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Contracts between state and business

15 January, 2016 - 09:11

Are contracts between the state and the business sectors subject to the Contract Law? We must look at the transaction in question. As a general rule, if the state enters into a transaction with an enterprise on an equal basis, that means the state does not exercise its sovereignty as a state, but rather as an entity in the private law regime, the Contract Law applies. Hence, the example in item (5) of the above Activity is governed by the Contract Law. However, item (2) is an administrative act of the government, which is not governed by the Contract Law. As to why the Chinese government is allowed to make a ‘gift’ on condition of a certain amount of tax payment is outside the scope of this course.

In China, there is also a broad range of administrative contracts, such as contracts awarded through tender for government procurement, and other special procedures, such as state-owned land use right transfer contracts, contracts for public works, executive employment contracts, and so on. The state-owned land use right transfer contracts, for example, are granted in order to achieve the national land policy; the performance of such contracts is subject to the command and supervision of the land administrative authorities with respect to the land use, duration of the grant and so on, any breach of which would be susceptible to penalties imposed by the authorities.

With respect to this type of contract, where there is a specific law or regulation, the special law prevails, but in the absence of any specific law or regulation governing such contracts, the Contract Law applies. Examples of such specific laws and administrative regulations are, among others, the Law on Administration of the Urban Real Estate (《中華人民共和國城市地產管理法》), Interim Regulations Concerning the Assignment and Transfer of the Rights to the Use of the State-owned Land in the Urban Areas (《城鎮國有土地使用權出讓和轉讓暫行條例》), Provisions on the Assignment of State-owned Construction Land Use Right through Bid Invitation, Auction and Quotation (《招標拍賣掛牌出讓國有建設用地使用權規定》).