China has become, in the space of three decades, the world’s second largest economy. Along he way, China’s share of global GDP grew from a 1.61 percent in 1990 to 17.51 percent in 2020. China attracted 23.25 percent of the world’s foreign direct investment in 2020; its exports accounted for 12.72 percent of all world exports.
These dry statistics reflect the creation and growth of a dynamic economy, but also serve to hide underlying issues. China’s legal system is fraught with insufficiencies and a woeful lack of protections for either individual or business interests. Nowhere can that better be seen than in the relationship between an attorney and client in China.
Indeed, China has no attorney-client privilege. Put another way, the sacrosanct bond between attorney and client, which much of the rest of the world takes for granted, not only does not exist in China but is seen as a potential risk to the interests of the state – which in China of course also means to the interests of the ruling Chinese Communist Party (CCP).
China has gotten away with building a legal system that pacifies foreign investors and buyers despite the fact that it does little more than create a cozy but artificial comfort zone for those who seek the trust and confidentiality of a lawyer. Indeed, hiring a Chinese law firm gives the decisions and actions of foreign executives in China plausibility back home. The concerns of boards of directors and management at headquarters overseas are assuaged by knowing that their Chinese legal team has reviewed a particular situation, approved the language in a contract, or successfully obtained a Chinese trademark based on the lawyer’s sophisticated understanding of the requirements of the Chinese bureaucracy.
Few understand – or would believe – that everything involved to complete legal transactions is available to both authorities and competitors if the Chinese lawyer is either so compelled or finds it in her interest to make it so.
Some foreign lawyers in China, who by definition are forbidden from practicing law in the country, have been open about this gaping hole in China’s legal protections. American attorney Fred Rocafort in 2019 wrote in a blog for law firm Harris Bricken that “China does not have an attorney-client privilege.”
Rocafort cites another American lawyer, Brad Luo, who had several years prior written that “China’s ethical rules for lawyers have a ‘bright line’ rule forbidding them from representing both sides in the same conflict, but go little beyond that.” Luo explained that China does not require lawyers to remain loyal to former clients, therefore allowing them to turn on them “without offending any ethical duty of confidentiality” to either the old client or the new client. Rocafort offers some examples: “Perhaps your Chinese lawyer has another client who would just love to take a look at that new patent application of yours. Perhaps your Chinese law firm stands to benefit by tipping off your competitor before it files your trademark application – we have many times heard of this happening.”
Both Luo and Rocafort come to the conclusion that “if I were a client, I’d hesitate talking about certain things with my Chinese lawyer.”
The legal standard of privacy and confidentiality in China is so removed from most international standards of law that many clients will scoff at suggestions to the contrary. I myself have had projects in which I have warned skeptical international companies to be careful and selective about what they divulge to Chinese lawyers, as their information is not protected by either the lawyer or the legal system. Even when a Chinese lawyer is sincere and trustworthy, he or she may not have any choice but to give up information on a foreign company and its interests in China to government or party figures who demand that information.
Chinese law is deliberate about this. All interests ultimately bow to the state, not to the individual, the corporation, or the company. One cannot have attorney-client privilege in a state in which all information is considered fair game for the state to possess.
China, like most authoritarian countries, puts a large umbrella over any information potentially affecting or harming national security. Nominally, therefore, although a Chinese lawyer is supposed to protect their clients’ trade secrets, if that trade secret includes, for example, a technology design that the Chinese government designates as a matter affecting its national security, then it is a secret no longer. The information will be duly processed and put into the pipeline for analysis and, if found useful, adoption by the Chinese state. The foreign company will usually never suspect that their lawyer was responsible for the loss of its intellectual property and the rights that go with it.
Thus China’s legal system is left offering the international community the window-dressing of something familiar – with almost none of the substance that veneer implies. In the final analysis, the absence of enforced and enforceable protections, privacy, and confidentiality for a client with a lawyer in China is another one of those “whole of nation” mechanisms used to help the Chinese Communist Party (CCP) steal from foreign companies – and become the world’s number two economy in the process. And that’s why it matters.