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Documentary Credit World

Documentary Credit World (DCW) - September 2023 Vol. 27 No.8 section - Updates

Domestic Correspondent Report: China - MLETR Capacity Building

The Asian Development Bank (ADB), in conjunction with ICC’s Digital Standards Initiative (DSI), and UNCITRAL, conducted a Capacity Building event on 28 August 2023 in Beijing to advocate for the adoption of the MLETR in People’s Republic of China.

The meeting featured a comprehensive review of recent developments in China’s electronic transferable records field, including legislative, judicial, and practical developments in the areas of commerce, finance, and maritime. Also discussed were the latest practices regarding electronic signatures, electronic bills of lading, electronic warehouse receipts, cross-border railway bills, and other related areas.

Additionally, ADB, the International Institute for the Unification of Private Law (UNIDROIT), and experts from the United States and Singapore presented the latest developments on MLETR from their perspectives.

The meeting also explored the possibility and the potential pathways for implementation of MLETR in China. However, given that the Civil Code has been enacted in China (which covers documents of title, possession and control, public registration systems, and warehouse contracts and warehouse receipt law) and other traditional legislative acts in commercial law, such as the Negotiable Instruments Law (covering electronic negotiable instruments), the Maritime Law (covering electronic bills of lading), and the Electronic Signature Law (addressing the establishment, validity, and uniqueness of electronic transferable records), there is a practical problem of fragmented legislation.

While some experts strongly recommend specialized legislation of electronic transferable records, it is not feasible to have a dedicated unified commercial law legislation similar to Articles 7, 9, or the new Article 12 of the Uniform Commercial Code (UCC) in the US. Although there have been discussions within the Chinese academic community about drafting a Commercial Code that consolidates traditional commercial laws, it is unlikely in the short term due to the complex legislative process of the National People’s Congress.

Moreover, given the lengthy operational timelines and existence of specialized legislation such as the Negotiable Instruments Law and the Maritime Law, attempting to initiate a legislative process in this regard would not only be challenging but could also lead to failure.

According to my personal experience and considering that it is not feasible to have a unified legislation, it is more practical to utilize legislative documents prior to 1981 that the National People’s Congress granted authority to the Supreme People’s Court and establish an internal drafting group focused on judicial interpretations related to electronic transferable records (ETR) in the Supreme People’s Court. This group would consolidate all rules pertaining to ETRs, including those rules in the Civil Code, the Negotiable Instruments Law, the Maritime Law, and the Electronic Signature Law, into a single judicial interpretation, addressing various issues related to the adjudication of electronic transferable record disputes. Alternatively, there could be a summary or guidelines on the practice of adjudicating electronic transferable record dispute cases. This would help unify the judicial practices across Chinese courts when dealing with such cases.

Based on the Electronic Signature Law and use of electronic invoices, the development of ETRs in China is relatively rapid, particularly in the area of electronic bills of exchange where almost 100% of transactions have been conducted electronically (though operational and legal problems persist). Nationwide registration systems for electronic warehouse receipts are also under consideration. Electronic domestic letters of credit, electronic domestic guarantees, and the electronic forfaiting market are all experiencing rapid growth. Naturally, electronic documents such as e-invoices, e-waybills, e-bills of lading, and e-warehouse receipts are also developing quickly.

In my own report, I reminded of some very interesting practical developments in China in several areas. First, the rapid development of so-called “cloud documents (Chinese: Yun Dan))” as an ETR in relation to accounts receivable assignment certificates (ARACs), with hundreds of platforms in China involving trillions of RMB in transaction value, including a well- developed practice developed in supply chain finance by banks as well as a large amount of assignment of accounts receivable, pledges, and corresponding financing by Jingdong (JD.com) and Alibaba. There are also a large number of platforms with state-owned backgrounds that have done transactions with amounts in the trillions.

Another interesting area of practice is the development of the digital RMB which, in my view, is also a type of ETR and because of its inevitable negotiability, it will have much greater and wider usage than the assignment of accounts receivable.

Meeting attendees included officials from the Ministry of Commerce and the National People’s Congress, the Ministry of Public Security, the Supreme Court and the Supreme People’s Procuratorate, the Ministry of Industry and Information Technology, the National Cyber Security Office, the Bank of China, the Industrial and Commercial Bank of China, and the Export-Import Bank of China.

As for next steps, I am currently planning a one-day online lecture on MLETR and will invite relevant experts to give presentations. I also plan to submit my proposal to draft a judicial interpretation on behalf of the Financial Committee of the All-China Lawyers Association to the relevant departments of the Supreme People’s Court.

- Saibo JIN
Partner
Beijing Jincheng Tongda & Neal Law Firm