INTRODUCTION

Contracts are used in transactions. Some foreign commentators highlight the main differences between China and Western countries in how contracts are valued. In the recent years Chinese companies have paid increasing attention to conclude a well-written contract with their business counterparts. They will try their best to perform their obligations in accordance with the contract. However, no transaction can be perfect; sometimes disagreements may occur between commercial parties. Th us, there is no doubt that the parties should carefully consider how disputes are to be resolved. Chinese law allows parties to a contract with a foreign element and may choose the law to be applied in the handling of contractual disputes. But in the practice, the parties oft en prefer Chinese law to apply, especially if possible disputes are to be adjudged or arbitrated in China. It is therefore important for foreign businessmen and lawyers to know the fundamental principles of the People's Republic of China's (PRC's) contract law when dealing with Chinese companies. This chapter will first provide an overview of the historical development of contract law in China, and also explain the contract law that is in force today. It will then analyze the sources and key concepts of Chinese contract law.

A BRIEF HISTORY OF CHINA'S CONTRACT LAW

Modern contract law requires equal status and party autonomy. Traditionally China lacked these concepts. China's first civil code was compiled in the early twentieth century. The section on contract law was draft ed by a Japanese jurist, Y.M. Matuoka. It is a pity that this civil code was never enacted due to the collapse of the Qing dynasty in 1911. However, it copied the model of the German civil code and was influenced by the Japanese civil law. It represents a major government attempt to establish a civil legal system modeled on modern European codes, by introducing Continental European countries'contract law principles, theories and reasoning to China. The first draft contract law paved the way for traditional Chinese contract law to transform into modern contract law legislation.