Prioritizing swift mediation, courts provide vital safety net for private sector

Company employees in Shangqiu, Henan province, raised a red banner of appreciation to the local court on Nov 25, praising its fair and efficient handling of a case and its commitment to protecting business interests.

The case, which involved counterclaims from both parties, revolved around a significant construction project in the city.

One party, the plaintiff, sought over 1.98 million yuan ($284,300) for work that it had done on the project that had gone unpaid.

The other party countered with a claim for more than 1.07 million yuan, citing alleged unacceptable quality defects in the construction work.

Faced with lawsuits from both parties, the Liangyuan District People's Court opted against a straightforward ruling. Instead, it undertook a comprehensive examination of the case and facilitated multiple mediation sessions, guiding both sides to understand more about the legal and economic ramifications.

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The court advised the plaintiff that, given the evidence, there was a strong likelihood of quality defects. A continued stalemate during the appraisal process would not only extend the timeline and increase costs but also pose a risk of significant financial loss if the appraisal was unfavorable.

Simultaneously, it informed the other party that since the project was completed and already operational, withholding the remaining payment lacked legal justification and would only prolong the recovery process, leading to accrued interest and higher collection costs.

By stressing that "winning a lawsuit does not necessarily benefit future operations", the court encouraged both parties to compromise for a mutually advantageous resolution. Ultimately, the dispute was settled through mediation.

Resolving business-related disputes swiftly, protecting the legitimate rights of market participants, and nurturing a healthy business environment are core tenets of Chinese courts, according to Gao Xiaoli, vice-president of the Supreme People's Court, China's top court.

In an article published in September in Hongqi Wengao, a magazine affiliated to Qiushi Journal, the flagship publication of the Communist Party of China Central Committee, Gao commended the introduction of a series of legal guidelines in 2025 aimed at strengthening the institutional framework for the equal protection of all market entities.

She emphasized the judiciary's efforts over the past year in combating corporate corruption, enhancing services to stimulate private sector innovation, and addressing the challenges faced by enterprises expanding globally.

Wang Chuang, chief judge of the top court's Second Civil Division, said it is providing robust support for establishing a law-based business environment. "We will continue to strongly protect the personal safety, property security and reputation of entrepreneurs, promote the growth of the private economy," he said.

Right the wrong

Wang highlighted the unwavering commitment of Chinese courts to the principle of equality before the law, calling for the prompt rectification of miscarriages of justice and cautioned against the criminalization of commercial disputes to promote the sustainable, healthy and high-quality development of the private sector.

He cited a landmark case involving an individual named Ye, the owner of a trading company in Sichuan province, to stress the importance of clearly distinguishing between contractual economic disputes and contract fraud.

In the case, Ye successfully bid for a shopping mall but failed to pay the full amount after making an initial deposit. He then leased space in the mall to two tenants, fabricating a receipt to falsely indicate that the remaining balance had been paid, thereby enabling him to collect rent.

Initially, a lower court convicted Ye of fraud, sentencing him to three years in prison with a five-year reprieve, a decision later upheld by an intermediate court. However, upon retrial, the Sichuan High People's Court acquitted Ye, reclassifying the issue as a contractual economic dispute instead of a criminal offense, noting that the tenants suffered no losses and were able to use the mall as intended.

Wang said that the original judgment required correction, clarifying that "the key is determining whether there was an intent to unlawfully obtain property, instead of labeling actions as contract fraud simply because someone falsified facts or concealed information."

He urged the courts to carefully distinguish between legitimate financing and illegal fundraising, participation in mergers and acquisitions versus the malicious appropriation of State-owned assets, and lawful business operations versus criminal activities.

In 2024, Chinese courts corrected 46 wrongful property rights cases, resulting in the acquittal of 13 individuals on appeal, Wang said, requiring courts nationwide to establish a regular mechanism for identifying and rectifying wrongful cases involving enterprises, so as to encourage innovation, provide peace of mind, and foster confident business development.

Enterprise cases

On Dec 4, the top court released seven notable cases involving the private sector. After reviewing these lawsuits, You Hongtao, chairman of Chongqing Pharscin Pharmaceutical Co, said that he had gained a lot from them.

"These cases give me confidence that the judiciary will help address challenges faced by private enterprises, such as financial difficulties and damage to reputation," he said."At the same time, they tell us what we should and should not do during innovation and managing labor disputes, which are also common in the private sector.

"Innovation is key and a big challenge in the operation of a pharmaceutical company. My firm focuses on developing new drugs for the global market, so protecting intellectual property rights is my priority," he said.

"We must safeguard IP rights while avoiding infringing on others' rights," he added.

"Fortunately, we've received substantial guidance from the local IP tribunal to ensure compliance, along with experts who offer on-site advice. These initiatives have helped our corporation navigate patent and IP barriers, enabling us to innovate more boldly. I truly appreciate it," You said.

The chairman added that his enterprise has established a compliance team, and one of its major tasks is to assist the local courts in handling labor disputes. "This ensures we can protect the legitimate rights of our employees while also maintaining the normal operation and interests of our business," he said.

"In recent years, the biopharmaceutical industry has developed rapidly, and China's achievements in this sector are now on par with the United States on a global scale," he said.

"However, as companies expand internationally, they often lack understanding of the legal and IP policies in foreign countries, especially in some Western nations."

You praised the actions of local courts, noting, "they've recognized these challenges and are providing guidance to us, which helps us avoid pitfalls and stay clear of legal red lines when expanding international businesses, making our overseas growth safer."

He suggested that this kind of guidance should be strengthened even further, as it is crucial for companies going global. "We shouldn't wait until disputes arise to address them; we need to engage in more communication during the preparation of our international expansion," he added.

Gao, the Supreme People's Court vice-president, said that the current wave of technological revolution and industrial transformation presents new opportunities and challenges for the development of private enterprises, noting that they now have higher expectations for efficient and convenient dispute resolution methods, as well as judicial decisions that balance quality, efficiency and effectiveness.

While requiring Chinese courts to continue to optimize legal services to promptly protect the urgent rights and interests of businesses, preventing them from suffering greater losses due to lengthy trial periods, she also called on courts to enhance the quality and efficiency of mediation, offering private enterprises with low-cost, diverse and streamlined dispute resolution options.

Regulated operations

Gao expressed her strong support for the judiciary's role in stimulating business dynamism and reaffirmed the importance of guiding market entities to operate in a regulated manner, aiming to solidify the foundation for their healthy development.

"Internal corruption in private enterprises acts like a malignant tumor, continuously eroding the health of these businesses," she said, citing data showing that from January to June last year, courts across the country concluded 4,842 cases involving bribery, embezzlement and misappropriation of funds by private sector employees, an increase of 11.6 percent year-on-year.

In a case disclosed by the top court, an individual surnamed Liu, from January 2019 to January 2023, was found to have used his position as a business development manager in an internet company to help another person surnamed Zhang in areas such as collaboration and providing online traffic, in exchange for over 6 million yuan in bribes.

Liu was discovered to have taken advantage of the position to assist a person surnamed Chen in removing non-compliant competing products, app approval processes and providing internet traffic support between March 2019 and April 2020. He accepted 140,000 yuan in bribes from Chen.

On Jan 31, 2023, Liu turned himself in to the police and returned over 1.57 million yuan of his illicit gains. He was eventually sentenced to four years in prison and fined 40,000 yuan, with his illegal proceedings and four mobile phones involved in the case confiscated.

"Bribery within internet companies is characterized by limited power but serious problems," the top court said, adding the grassroots court's conviction of Liu for bribery highlighted the judiciary's firm stance against crimes in emerging fields, serving as a warning and deterrent to employees in the internet sector.

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"Those offering bribes seek improper benefits that evolve and integrate with emerging internet technologies, extending beyond traditional forms like money and material goods," it explained.

"The receivers of these bribes may not hold significant decision-making power, as corruption can occur at any stage of the internet business process."

Li Shuguang, a law professor at the China University of Political Science and Law, called for cleaner and more regulated enterprise management, saying some companies face issues such as asset embezzlement, failure to separate personal and corporate property, and trade secret leaks, which necessitate judicial intervention and improved internal governance.

"When the judiciary combats corruption and creates a favorable business environment, businesses must also strive for continuous improvement," he said.

In his view, the legitimate rights of private entrepreneurs should be safeguarded through judicial protection, while private enterprises also need to enhance and optimize their personnel management and business structures. "Ultimately, creating a healthier internal environment is vital for ensuring the continued safe operation and future development of the company," he added.

Contact the writers at caoyin@chinadaily.com.cn