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Enforcing Contracts: Court Efficiency in ChinaWhere contract enforcement is efficient, businesses are more likely to engage with new borrowers orcustomers. Doing Business tracks the efficiency of the judicial system in resolving a commercial dispute,following the step-by-step evolution of a commercial sale dispute before local courts. The data arecollected through study of the codes of civil procedure and other court regulations as well as surveyscompleted by local litigation lawyers (and, in a quarter of the countries, by judges as well).The dispute, between two businesses (the Seller and the Buyer) located in the country’s most populouscity, concerns a contract for the sale of goods. The Seller agrees to deliver the goods, worth 200% of thecountry’s income per capita, to the Buyer.After receiving and inspecting the goods, the Buyer concludes that their quality is inadequate. The Buyersends the goods back without paying for them. The Seller disagrees and argues that their quality isadequate. The Seller seeks <strong>full</strong> payment from the Buyer, arguing that the goods cannot be sold to a thirdparty because they were custom-made for the Buyer. The Seller sues the Buyer before the court in themost populous city to recover the amount due under the sales agreement (200% of the country’s incomeper capita).Three indicators of the efficiency of commercial contract enforcement are developed:• Number of procedures, which includes all those that demand interaction between the parties or betweenthem and the judge or court officer.• Time, which counts the number of days from the moment the plaintiff files the lawsuit in court until themoment of payment. This measure includes both the days on which actions take place and the waitingperiods between actions.• Cost, which measures the official cost of going through court procedures, expressed as a percentageof the claim (assumed to be equivalent to 200% of income per capita). The cost includes court costs,enforcement costs and attorney fees where the use of attorneys is mandatory or common.Businesses that have little or no access to efficient courts must rely on other mechanisms, both formaland informal—such as trade associations, social networks, credit bureaus or private informationchannels—to decide whom to do business with and under what conditions. Or they might adopt aconservative approach to business, dealing only with a small group of people linked through kinship,ethnic origin or previous dealings and structuring transactions to forestall disputes. In either caseeconomic and social value may be lost.The main reason to regulate procedures in commercial dispute resolution is that informal justice isvulnerable to subversion by the rich and powerful. But heavy regulation of dispute resolution backfires.Across countries, the more procedures it takes to enforce a contract, the longer the delays and the higherthe cost. The result: less wealth is created.44
1. Historical data: Enforcing Contracts in ChinaEnforcing Contracts dataDoing Business2006Doing Business2007Doing Business2008Rank 20 20Procedures (number) 35 35 35Duration (days) 406 406 406Cost (% of claim) 8.8 8.8 8.82. The following graph illustrates the Enforcing Contracts indicators in China over the past 3 years:8.88.88.8353535406406406Procedures (number)Duration (days)2005 2006 2007Cost (% of claim)45
Page 1 and 2: China
Page 3 and 4: © 2007 The International Bank for
Page 5: IntroductionDoing Business 2008 is
Page 8 and 9: 9. In China, a new property law put
Page 10 and 11: Summary of Indicators - ChinaStarti
Page 12 and 13: Starting a Business in China: Entry
Page 14 and 15: 3. Steps to Starting a Business in
Page 16 and 17: The following table shows Starting
Page 18 and 19: 1. Historical data: Dealing with Li
Page 20 and 21: 13. Review of construction drawings
Page 22 and 23: The following table shows Dealing w
Page 24 and 25: 1. Historical data: Employing Worke
Page 26 and 27: The following table shows Employing
Page 28 and 29: 1. Historical data: Registering Pro
Page 30 and 31: 4. Benchmarking Registering Propert
Page 32 and 33: Getting Credit in China: Legal Righ
Page 34 and 35: 3. Benchmarking Getting Credit Regu
Page 36 and 37: Protecting Investors in ChinaOffici
Page 38 and 39: 3. Benchmarking Protecting Investor
Page 40 and 41: Paying Taxes: Tax Payable and Compl
Page 42 and 43: 3. Benchmarking Paying Taxes Regula
Page 44 and 45: Trading Across Borders: Importing a
Page 46 and 47: 3. Benchmarking Trading Across Bord
Page 50 and 51: 3. Benchmarking Enforcing Contracts
Page 52 and 53: Closing Business in China: Bankrupt
Page 54 and 55: 3. Benchmarking Closing Business Re
Page 56 and 57: APPENDICESStarting a Business in Ch
Page 58 and 59: - Appointment documents and identif
Page 60 and 61: Cost to complete:Comment:no chargeA
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Page 66 and 67: Comment:Procedure6The Shanghai Hous
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Page 72 and 73: 建建建建建建建建建
Page 74 and 75: Employing Workers in ChinaEmploying
Page 76 and 77: Registering Property in ChinaThis t
Page 78 and 79: Procedure3(v) Photocopy of the iden
Page 80 and 81: Protecting Investors in ChinaThe ta
Page 82 and 83: Paying Taxes in ChinaThe table belo
Page 84 and 85: Trading Across Borders in ChinaThes

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