Third-Party and Bankruptcy Effects under Chinese Trust Law: Comparisons with English Trust Law

Abstract

Abstract In English law, the trust's third-party and bankruptcy effects contribute significantly to its wide use in commercial transactions. In view of the trust's attractiveness in conducting commercial dealings, China has also introduced the trust model into its domestic legal system to enhance its financial infrastructure. However, given the extent to which Chinese law has been influenced by the Roman-Germanic tradition, China's replication of the trust's third-party and bankruptcy effects has encountered doctrinal obstacles. Drawing upon the experience of its Northeast Asian forerunners, China has established two mechanisms to achieve the third-party and bankruptcy effects: the regime of trust fund independence and the granting of the right of rescission to beneficiaries. These two mechanisms represent the adjustments made by Chinese legislators in the process of transplanting the trust model into the Chinese legal context. Adopting a comparative law perspective, this article examines these mechanisms in the Chinese law setting for two reasons: first, to explore the mechanisms’ constituent elements and their operation, as well as the roles of both mechanisms in the Chinese trust law system; and second, to furnish comparative law scholarship with broader insights into rule transplantation and reconciliation.