The Law of Pledges in the People's Republic of China

Abstract

THE LAW OF PLEDGES IN THE PEOPLE'S REPUBLIC OF CHINA Guang Hua Yut I. INTRODUCTION For the first time in the history of the People's Republic of China, the Security Law 1 of China (hereinafter, Security Law ) provides relatively detailed provisions on pledges. There are two types of pledges: the pledge of movable properties (known as movables ) and the pledge of rights (also referred to as the pledge of documentary intangibles). The term pledge of mov- ables refers to the delivery of movables (also referred to as the pledged property) by a debtor (also referred to as the pledgor) or a third party to a creditor (also referred to as the pledgee) for the purpose of securing an obligation. 2 When a debtor fails to per- form an obligation, the creditor is entitled to priority in receiving payment by converting the movables into values or proceeds from an auction or sale in accordance with the Security Law. Although the Security Law does not specifically define the term pledge of rights, the Security Law does list the rights capable of being pledged in the following four categories: (i) bills of ex- change, cheques, promissory notes, bonds, certificates of depos- its, warehouse receipts, and bills of lading; (ii) shares and share certificates that are transferable according to law; (iii) legally transferable exclusive use of trademarks, property rights con- tained in patent rights and copyrights; and (iv) other legally pledgable rights. 3 t Assistant Professor of Law, Department of Law, The University of Hong Kong. S.J.D. 1996, LL.B. 1993, The University of Toronto; LL.M. 1988, York Uni- versity; B.A. 1985, Shanghai Maritime Institute. The author wishes to thank Anthony Fay and Michael Chou of the UCLA Pacific Basin Law Journal for their help in editing this article. 1. The Secured Interests Law of the People's Republic of China, 1 CHINA L. FOREIGN Bus. 5-605 (CCH Austl. Ltd. June 30, 1995)(P.R.C.)[hereinafter Security Law]. 2. Id. art. 63. 3. Id. art. 75.