged or not. Such cases sprawled across history, such as the Brown v. Board of Education(1954), and New York Times Co. v. United States(1971) where in both cases the privileges parties failed. Even though in country like the US influence on the judiciary is hard to eliminate, compared to other countries, such influences are reduced to the possible minimum thanks to the common law traditions. Therefore, the Chinese government should not expect to have Ms. Meng released via pressure on the US government, and the US government is hardly responsible for achieving political ends via pressing the judiciary(the so-called conspiracy). 

Another trait of the common law tradition is its emphasis on justice of process. There is a higher request for observing the due process of law than obeying the specific articles in a legal code. It is the process that was dubbed by Hayek “rules of just conduct”, whereas, articles in a legal code is less significant. Some evidence, in the circumstance where there are issues with the process of obtaining, should be rejected by the court; otherwise, it indicates that the judiciary has the legal means to violate the basic civil rights, which would shatter the civil rights protected by the US Constitution. That explains why sometimes there’s insufficient evidence due to the method of obtaining such evidence. For example, in the Simpson case, the solicitors’s evidence of blood pointed to Simpson and the defendant’s attorney proposed that the blood stain didn’t exist in the pictures presented in the first time, which could be taken as an effort to frame the defendant. This evidence was rejected as a result by the court. Therefore, for Huawei, the most important thing is to find the best common law attorney in the premise of a thorough understanding of the common law system and discover the loopholes in the process. It is going to be a battle of law in a common law country. From a layman’s point of view, there are some ambiguous places in the accusation presented by the District Court for the Eastern District of New York. For example, one evidence regards using email address as proof of Huawei’s relationship with Skycom, which begs for questions regarding the method of obtaining such evidence. 

Another key trait of the common law system is the jury. This institution requires a jury of 12 or 23 citizens, and only when everyone or the absolute majority of the jury reaches unanimous conclusion, will a decision be made. As for the defendant, he or she has the right to require certain members of the jury to be excluded, even without giving any reasons. The selection of jury members is totally random with them noting knowing each other normally. In severe cases, they need to be isolated, which makes it even more unlikely to buy them. This prevents political power from manipulating the the trial. During the colonial time, this was also a form of resisting the suzerain. Therefore, being tried by a jury is seen as a right. There are two relevant articles in the US Constitution,  Section 2 of Article 3 stipulates that “the trial of all crimes, except in cases of impeachment, shall be by jury.” And in the 6th amendment, it stipulates that “in all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed.” As I see it, Ms. Meng’s case shall also be tried by a jury. Of course, there is huge room in the selection and exclusion of jury in this case. Apparently, different makeup of the jury usually produces different results. For example, in the Simpson case, most of the jury members were black, which might have been an important factor for the result.  

In the common law tradition, the requirement for evidence is also demanding. Firstly, it is not conventional to mete out penalties based solely on the defendant’s confession. According to the Fifth Amendment of the US Constitution, the defendant “shall not be held to answer for a capital, or otherwise infamous crime”. Apparently, this is not something commonly seen in the Chinese judicial practice, such as the Nie Shubin case. In addition, indirect evidence, evidence that was acquired in illegal methods, and evidence that could be used to frame people, is not likely to be heard by the court and the jury. And there is also the issue of the selection of the witness and testimonies. If the witness is proved to be a party with conflicted interest against the defendant, his or her testimonies are unlikely to be accepted. For example, all the competitors of Huawei in the American market, such as Cisco, are considered parties of conflicted interest. If the executives of this company has been spreading words that undermines the reputation of Huawei, he could also be influencing the political figures and judicial institutions of the US. If the evidence and testimony is proved to be from individuals or institutions that are related to the parties with conflicted interest, they should be excluded. Once considered a case with insufficient evidence, the jury shall conclude the innocence of the defendant in line with the principle of “presumption of innocence”. Therefore, comparatively, the common law system is one that better protects the rights of the defendants’.

Of course, as American jury members, they are influenced by the general public discourse and cultural conventions. In a rather long period of time, Huawei has been pinned down to a company that has relationships with the Chinese government and even the military, and its products contained backdoors that might be opened on the request of the Chinese government, which will constitute a major threat to American national security. Mark Rubio said Huawei, like other Chinese private enterprises, could not say no to the Chinese government. Another US Senator Ted Cruz exaggerated even more as he accused Huawei as a spy agency disguised as a telecommunication company. Therefore, the US military warns that Huawei products would not be sold in any shops close to military bases. Some others also believe that Huawei’s technology is mostly stolen from the US, and Huawei products are mostly used to monitor Chinese and citizens of other countries. Or, some even say, Huawei illegally sold American high-tech products to Iran and deceived American financial institutions to provide service, etc.. Huawei cannot possibly be solely held accountable for such negative rhetorics. And of course, these accusations in the US is not all founded on thin air. They should be sued to reflect on some of China’s problems. 

China’s traditional judicial system was centered on ritual, or “Li”, that is the form of customs or convention in the Chinese context. However, this tradition was abolished after 1949. China’s judicial system today was born out of that of the former Soviet Union. This system inherited the framework of the continental laws and is pushed to the limit with utmost flaws when guided by the Marxist and Leninist thoughts where the state is viewed as the machine of violence and the laws a tool of the ruling class. Significant changes have taken place after the Reform and Opening-up, and a much improved law system has emerged with reference to that of western countries. In terms of the legal texts, there is still big room for improvement, but they are acceptable in a whole. The Chines Constitution stipulates the principles of “rule of the constitution” in order to build a “country of rule of law”. The CPC’s 19th Congress also proposed to further build the “society of rule of law”. As a principle of a society of rule of law, the most critical part is the independence of the judiciary, which has already been stipulated clearly in Article 131 of the Chines Constitution, “ The people’s procuratorates exercise procuratorial power independently, in accordance with the provisions of law, and not subject to interference by any administrative organ, public organization or individual.” There are other principles of rule of law, such as “presumption of innocence” that was established as a fundamental principle since the Reform and Opening-up. 

All in all, the basic principles of China’s law system is very close to that of the common law system, and they both put “rule of law” as a core concept. However, the biggest difference in the Chinese Constitution and the US Constitution is that, in America, the Constitution can be litigated, that is the Constitution can be referred to in the execution of the judiciary; where as in China, the Constitution falls as empty words that cannot be quoted in real life trials. This tiny difference leads to huge consequences. The Constitution and other laws cannot be effectively put in use and the valuable principles of the judiciary cannot be fully implemented. For example, even though the Chinese Constitution stressed the independence of the judiciary, there is still the interference of the “ Political and Legal Affairs Commission of the CCP” and other organisations alike. Such an institutional setup, in effect, jeopardised the balance of the judiciary and undermines the mechanism of justice, because the superior Commission has replaced the authority of the judiciary. Many public litigated cases served the political ends or, even worse, the personal will of the administrative department officials, and the principle of “presumption of innocence” is, therefore, no more. Unlike “kings under the law”, in this law system, it has been “power over the law”. 

In reality, Chinese enterprises will have to cave to to power or make compromises in order to settle disputes. The competition between enterprises does not always rely on the market, but somehow on the political resources one can mobilise. The market is undermined in this way. Once accustomed to such an environment, Chinese institutions tend to resort more to political power and less to laws. When people breach laws in foreign countries, they would expect to resort to power for a way out. In Ms. Meng’s case, the Chinese Ministry of Foreign Affairs threatened the Canadian counterparts that there will be “severe consequences”, and three Canadian citizens were detained in China, which showcased the result when people try to understand the common law system from the perspective of the Chinese judicial reality. What’s boasted is not the compliance to the due process of law, but the capacity to dismiss the principles of rule of law. Even if such an act worked, very negative consequences would be seen on China. This is to declare to the world that the Chinese government is one that tends to settle judicial issues by the power of state. And we all know that the best way to solve International judicial conflicts is to constrain the issue with the judicial area and solve it in a peaceful way. Otherwise, dangers of getting into a cold war, or a hot war, would be very imminent. 

As for speculations of the relationship between Huawei and the Chines government, the latter needs to reflect on its conduct, too. Early as in 2003 when Cisco sued Huawei for infringing intellectual property, such comments were observed. Unirule held a seminar on this topic as well. Later, in a research project on China’s big enterprises, we combed through the historic information about Huawei and concluded that it was not justifiable to link Mr. Ren Zhengfei’s company to the government just on the ground that Mr. Ren used to be a soldier. Huawei is a rather normal private enterprise. It is apparently not reasonable to accuse an American entrepreneur of his connection with the US government just because he served in the army. However, in recent years, the impression of Huawei’s connection with the government was enhanced by some measures implemented by the Chinese government, for example, setting up CCP party branches in private enterprises. As we know, the CCP is the ruling party in China. The sudden shift from “division of party and government” to “combination of party and government” convinced many Americans, especially some influential politicians, that Chinese private enterprises represent the Chines government. Naturally, Huawei is no exception. If branches of the ruling party of a country are set up in companies, how do you expect others to treat these companies as independent?

Since such a company represents the Chinese government, political ends may be met in the commercial operations, including collecting intelligence of other countries. Like adding fuel to the fire, the Standing Committee of the National Congress passed the National Intelligence Law in 2017, and its Article 7 stipulates that “ An organization or citizen shall support, assist in and cooperate in national intelligence work in accordance with the law and keep confidential the national intelligence work that it or he knows.” Such an article was apparently for the convenience of the government without taking into serious consideration the balance of the interests of multiple parties, let alone thorough deliberation and consideration before the drafting of the law. Intelligence is a peculiar task that requires particular personnel to fulfil. If all the citizens and organisations shall compulsively assist in national intelligence work, in doing so, these citizens and organisations would be put in ultimate danger once they break the law in the host country. An intelligence agent would be destroyed once his or her cover is blown. For example, when former US ambassador Joseph Wilson exposed the inaccuracy of George W. Bush’s statement of “Iraq buying uranium”, the White House retaliated by blowing Wilson’s wife’s cover as intelligence agent. It can be seen that intelligence work or assisting intelligence work is no easy task for each and every citizen, anyway. 

A citizen or enterprise should be loyal to its motherland. But this motherland should not be taken as a specific government, party, or political leader, but a set of civilisation rules. Being loyal to these rules is being loyal to the motherland. This set of rules include all the constitutional rights in a written Constitution, including freedom of expression(Article 35), privacy of communication(Article 40), and lawful rights of the non-state economy(Article11). Government can make requests to enterprises, but only in specific times(such as war or disaster relief) and by public means. If unconstitutional requests are made to enterprises in covert ways, such an act itself deviates from the civilisation rules. Besides, a company like Huawei that produces mainly Internet related products is open to speculations and suspicions when it is seen as a company that cannot say no to the unconstitutional requests from the administrative departments. When such suspicions are made, such as Huawei putting improper functions that might violate civil rights in its products, another constitutional right of the people, that is the right to criticise government organs and its personnel(Article 41) is hindered, which would turn a government under people’s watch into a government that watches its people. When such a company goes abroad, caution is naturally called for. 

Therefore, when I say Ms. Meng’s case is a war of rule of law, I was not merely referring to the litigation debate in Canadian or American courts, but also the battle between two legal systems. Of course, the war here means “peaceful competition”. And the standard for winning is whose system is more just and more in line with the principle of rule of law. There is also the standard of difficulty, “power over law” is easy, and “kings under the law” is hard. firstly, we should put the public performance of the Chines government and the Canadian and American governments in comparison. Whatever the national strategic motives are behind Ms. Meng’s case, America, nevertheless, has issued the order of arrest on the ground of financial fraud based on years of cautious investigation and carefully dodged the long-arm jurisdiction controversy. Canada, on the other hand, also followed the due process of law regarding granting bail and extradition and arranging public hearings. In China’s case, it is still not clear whether the Chinese authorities “controled and interrogated” the two Canadian citizens in accordance to the law, and whether their rights are guaranteed, the due process of law is obeyed, and a transparent hearing or trial will be held. If yes, China could still manage to get a tie in the competition. Otherwise, China will most likely win the battle but lose the war, showcasing to the world that China does not have the capability of abiding by the principle of rule of law. And the true triumph of the legal system is to demonstrate justice in the multiple rounds of the competition, ensuring the citizens that their comprehensive and stable interests are safe. Therefore, the war of rule of law also means more efforts in improving the legal system. 

In the long run, the judicial system would constitute an important institutional dimension in the strategic competition between China and the US. Even though these two countries are competitors in national strategy with many conflicts of interest, it is fair to admit that the American judicial system has a lot for the Chines judicial system to learn. Douglas North pointed out that modern economic development mainly relies on institutions that protect property rights. In order to protect property rights, the public power has to be contained. When the constitution cannot be implemented, there is no effective constraint on the public power. And we cannot really guarantee the economic independence of private enterprises when power outweighs the law and the constitution is merely a piece of paper. That is because private enterprises can not trust that their independent behaviours or their resistance against government interference would be protected by the judiciary. In fact, many of the crises with the private enterprises were not a result of economic factors. Many entrepreneurs claim that they have thought about moving to foreign countries out of security concerns. If the judiciary is controlled by the party or the government, effective constraint on the public power cannot be expected. On the contrary, the judiciary risks being used as tools by the public power. An economy that does not protect property rights and security will not win in strategy. Therefore, China can not win the long term competition with the US unless real changes are made to the judicial system. 

In order to become independent and pure enterprises, Chinese private enterprises should not be coerced to set up sections of a certain political party. There are many spheres in a society, the private sphere and the public sphere, the economic sphere and the political sphere. Different spheres assume different societal functions and are constituted by different organisations. Enterprises are organisations in the private sphere, and their goal is to pursue profit; political parties belong to the public sphere with a purpose to provide better public governance. Economy is all about making a cake, whereas politics is all about dividing the cake. If political organisations enter the private sphere and make cakes by using the principles for dividing the cake, no big cakes should be expected to come out of this. If enterprises enter the public sphere and divide the cake by using the method of making cakes, injustice is expected as a result. Therefore, it would cause confusion to set up CCP sections in private enterprises. In addition, as mentioned before, doing so will cause massive suspicion in foreign countries. Such suspicions are not merely targeting China. When Americans tried to nationalise the oil companies, they stopped when they found foreign countries might get suspicious. 

China should also modify the misinformed National Intelligence Law and cancel Article 7 and leave intelligence work to the professionals. Strictly speaking, most of China’s technological achievements are acquired by the R&D under the protection of patent law by private enterprises, instead of through intelligence agents. Huawei is an example in this respect. When we at Unirule Institute of Economics combed through the information related to Huawei, we learned about its massive investment into R&D with strict IPR management rules. It is said that Huawei staff are not allowed to connect to external network from Huawei offices or carry any storage devices outside of the office building. A company would not be able to build a good R&D team if its main purpose is to collect technological inteligence. Besides, the stolen technology would only be scattered pieces of information, whereas a good R&D team is the fountain of innovation. The weight of R&D efforts and the intelligence work is easy to judge. As for a country, it is right to encourage mass innovation and mass entrepreneurship, but it is utterly wrong to encourage mass intelligence collection. 

We saw calm and restraint in the Huawei statement. What they emphasised was to “learn from the US with strong belief, and never let anti-American sentiment dominate our work.” After Ms. Men was rebased on bail, Huawei announced that “we trust that the legal systems of Canada and the US will subsequently produce just conclusions.” Once again, Huawei stressed that “Huawei has been abided by all the laws and regulations applicable in the host countries of its operations, including the export regulations and sanction laws applicable in the United Nations, the US and the EU.” This showcased that Huawei is an enterprise that has weathered the ups and downs in the intentional market for years, and that it is equipped with a proper understanding of the legal system of foreign countries, especially the US. Besides, from the perspective of Huawei’s global strategy, only by standing the test of the Canadian and American judicial process, a comparatively more strict but just judicial system, will it prove its innocence. And only by claiming a spot in such a tough market will it be able to succeed in strategic terms. Otherwise, if Ms. Meng made it home to China by relying on the pressure from the Chines government, there will be one country less in the world that would ever trust Huawei, and Huwei executives would never dare to enter the US. Huawei’s market share in the US will also be lost gradually due to the lack of judicial protection. This is totally agains the fundamental interest of Huawei. 

Similar views is likely to spread to the whole country. If the Chinese government could pressure the US to “release its citizen”, what is going to happen? Will Chinese enterprise continue breaking laws in America, or will Chinese enterprises stop sending their executives to America? What will the American society and enterprises do? Will they risk breaking the law and do business with Chinese companies, or will they stop doing so? Such a face-saving act would bring about permanent damage to Chinese enterprises. Therefore, China should resort to institutional structure reforms to address this comprehensive and long term strategic problem, instead of resorting to pressure and coercion. The war of rule of law between China and the US does not accredit the one that imposes its own legal rules on the other, but the one that learns from others and improves its own legal system. As Huawei executives claim to “learn from the US with strong belief”, what should be learned also include the American legal system. Maybe, this is the key for China to win this war. 

I have always been impressed by Huawei and considered Huawei a pride for Chinese private enterprises and the IT industry. I would also believe that Huawei would not use illegal methods to make money in the American market, especially after its twenty years of entry to the market and the test of the lawsuit raised by Cisco. As long as Huawei responds properly, good results should be expected from Ms. Meng’s case. If President Trump said he could interfere the case, that was to admit that this was a political case for political purposes, which would be a good evidence for Huawei to object the extradition request. And if the Chinese government “welcomes” such an act from President Trump, that would set Ms. Meng in a more unfavorable condition because China would be entering the game for its own political purposes. A tie between the two countries with political purposes would be the result. 15 years ago, in my article on the Cisco v. Huawei case, I wrote, “this case is more than a conflict between two companies or two countries. It would offer a rare opportunity to draw a clear line between ‘IPR protection’ and ‘anti-monopoly’. Of course, due to international politics, it is hard for us to expect a clearcut result from the American court.” It turned out that I underestimated the lower court of the US, but the result was unexpected good. Huawei and Cisco reached a compromise and called off the litigation. This time around, Huawei’s composure and wisdom might work again.