Trust Law of China and Its Uncertainty Regarding the Location of Ownership of Trust Property

This chapter starts with an observation and description of the historical background of Chinese trusts, which is essential to understand why it was necessary for China to enact the trust law in 2001. In Sect. 2.1, it firstly describes the development and problems of trust and investment companies in modern China; and then examines the reasons for the need of trust industry in China before the enactment of the trust law; it also explains why the Chinese legislature considered the trust law as a necessary solution to the further development of trust industry; and finally it describes the legislative procedure of the trust law in China, showing the disputes among legislators during the legislative procedure. In Sect. 2.2, it moves on to outline the origin of trust law in common law system, and the recent trend in the reception of trust in a global context, and then discusses the conflicts between the concept of “trust” and conventional way of thinking by lawyers of civil law jurisdictions. Section 3 of this chapter focuses on Article 2 of Chinese trust law, explaining the practical problems accompanied with it. As is well known, trust law has long been considered by scholars as one of the major features distinguishing the common law systems from the civil law systems. The law of trusts originated in the England. This mechanism has greatly facilitated the economic growth in the modern world, especially commercial trusts (such as securities trusts, fund trusts, and real estate trusts) contributes a lot to the development of financial markets in developed counties. In civilian jurisdictions, there have emerged trends in the reception of trusts. By the year 2000, except for the main common law jurisdictions (such as England, US, Canada, Australia, Hong Kong, Singapore, India), up to 53 jurisdictions in the world have laws expressly or impliedly providing for the trust, and the number is going up. Hansmann and Mattei (1998), p. 436. See also Fisher (1911), pp. 271–272. The renowned English historian Maitland said of trust: “If we were asked what was the greatest and most distinctive achievement performed by Englishmen is the field of Jurisprudence, I cannot think that we could have any better answer to give than this, namely, the development from century to century of the trust idea”. See Graziadei et al. (2005), D’Angelo (2014), Schwarcz (2003). Waters (2006), p. 180. © Springer Nature Singapore Pte Ltd. 2017 Z. Meng, Ownership of Trust Property in China, Perspectives in Law, Business and Innovation, DOI 10.1007/978-981-10-5846-2_2 13 China introduced the concept of “trust” around a century ago, though this concept was not generally implemented in Chinese trust practice. Trust institutions faced problems in doing business during the development of Chinese trust industry. For example, among the problems are: the disorder of management of trust institutions, the shortcomings of company internal control, the common practice of unlawful management of property, the insufficient quality of the capital and the huge potential risks, etc. It is considered by Chinese scholars that such problems were partially caused by the fact that the concept of trust was not generally implemented in the practice, because the trust institutions were simply utilized as a tool for financing for the local governments, without developing corporate governance. China enacted the Trust Law in 2001 (No. 50 of 2001), the year when China entered into the WTO, with the expectation to regulate the trust industry and to facilitate economy growth of China. The Trust Law was expected to provide new ways of business transactions which cannot be achieved through other transaction structures, and create increased business opportunities for both domestic and foreign investors. However, because of the possible or actual tension between the concept of the common law “trust” and the indigenous civil law regimes (such as the possible conflict between the concept of “dual ownership” and “absolute ownership”), scholars in civilian jurisdiction have often endeavored to find solutions for theoretical and technical problems when introducing trust law. These problems in the understanding of lawyers of civil law jurisdictions include the absolute nature of ownership; the doctrine of numerus classus; the necessity of formality and public notice for a right to be enforceable against third parties; and the existence of rules in civil law jurisdictions that are applicable to the trust scenario but yield different results; the absence of some key trust incidents in indigenous civil law (such as the duty of loyalty). Chinese Trust Law also faces difficulties in integrating trust principles into its own legal regimes based on conventional civil law framework. Among others, Article 2 of Chinese Trust Law has given rise to hotly debate regarding “the location of ownership to trust property.” Chinese law practitioners are not much concerned with such theoretical conflict, because currently trust properties in China are almost money. In few cases, the settlor sets a trust on properties (such as real There are scholars arguing that China has its own origin of the “trust” in ancient times, but the trust industry in China is basically based on the concept of “trust” originated in the UK. Wang (2002), p. 285. Wang (2002), p. 286. In this context, local governments usually refer to the governments of Chinese prefectures. Wang (2002), p. 285. Wang (2002), p. 285. The concept of “dual ownership” and “absolute ownership will be explained in Sect. 3.1. Specific explanation on each issue will be illustrated in this chapter. According to Chinese law, the ownership of money is held by the person or legal entity that possesses money. 14 2 Trust Law of China and Its Uncertainty Regarding the Location ...