Legal Transplants and Local Custom in China: The Struggle over Apportioned Liability for External Debt of Partnerships

Madeleine Zelin (Columbia University)

This paper examines one aspect of the introduction of Western business law to China in the first quarter of the twentieth century---the thirty-year debate over the liability of partners for external debt of the firm. The context for this debate was the continuous process of civil law codification during the last decade of the Qing dynasty [1644-1911] during which time the largely unregulated realm of private transactions in China was reimagined as governed by commercial and civil statute guided by Western examples. That the first and most eagerly anticipated legislation, company law, did not result in the widespread adoption of the corporate model has been attributed to many factors, including the weakness of Chinese capital markets, Chinese legal insufficiency, and the capricious traditionalism of Chinese businessmen.  By flipping our focus from the corporation to the partnership and the long-standing practice of what I have called apportioned liability, this paper argues for the seriousness with which the creation of a new legal regime was taken as the vehicle for Chinese economic development.   The debate reconstructed here pitted continental and common law principles of unlimited liability against protestations of long-standing Chinese practices.  It was performed within new state and popular institutions as well as mass and specialist print media.  The latter, in particular, gave expression to contending views by publishing verbatim new modes of public communication with state agencies, the interpretations and decisions of the new Supreme Court, and a wide range of scholarly, journalistic and lay opinions regarding the changing legal landscape. The intensity of the debate over the issue of partnership liability relied on deeply embedded understandings of how business should be done, the place of custom in the ordering of private transactions, the sources of trust, and the appropriate role of the state in regulating business activity and intervening in dispute resolution.  An examination of Chinese partnership liability during a period of intense engagement with Western legal norms thus provides a useful point of entry for understanding the embeddedness and historical contingency of legal practices.  It underscores the inadequacy of legal transplantation as a means to understand the complex processes by which law enters new terrain. And it allows us to trace the processes by which Western law, itself by no means uniform, participated in the realignment of legal authority in the highly sophisticated, albeit non-Western context that was early twentieth century China.