Natalie Lichtenstein, the Inaugural General Counsel at AIIB: The Making of Chinese Law

By Yilin Wang
This interview was conducted in 2016.
It was subsequently published in the Blue Net China magazine, Vol.2.

Retired from decades of commitment as a leading lawyer at the World Bank and the Asian Infrastructure Investment Bank (AIIB), she could still recall the young and fresh Harvard graduate with a law degree and proficiency in Chinese, yet who had no clue about where to proceed in life. 

            “In the fall of 1971, I started college at Harvard as an undergraduate. Among the many speakers Harvard would invite to speak to its students, the first one I met was John King Fairbank, a well-known professor who wrote a book about the US and China. We had used his book in our class in high school, so I was very impressed. I majored in East Asian Studies at Harvard. In order to fulfill the language requirement, I took a Chinese course during summer at Columbia and decided that Chinese was manageable. Then I spent my junior year in Taiwan, which was in 1973 and 1974 on a program of Oberlin College. Therefore, I had the opportunity to live in a Chinese-speaking environment. 

            I came back for my senior year at Harvard and started to look for jobs. People asked me: You have an undergraduate degree and you speak Chinese. What can you do? I didn’t have a good answer then. I went to talk to Professor Jerome Cohen at Harvard Law School, and he suggested that with a law degree and my Chinese language proficiency, I could accomplish lot of wonderful things. The year was 1975, when China and the US didn’t have formal relations, but I didn’t think to ask him what I would be doing.”

It took me by surprise how “normal” this story was, as it came from the professor sitting opposite to me. I was lucky enough to meet Professor Natalie Lichtenstein, who worked for thirty years at the World Bank dedicated to providing legal assistance to developing East Asian countries, notably China amidst its economic reform. She was the Chief Counsel of East Asia at the World Bank legal department before joining the AIIB as the inaugural General Counsel. After her retirement, she chose to teach at the Paul H. Nitze School of Advanced International Studies (SAIS).

            “I applied to a few law schools and eventually chose Harvard, because of this professor and because it had a good program in Chinese law. I stayed in the program for three years and received my JD. I spent one summer at the US Treasury Department as an intern and there I witnessed the international section – nothing directly related to China. The work there included US participation in international financial institutions. Fortunately, when I graduated from Harvard, there was a job opening at that very section, so I started my job there in 1978. There wasn’t much related to China back then, but four months later President Carter announced normalization of relations with China. Suddenly, there were a lot of issues concerning China.

             When the relations were frozen between China and the US, there were US businesses and individuals whose properties in China were taken by the government. There were also Chinese properties in the US that were frozen. It meant that there were Chinese people with claims for US properties and US firms with claims against China. Without settling these claims, lawsuits could arise when China’s property entered the US. It was thus very important to settle these claims, and Treasury was involved in the claims assets settlement.

            About two years later, China expressed interest in joining the IMF and the World Bank. Questions included who should be representing China and how big China’s share would be. I was still at the Treasury Department, so that was how I got involved in this matter. The US was a major shareholder at both organizations, and thus was highly involved in reaching a deal satisfactory to all parties. About that time, the legal department at the World Bank was looking to hire a lawyer who knew something about China. As a matter of fact, my third-year paper in law school was about China’s participation in international organizations, so the rest of my career was more or less connected to this topic. I was hired at the World Bank and I started in December 1980. I stayed there for thirty years until 2010, when I took my retirement.

It is said that some people are more accomplished than others simply because they have the ability to make the most of every opportunity that is presented to them. Professor Lichtenstein surely is one of these people. At every twist and turn in the history, she was prepared to contribute. 

  “At the World Bank, I started an “economic law project” that lasted from 1994 to 2004. It provided technical assistance for China for developing economic laws. In those days, there was no internet. It wasn’t easy to gain access to foreign law documents in China. As a result, a lot of things we did at World Bank were concerned with offering China access to databases as well as seasoned outside experts and advice.

It was very popular, especially in the 1990s, to have a lot of conferences on economic reform. Usually, the State Economic Reform Commission would collaborate with the local provinces to host those conferences, and some foreign experts and officials from Beijing would also be invited. As a result, I visited several places in China such as Xi’an, Guilin, Yunnan, etc. along with other experts. Foreign experts would speak about what the laws look like in a market economy and how the situation in market economy differed from the Chinese economy. It was useful and also interesting for the Chinese to look at other examples. 

            In 1994, I became the Chief for East Asia in the legal department, and then I had less time to work on China. After that, I moved to another position, in charge of the legal work on the Bank’s internal governance and reforms. After ten years doing this job, I retired.  In 2014, I was invited to help with the AIIB, because of my experience on working with multilateral development banks. I was the legal drafter for the charter that established the AIIB. After I retired again, from AIIB, I’ve written a book comparing AIIB and other development bank, including the World Bank (A Comparative Guide to the Asian Infrastructure Investment Bank, Oxford University Press)”

I found it interesting that from a person’s life story, I got to learn the history of a nation. This might come as a surprise to many of my readers, but China, as a country with thousands of years of history, in fact had extremely limited experience in legal system development. In contemporary China, a popular target of social criticism is often times the “immaturity of Chinese legal system”. People accuse the government for being inefficient and corrupt, that Chinese laws are ambiguous and the domestic law system is chaotic. It never occurred to me that the reason behind the immaturity of our current legal system was simply the fact that it was so young. 

            “In the days before the economic reform, many things in China were not done through law but through directives or administrative orders. In 1979, seven laws were enacted by the National People’s Congress (NPC), and among them six were associated with returning to normal after the Cultural Revolution (domestic matters such as government organization and criminal procedure law). The other was the joint venture law. One has to understand that there was a shortage of people, even though it might sound unbelievable for China. There were few trained people able to draft laws. The Chinese government had to make the most of its limited number of law experts and prioritize on which direction to focus on. That is just one reason why in the developing Chinese law system, the permission of a directive was at many times more powerful than a piece of paper called “law”. 

In the 1990s, we saw a lot of basic economic laws, such as labor law, contract law, bankruptcy law and company law, being put down. But the mindset of a planned economy could still be found because Chinese economy hadn’t changed as much as the desire for a different economy. 

            In the middle of the 2000s, there was a burst of laws that were finally settled after a decade of discussion. It’s interesting to look at the cycles here: The early laws were designed to be detailed and particularized. For example, the contract law had specified models of different contracts, whereas the revised versions moved towards a more general form. Perhaps the drafters and legislators came to realize that it wasn’t necessarily any more efficient to divide up the rules by ownership. If you moved the state control out, and you used the state to regulate companies, then it wouldn’t matter whether the company was collective or state or individual – but it should still be regulated. 

A clear example of this trend could also be seen in a draft of the foreign investment law three years ago. Before, there were three different investment vehicles: equity joint ventures, contractual joint ventures and foreign-owned entities. The proposal recently was that they would abolish these different vehicles and they would all register under the Chinese company law. You would still have the same kinds of arrangements, but the parties will decide what their economic interest is. The state will regulate them as a company, but this time not based on the ownership. This draft hasn’t been enacted, but it is to me a reflection of the change in the mindset of Chinese lawmakers.”

Often times, a “success story” is surprisingly simple and the main character just seems to be a normal person like we are. In this case, it was as though everything just happened to our character naturally. “There was no planning; just timing,” like she said. But we never know what is “planned” to happen in history. What matters is whether or not we are prepared, and whether or not we have the ability to “go with the flow”.  

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