As China seeks to boost the confidence of private companies, a recent document issued by the Hainan provincial government has sparked a controversy about whether the private sector is receiving special treatment in the judicial system. The document, called Several Measures to Support the Development of the Private Economy, mentioned that private businesspeople involved in criminal cases should not be arrested, prosecuted, or sentenced to prison whenever possible. This controversy is worth reflecting on.
The concerns about the policy focus on two points. First, if it ends up getting changed in the future, the current policy may undermine the stability and authority of the rule of law. Second, if it grants private enterprises “extrajudicial privileges,” it is unfair. Regardless of whether these concerns are valid, they serve as a reminder to policymakers. Boosting the confidence of private enterprises ultimately relies on a stable and fair legal environment. A consistent and rigorous standard should be applied to whether or not someone gets arrested or prosecuted, with the law having the final say.
In fact, Hainan did not come up with what is referred to as the “fewer arrests, cautious prosecution, and cautious detention” policy. As early as 2018, China’s top prosecutors’ office made it clear that corporate leaders who could not be arrested, prosecuted, or sentenced to actual imprisonment should be advised to apply for probation for criminal cases involving their business.
In 2020, the National Procuratorate Conference proposed the requirements for the policy mentioned above. In the same year, pilot reforms for enterprises involved in cases were carried out, and those enterprises that could not be prosecuted were required to make compliance commitments and actively rectify their practices. In 2021, the Central Committee for Comprehensively Governing the Country by Law included the “fewer arrests, cautious prosecution, and cautious detention" criminal justice policy in its annual work priorities, elevating it from a judicial concept to an important criminal justice policy for the party and the country. The policy is not only aimed at private enterprises; other regions have previously issued similar documents, but the controversy sparked by the Hainan document shows that the policy is not widely known.
According to its original intent, the policy is not about leniency across the board, but about strictly adhering to the principles of legality and proportionality for criminal punishment. Under the statutory conditions for arrest, prosecution, and detention, measures should be kept within reasonable and necessary limits to demonstrate judicial humility and caution. This does not mean granting extrajudicial favors to private enterprises or entrepreneurs, nor does it amount to “extrajudicial privileges.” This policy does indeed provide an opportunity for private enterprises involved in cases to reform, and its intentions are not ill-conceived.
However, this compassionate judicial policy, as it has been implemented so far, remains far from perfect. Judicial policies cannot replace individual discretion. How the policy gets applied to various business violations must be determined on a case-by-case basis. It is not yet clear which situations non-arrest, non-prosecution, and non-detention should be “possible.” This has led to to different discretionary standards in different regions and varying applications to the same type of crime in different areas. As a result, private enterprises have not been reassured. The issue of restricting the discretionary power of the procuratorial authorities should not be ignored, and it is necessary to prevent “non-prosecution for compliance” from becoming a double-edged sword hanging over the heads of enterprises in some places. The skillful application of this policy lies in the intention behind it.
More importantly, the judiciary should not be reduced to a tool for economic regulation. There are profound lessons in this regard. When the economy is sluggish, authorities may turn a blind eye to enterprises and entrepreneurs, only to clamp back down when the situation improves. Such cycles turn the law into a rubber band, causing it to lose its authority. Thus, it cannot provide companies with justice and protection. At some point in the past, for the sake of economic regulation, some enterprises or entrepreneurs were turned into negative examples and named and shamed in official media.
For the private sector, those memories are hard to forget. With such a history, private entrepreneurs have become an extremely sensitive group, resembling frightened birds. They naturally worry that if arrests can be limited today, then what’s to stop authorities from reversing themselves in the future — going from “avoiding arrests whenever possible” to “seeking arrests whenever possible.” It won’t be easy to shake them of these concerns. One wrong step would make any previous efforts futile.
It should also be noted that arrest, prosecution, and detention are not the only issues the private sector has to deal with from the authorities. They also face improper actions from regulatory and law enforcement agencies. During this year’s “Two Sessions,” a member of China’s top political advisory body pointed out that enterprises involved in compliance cases that are subject to “non-prosecution” may still face heavy administrative penalties — perhaps even more severe than the fines they would have faced from a conviction — such as getting shut down or losing their business license.
The key to reducing the private sector’s anxiety lies in the rule of law. The desire for a fair and just legal environment is growing among private enterprises, as only the rule of law can provide them with stable expectations, so they don't have to worry about the past or feel threatened by those who might exaggerate their problems.
The rule of law is not abstract. The key is to restrain arbitrary interference on private enterprises. Premier Li Keqiang stated at this year's Two Sessions press conference that all government work must be carried out within the legal framework, and all administrative actions must be based in law. This requires China to continue moving forward with building a government under the rule of law. At present, there is an urgent need to change the current situation in which some enterprises dare not speak out, show anger, or appeal unreasonable demands or penalties from certain parts of the government. Failing to fix this problem is tantamount to indulging violations of power. The rule of law also requires prosecutors and courts to exercise their power independently and in accordance with the law without interference from other institutions, groups, or individuals. China still has a long way to fulfilling the constitution in terms of the powers it granted to the judicial system.
Rebuilding confidence and improving expectations are the most prominent challenges facing the promotion of private economic development. The controversy surrounding the “fewer arrests, cautious prosecution, and cautious detention” policy shows that it is the rule of law, instead of the rule by law, that the private economic development depends on.
The 20th National Congress of the Communist Party of China called for “promoting the construction of a country under the rule of law.” To put the mind of the private sector at ease — and boost the economy — following the rule of law is the right path.
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