The Phenomenon And Jurisprudential Analysis Of Evasion Of Law In China's Capital Market

Generally speaking, evasion of law is a common phenomenon in the field of international private law; there are also various forms of law evasion acts within the range of domestic law. By setting the law evasion acts in China's capital markets as the anchor point, this article proposes a comprehensive analysis of evasion of law from the perspective of natural law, positivist jurisprudence, sociology of law and economics of law, plus, it comes up with some detailed proposals concerning the elimination and correction of law evasions.There are four chapters in this Master's thesis:The jurisprudential definition of evasion of law is discussed in Chapter 1, and the current situation of evasion of law in China's capital markets is illustrated as well. Evasion of law refers to the activity caused by a behavioral agent's specific legal act with considerations of the validity of law, resulting in (1) the law applies to the agent but the act is not consistent with the purpose of legislation; or (2) the law does not apply to the agent but the act is consistent with the purpose of legislation. In brief, evasion of law is a combination of a behavioral agent"acknowledging"the validity of the law and"evading"being restricted by the law.The concepts of evasion of law in both legal theory and international private law are similar in some aspects, but they are different with respect of implication, applicability, nature, and legal consequence, and evasion of law is distinct from using legal form to mask illegal civil act. Once a government agency makes a judgment on an individual case, it is either legal or illegal since the nature and validity of this evasion of law become explicit. The difference between abstract and individual evasion of law is that, although government prohibits abstract form of evasion of law, the existing individual cases of evasion of law are normally not deemed as illegal.The purposes of law evasion include (1) to get rid of regulation and (2) to obtain support. A typical example of avoiding regulation is the law evasion with the aim of IPO financing. Many companies chose to go public overseas since Corporate Law, Securities Act and the auditing standards of CSRS are quite strict, which is a substantial obstacle of issuing securities domestically. Moreover, when domestically-funded companies get listed on foreign securities exchanges, they are very likely to meet obstacles concerning financial data, auditing procedure and stock right circulation. Hence, in order to get quoted abroad, domestic companies tend to use the methods of red-chip listing and shareholding entrustment. Preferential policy is the main drive for obtaining support from law evasion. Firstly a company can seek a foreign business partner or an off-shore shell company to obtain the identity of foreign-funded company, then it can enjoy favorable tax and other preferential policies.In Chapter 2 this author demonstrates the causes and effect of evasion of law in China's capital markets. One should notice that diverse variables contribute to evasion of law. Initially it is complexity of legal environment and legal risk, which are the results of vagueness, co-opetition, omission and variation of act of law. Secondly, it is the complexity of supervision provisions and complicated procedure in domestic capital markets. Thirdly, it is the lack of intense law enforcement against evasion of law, which is the consequence of commercial motivation in some certain local authorities. Lastly, the self-protection awareness regarding minimization of law risk and the requirements of profit maximization bring about the impulsion in evasion of law of the market subjects.There are plenty of negative effects of evasion of law in China's capital markets, which might impact the development of capital markets and the real economy, distort the fairness and equity of law, and end in a vicious cycle that results from degradation of law authority and evasion of law. As for the market subjects, evasion of law brings up potential law risk to them; the gains from law evasion fluctuate; the development of investment based on law evasion act is unpredictable; and the law evasion act also affects the reputation of investors. But, it is also noticeable that evasion of law has positive effects. Some certain law evasion acts are able to overcome the defect of rigidity of law; evasion of law often acts as the origin of improving current legal system; plus it is one of the motives that promote the evolution of law system.The jurisprudential reflection of law evasion act in China's capital market is shown in Chapter 3. From the perspective of natural law, evasion of law is the reflection of the lack of mortality and fairness in some individual laws. From the aspect of positivist jurisprudence, legal rule system is not perfect and has loopholes and conflicts within. The generality, ambiguity and abstractness of law expressions are the direct causes of the loopholes in law systems; the complexity of real world and the limitation of human rationality are the objective causes; and the subject cause is the law executors'lack of understanding of things. Meanwhile, conflicts between legal rules are not rarely seen due to the inconsistency among the objectives, concepts and logics of law. Loopholes and conflicts bring both legal risk and opportunities of law evasion for market subjects. From the perspective of sociology of law, the lack of reasonableness in law design is the origin of following situation: a nation is unable to provide convenient legal service to the public due to the barriers when applying constitutional law. Hence the market subjects can choose among obeying the law, abandoning the rights and evading the law, and naturally the decision is mainly based on the consideration of self-interest. And the law evasion act can hardly be eliminated from tightening the law enforcement. From the perspective of economics of law, the nature of an economic man to behave according to the principle of interest maximization is the motive of law evading activities. Meanwhile, because of the existence of imbalance between law supply and demand and the factuality of surplus and deficit in law supply, law cannot achieve optimization in allocating social resources, and this is when evasion of law becomes a more reasonable option with regard that legal subjects tend to improve their circumstances.In Chapter 4, this author conducts some rational thinking about the current legal situation and the means of supervision in China's capital markets, and brings about some proposals concerning the improvement of legal system. Firstly, one ought to admit the limitations of external supervision conceptually, and external supervision cannot choose and make decisions in the same way as the subjects do, thus the government's intervention in securities markets is limited; one ought to respect market and focus on supervision, in order to elaborate the vibrancy of capital markets. Then, tactically some major measures should be carried out. (1) Improve and polish legal rules, decrease subjects'law risk and systematic barriers when planning to realize reasonable commercial requests; clarify the law boundary, increase the rationality and predictability of legal rules, depress the room for rent seeking; enhance the transparency of laws and rules, maintain current securities law system, reduce the systematic impulsion of law evasion. (2) Adjust the positioning of supervising institutions and conducts, improve supervision environment, switch the idea of market supervision from controlling risk to discovering risk; construct professional supervision team; reduce the functioning range of auditing and appraising authority, establish systems that constrain auditing and appraising authorities. (3) Adjust the positioning of local government, change the performance appraisal system for local government especially for local officials, only by breaking down the GDP-oriented motivation techniques, can we make the governments relocate themselves, thus insure thorough execution of legal rules and reduce the motives for local companies to evade relevant laws. (4) Fully cultivate the supervision function of self-regulatory organizations and intermediary agents, enhance the autonomy and independence of securities exchanges in China, make supervision merge with market, shrink the room and motives of law evasion; speed up the development of securities industry association, promote the harmonious interaction of market and supervision, reduce the frequency of law evasion acts; develop the function of intermediary agents, facilitate the growth of capital markets, decrease the conflicts between market subjects and supervision authorities.