Washington International Law Journal


Guanghua Yu


From 1949 to 1978, China's economy was centrally directed under a very rigid system of state planning. Under the planning system, security devices were not widely used. The government drew specific plans for enterprises and the Ministry of Finance used banks to allocate the funds to enterprises or projects. The banks, however, did not have to screen projects and monitor the use of funds after disbursements. They merely distributed the money to enterprises and collected the profits. Recognizing the shortcomings of central planning based almost exclusively on public ownership over the means of production, China embarked on an economic reform program in 1978. In 1993, China boldly declared that it would move towards a market oriented economy. Security devices have played significant roles in China's reform towards a market oriented economy. Within a period of twenty years, China has developed a sophisticated understanding of the many security devices adopted in the West. Secured transactions are now very popular. The central focus of this article is to examine the various security devices under Chinese law and practice. These security devices include the deposit, the lien, the dian, the mortgage, the pledge, and the guarantee. The strengths and weaknesses of the legal provisions governing these security devices are also discussed. As China does not fully guarantee the convertibility of its currency into foreign currencies, a separate discussion concerning the provision of security or guarantee to foreign entities is provided.

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