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CISG CASE PRESENTATION

China 12 January 1996 CIETAC Arbitration proceeding (Scrap copper case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960112c1.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 19960112 (12 January 1996)

JURISDICTION: Arbitration ; China

TRIBUNAL: China International Economic & Trade Arbitration Commission [CIETAC] (PRC)

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/03

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (respondent)

BUYER'S COUNTRY: People's Republic of China (claimant)

GOODS INVOLVED: Scrap copper


Case abstract

PRC: China International Economic & Trade Arbitration Commission,
Scrap copper case of 12 January 1996

Case law on UNCITRAL texts (CLOUT) abstract no. 678

Reproduced with permission of UNCITRAL

Abstract prepared by Anna Lin

A Chinese buyer and an American seller entered into two separate contracts (A and B) for the purchase of scrap copper. The contracts specified the terms of payment with irrevocable letters of credit (L/C) issued by certain dates. As the buyer delayed the issuance of the L/C for contract A, the parties agreed to terminate contract A and to use the L/C also for contract B. The buyer issued a second L/C to fulfil the payment obligation for contract B along with the first L/C. The seller asked for a change in the L/C for contract B, which the buyer provided after continued requests by the seller. The seller delivered only approximately 25 per cent of the total quantity specified in contract B. The seller then notified the buyer that it would not deliver the rest of the goods and that the contract had been cancelled.

The buyer sought, among others, damages for the price difference between the dates of the goods actually delivered and the date agreed upon in contracts A and B. Further, it sought damages for the seller's breach of contract. The seller alleged that its failure to deliver the goods was due to the buyer's delay in issuing the changed L/C. It further argued that one clause in the contract B stipulated compensation for late delivery and, thus, partial delivery also precluded the application of CISG Articles 74 and 76.

The arbitral tribunal held the CISG to be the applicable law in either contract [Art. 1(1)(a) CISG]. The contracts did not specify the applicable law, but both China and the United States were Contacting States to the CISG. The arbitration tribunal considered the agreement to terminate contract A effective and declined to order any compensation for loss under that contract. However, the tribunal concluded that the seller breached contract B [Art. 45 CISG]. The seller could not invoke the late issuance of the changed L/C for contract B, as upon receipt, it did not ask for termination of the contract due to the delay, but, on the contrary, promised performance. The tribunal further held that the contract provision did not stipulate compensation for partial, but only late delivery. Consequently, damages should be awarded (Articles 74 and 76 CISG), as the seller knew that the price of copper was increasing and therefore could foresee the buyer's loss. As the buyer's losses were caused by the seller's breach of contract, the tribunal held that the seller should pay interest on the loss [Art. 78 CISG].

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 76 ; 78

Classification of issues using UNCITRAL classification code numbers:

74A [General rules for measuring damages: loss suffered as consequence of breach];

76B [Damages recoverable based on current price];

78A [Interest on delay in receiving price or any other sum in arrears]

Descriptors: Damages ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Zhong Guo Guo Ji Jing Ji Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1996 vol., pp. 791-796

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.151, 181, 201, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation)

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC (PRC) Arbitration Award

Scrap copper case (12 January 1996)

Translation [*] by Meihua Xu [**]

Edited by Liming (Anna) Lin [***]

China's International Trade and Economic Arbitration Commission (hereafter, "the Arbitration Commission") accepted the case, pursuant to

   -    The Arbitration clause in Contracts CS-001/94 and CS-002/94 signed by Claimant [Buyer], China Shenzhen Special Economic Zone ___ Company and Respondent [Seller], United States of America ___ Company on 20 April 1994 and 5 May 1995; and
 
   -    The written arbitration application submitted by the [Buyer] on 18 October 1994.

Ms. P, the Presiding Arbitrator appointed by the Chairman of the Arbitration Commission following the Arbitration Rule (1 June 1994 version), Mr. A, the arbitrator appointed by the [Buyer], and Mr. D, the arbitrator appointed by the [Seller] formed the Arbitration Tribunal to hear the case on 13 February 1995.

On 1 June 1995, a court session was held in Beijing. Both the [Buyer] and the [Seller] sent representatives to the court session. They made oral statements, presented arguments, and answered the Arbitration Tribunal's questions.

After the court session, the [Buyer] submitted supplementary material within the time stipulated by the Arbitration Tribunal. After receiving the [Buyer]'s supplementary document, the [Seller] submitted a supplementary defense within the time stipulated by the Arbitration Tribunal. Later, the [Buyer] submitted a supplementary opinion after receiving the [Seller]'s supplementary defense. The [Seller] then provided supplementary evidence after it received the [Buyer]'s supplementary opinion.

During the proceedings, the Arbitration Tribunal encountered a complicated problem, which needed further discussion; therefore, the Arbitration Tribunal asked the Arbitration Commission to postpone the deadline for making its judgment. In accordance with Article 52 of the Arbitration Rules, on 2 November 1995, the Arbitration Commission postponed the deadline from 14 November 1995 to 14 January 1996.

The Arbitration Tribunal has concluded the case based on the materials and the facts found in court session, and made this award.

The following are the facts, the Arbitration Tribunal's opinion and award.

I. FACTS

On 20 April 1994, the [Buyer] and the [Seller] concluded Contract CS-001/94 (hereafter, "Contract A") in Shenzhen, and later, on 5 May 1994, both parties signed Contract CS-002/94 (hereafter, "Contract B") in Shenzhen. The Claimant is the [Buyer], and the Respondent is the [Seller] in both Contract A and Contract B and the goods are No. 2 scrap copper.

In Contract A, it was stipulated that the [Seller] would sell 300MT of scrap copper to the [Buyer]. The unit price was US $1,719.60/MT, and the total was US $515,881. Five percent plus or minus loading was permissible. It was also stipulated that the loading date would be no later than 25 May 1994, and that the goods should be loaded at major North America ports. The payment term was that the [Buyer] should issue an irrevocable sight L/C before 30 April 1994.

Contract B was for the sale of 800MT of No. 2 scrap copper, and the unit price was US $1,774.72/MT, which was a total of US $1,419,776 CIF Shanghai. It was also stipulated in Contract B that the goods should be loaded no later than 31 July 1994 at North America major ports or Taiwan. The payment term was that the [Buyer] should issue a L/C between 1 June 1994 and the end of June or the beginning of July 1994.

After concluding Contract A and Contract B, on 7 May 1994 the [Buyer] asked the L/C issuing bank to issue an irrevocable L/C with the [Seller] as the beneficiary with a total price of US $515,881 for Contract A (hereafter, "L/C No. A").

After receiving L/C No. A, the [Seller] asked to change the L/C twice. The [Buyer] made the changes as requested by the [Seller]. The changes included: changing the deadline for loading from 5 May 1994 to 30 June 1994, changing the expiration date from 10 June 1994 to 15 July 1994 (American time), and changing the loading port to North America major ports or Hong Kong.

Later, the [Seller] sent a fax to the [Buyer] asking [Buyer] to issue a L/C for Contract B on 31 May 1994, which was agreed by the [Buyer].

After changing L/C No. A, the [Seller] sent a fax to the [Buyer] alleging that because of the [Buyer]'s delay in issuing the L/C, the price for copper had increased, and there was much demand for the goods, therefore, the [Seller] wanted to cancel Contract A. After several negotiations, the two parties signed an agreement on 23 May 1994 to cancel Contract A, and instead of canceling L/C No. A, they decided to use it on Contract B, which meant that the [Seller] should deliver 300MT of the 800MT goods in Contract B earlier. The price was 78 cents per pound. The price difference, which was 2.5 cents/pound for 300MT, would be paid by the L/C issued for the remaining 500MT of goods on 1 June.

After signing the agreement, the [Buyer]'s L/C issuing bank issued an irrevocable L/C for a total of US $903,895 with the [Seller] as the beneficiary (hereafter, L/C No. B), to pay for the 500MT of goods under Contract B, and to complement the deficit 2.5 cents/pound for 300MT of goods resulting from using L/C No. A to pay this 300MT of goods under Contract B.

In the L/C, the price for scrap copper was US $1,807.79/MT, and the loading port included major ports in North America or Hong Kong, or Taiwan. After receiving L/C No. B, the [Seller] repeatedly sent faxes to the [Buyer], saying that if the goods were going to be shipped from Taiwan, the inspection report issued by S. G. S. could not be provided as one of the required documents. After negotiations, the [Buyer] asked the bank to make the change to the L/C as requested by the [Seller], which was completed by the bank on 14 June 1994.

The [Seller] has made two deliveries of 193.71MT of goods. Both parties confirmed that the [Buyer] has received the goods and paid the price at the price of US $1,719.60/MT. The [Buyer] has repeatedly sent faxes to the [Seller] urging it to deliver the remaining goods which the [Seller] has not yet delivered.

On 15 August 1994, the [Seller] sent a fax to the [Buyer] stating that "the [Seller] is not going to perform its obligation to deliver any goods. The contract and agreement between the parties has either been completed or cancelled on American Eastern time of 1 June 1994"; therefore, the [Buyer] filed this arbitration application.

The [Buyer] asks the Arbitration Tribunal to order the [Seller] to pay:

  1. US $143,250, which is renminbi [RMB] 1,241,977.50, the difference between the price for 300MT of No. 2 scrap copper in Contract A on the delivery date stipulated in the L/C and its price on the day the contract was formed.

  2. US $283,743.72, which is RMB 2, 460,058, the difference between the price for the remaining 800MT (606.29 tons) of goods under Contract B on the delivery date stipulated in the L/C and its price on the day the contract was formed.

  3. RMB 1,016,167, which is US $117,205, the loss in the [Buyer]'s forward market resulting from the [Seller]'s breach of the contract.

  4. RMB 4,718, 202.50, the interest on the above amount calculated from the day the loss was incurred to the day the payment is made.

  5. The entire arbitration fee.

II. POSITION OF THE PARTIES

A. Contract A

The [Buyer] alleges that:

The [Seller]'s purpose in signing the agreement with the [Buyer] on 23 May 1994 was to avoid performing its obligation to deliver goods and responsibility for breach of contract. The [Buyer] has lost the benefit of the price difference under Contract A and all profit it could have made. The [Seller] should pay the price difference.

The [Seller] argues that the [Buyer] not only delayed the issuance of the L/C for Contract A until 7 May 1994 but also that the documents that were required for payment on the L/C exceeded the contract agreement. The [Buyer] finally completed the changes to the L/C, on 24 May 1994, causing a delay of almost one month which deprived the [Seller] of opportunities to sell the product to other buyers. As a result, [Seller] asked to terminate Contract A.

On 23 May 1994, both parties terminated Contract A, which meant that the rights and obligations under the contract were also discharged. In addition, the performance of Contract B does not affect the termination of Contract A; therefore, the [Seller]'s assertion based on Contract A lacks legal basis.

2. Contract B

(1) Issuing and changing the L/C under Contract B

The [Buyer] argues that under the circumstances that the price for scrap copper was increasing, the [Seller] asked the [Buyer] to issue the L/C for Contract B earlier just to cause the [Buyer] to give up the contract voluntarily due to financial pressure. After the [Buyer] issued the L/C, on 31 May 1994, the [Seller] sent faxes on 2, 3 and 7 June 1994 demanding changes to the L/C, that the [Seller] should issue the inspection certificate of the goods which would be shipped from Hong Kong and Taiwan. The [Seller] also declared that it was not going to entrust the Inspection Bureau of the People's Republic of China to do the final confirmation. The change request was a harsh demand, nevertheless, it was accepted by the [Buyer]. On 15 June 1994, the [Buyer] sent a fax of the copy of the changed L/C to the [Seller], however, the [Seller] still failed to delivered the goods.

The [Seller] counter argues that when the [Buyer] was issuing the L/C for Contract B, it exceed the contractual agreement by adding a clause which required a Quality and Quantity Certificate and Loading Inspection report issued by S. G. S. The [Seller] asked to change this clause, but was refused by the [Buyer]. After repeatedly urging the [Buyer], on 15 June 1994, the [Seller] finally received a bank notice of changing the L/C. Because of the [Buyer]'s delay in replying whether to agree to change the L/C or not, the [Seller]'s suppliers cancelled the supply contracts. As a result, the [Seller] could not perform the contract. Therefore, the [Buyer] should bear the responsibility for causing that Contract B could not be completely performed.

(2) Compensation under Contract B

The [Buyer] stated in its arbitration application that the [Seller] should pay the price difference based on the price changes of LME A grade copper. In addition, the [Seller] should bear the transportation fee, which is US $110/ton, for shipping No. 2 scrap copper from the United States to Taiwan.

The [Seller] argues that: (1) The purpose of the [Buyer]'s importing No. 2 scrap copper was for self use, not for resale, therefore, the price change for grade A copper does not necessarily affect that of scrap copper. (2) If the [Seller] violated the contract, the [Buyer] should claim compensation based on article 18 of Contract B, which stipulates the contract violation fee for non-delivery or delivering part of the goods. The [Buyer]'s other claims beyond the scope of this article were not foreseeable by both parties, and are not reasonable. (3) The amount [Buyer] claims is not supported based on the correct calculation by the [Seller].

The [Buyer] submitted the price list of No. 2 scrap copper of New York Metal Trade Center asserting that (1) The [Seller] shall pay compensation to the [Buyer] in accordance with Article 76 and Article 74 of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG") and Article 19 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest; (2) Article 18 of Contract B stipulates the compensation for late delivery, but not for non-delivery or part delivery. In addition, the [Buyer] has never declared that the contract was avoided based on this article. The contract violation fee calculated according to this article will be much less than the [Buyer]'s alleged loss. Thus, the [Buyer] alleged that this discrepancy is not legally supported.

3. [Buyer]'s loss in forward market

The [Buyer] argues that when it was concluding the contract, it was also selling grade A copper made from No. 2 scrap copper in the forward market. If the goods had been delivered on time, the [Buyer] would have made the profit expected. The [Seller] had known about this, and could foresee the loss to the [Buyer] due to the [Seller]'s non-delivery. Therefore, the [Seller] should pay the [Buyer]'s loss in the forward market.

The [Seller] argues that even had the [Seller] delivered the goods on time, the [Buyer] still could not have delivered grade A copper on time. In addition, there are various risks during subsequent transportation and manufacturing. Therefore, the [Buyer]'s claim for loss in the forward market has no connection with the non-performance of the contract, and the [Buyer] did not provide any evidence for its loss.

III. OPINION OF THE ARBITRATION TRIBUNAL

(1) The applicable law

The [Buyer] and the [Seller] did not stipulate the applicable law for dispute resolution in either Contract A or Contract B. The [Buyer]'s company was registered in China, and the [Seller]'s was in the United States of America. Both China and the United States are Contracting States of the CISG; therefore, the CISG should be applied here.

(2) Contract A

The Arbitration Tribunal notes that Contract A signed by the two parties on 20 April 1994 is valid. Because of the delay in the [Buyer]'s issuing the L/C, after negotiations, both parties signed an agreement on 23 May 1994, by which Contract A was terminated.

The Arbitration Tribunal deems that the agreement for contract termination is effective. After signing the agreement, both parties should not continue to perform the contract. From 23 May 1994 on, the [Seller] had no obligation to deliver the goods under Contract A; therefore, the [Buyer]'s claim for the price difference under Contract A of US $143,250, which is RMB 1,241,977.50, and interest on this amount should not be accepted.

(3) Contract B

Contract B signed by both parties on 5 May 1994 is valid. The two parties signed an agreement to make a change to Contract B, which was to use L/C No. A to pay 300MT of goods under Contract B;

On 1 June 1994, the [Buyer] issued L/C No. B to pay the remaining 500MT of goods in Contract B and the deficit resulting from using L/C No. A. to pay the 300MT goods in Contract B.

The Arbitration Tribunal concludes that

  1. As determined in the aforesaid agreement, the [Buyer] used L/C No. A to pay the 300 MT goods under Contract B and paid the deficit using L/C No. B; therefore, the [Seller] should have delivered 300MT scrap copper as determined in the agreement. However, the [Seller] only delivered 193.91MT of the 300MT goods without delivering the remaining part, which constitutes a breach of contract.

  2. The [Buyer] issued L/C No. B on 31 May 1994, and made changes to it as requested by the [Seller]. The [Seller] alleges that the [Seller]'s failing to deliver the goods was due to the [Buyer]'s delay in changing L/C.

The Arbitration Tribunal concludes that from the fax record, it is shown that after the [Buyer] changed the L/C, the [Seller] did not ask for termination of the contract due to the [Buyer]'s delay, but told the [Buyer] that it was willing to deliver the goods. Therefore, after accepting the L/C, the [Seller] should have delivered the 500MT of goods in accordance with the agreement. However, the [Seller] has not delivered the goods, and should bear the responsibility for breach of contract.

(4) Compensation under Contract B

The Arbitration Tribunal rules that

  1. There is no stipulation in Article 18 of Contract B regarding the compensation when the [Seller] does not deliver most of the goods; therefore, the [Seller]'s claim that compensation to the [Buyer] should be based on Article 18 should not be accepted.

  2. From the reason the [Seller] stated in its fax of asking the [Buyer] to terminate Contract A, it can be found that when the [Seller] was terminating Contract A, and was making changes to Contract B, [Seller] had known the changing tendency of the price for copper, and could foresee the [Buyer]'s loss resulting from the price difference if it did not deliver the goods. Therefore, according to Article 74 of the CISG, the [Seller] should pay the price difference to the [Buyer].

(5) Calculating the price difference under Contract B

The Arbitration Tribunal deems that the [Seller] should compensate the [Buyer] the price for the undelivered goods taking into account the plus or minus loading which was allowed by the L/C or the contract. The loss of price difference should be calculated based on the price for No. 2 scrap copper in the international market on the delivery date and the price determined in Contract B or in the agreement.

First, the fair international market price for No. 2 scrap copper should be the price at the New York Metal Trade Center from 29 April 1994 to 29 July 1994.

Second, the price for 300MT in Contract B was US $1,773.13/MT according to the agreement; it was determined in Contract B that the price for the remaining 500MT would be 1,774.72/MT. In fact, the price in L/C No. B issued by the [Buyer] was US $1,807.79/MT, which was for the purpose of paying the deficit resulting from using L/C No. A to pay for the 300MT of goods under Contract B.

After the [Buyer] paid the deficit, the unit price for the goods under Contract B, which were paid by both L/C No. A and No. B would become US $1,774.72/MT; therefore, the Arbitration Tribunal uses this price to calculate the loss of the [Buyer]. In fact, the [Buyer] has used L/C No. A to pay 193.71MT of 300MT of goods under Contract B, and the remaining 106.29MT has not been delivered by the [Seller].

In addition, the payment in L/C No. B has two parts. (1) The price for 500MT of goods; (2) the deficit resulting from using L/C No. A to pay 300MT of goods under Contract B. The price in Contract B has increased US $55.12/MT. Because the [Seller] did not deliver the remaining 500MT of goods, the L/C No. B expired and was void. The two payments of L/C No. B were not fulfilled, which should be considered when calculating the price difference.

Calculation in detail

1. The [Buyer] used L/C No. A to pay 300MT of goods under Contract B. The delivery date in Contract B was 30 June 1994, and the price for contract goods on that day from New York Metal Trade Center was US $1,938.33; therefore, the price difference shall be:

(300MT - 300MT × 5%, i.e., 285MT - 193.701MT) × (US $1,938.33/MT - US $1,774.72/MT) - US $55.12/MT × 193.71/MT = US $4,256.66

2. The [Buyer] used L/C No. B to pay the price for 500MT of goods under Contract B. The delivery date in Contract B was 30 July 1994. The [Buyer] did not provide the price for contract goods from New York Metal Trade Center on the aforesaid day, therefore, the Arbitration Tribunal uses its price on 29 July 1994, which was US $2,004.41/MT to do the calculation; therefore, the difference is:

(500MT - 500MT × 5%), i.e., 475MT × (US $2,004/MT - US $1,774.72/MT) = US $109,102.75

About the transportation fee, the loading ports in L/C No. A were major ports in North America or Hong Kong, and the loading ports in L/C No. B were major ports in North America or Hong Kong, or Taiwan. If the [Seller] had continued to perform the contract, the goods might have been shipped from either Hong Kong or Taiwan; therefore, the [Seller] should not pay the price difference together with the transportation fee.

In conclusion, the [Seller] shall pay the [Buyer] the price difference under Contract B, which is a total of US $113,361.41.

(6) Interest on the price difference

The Arbitration Tribunal deems that the [Buyer]'s losses were caused by the [Seller]'s breach of the contract; therefore, the [Seller] should pay interest on the loss.

The price difference on the undelivered part of the 300MT of goods under Contract B, which was paid by L/C No. A was US $4,258.66, and the interest on it should be calculated five days after the delivery date determined in Contract B, which was 5 August 1994, to the day this judgment is made, which is 12 January 1996. The interest calculated at an 8% annual rate should be:

(8% ÷ 12 months × 16 months + 8% ÷ 365 days × 38 days) × US $109,102.75 = US $12,545.88

Therefore, the interest on the price difference is US $13,063.05

(7) The [Buyer]'s loss in forward market

The Arbitration Tribunal deems that the [Buyer] did not provide any evidence to prove this loss; therefore, its claim for RMB 1,016,167 and the interest on it should not be accepted.

(8) The arbitration fee and other costs

The Arbitration Tribunal deems that the [Buyer] shall bear 30% of the arbitration fee and the [Seller] shall bear 70%. The [Seller] shall bear the cost incurred for the arbitrators who are from outside of the arbitration place.

The [Buyer] claims for the entire cost of this arbitration. The Arbitration Tribunal deems that the [Buyer] did not list the items and the costs in detail, and did not submit evidence; therefore, except for the arbitration fee, the [Buyer]'s other costs for this arbitration will not be considered.

IV. THE AWARD

The Arbitration Tribunal rules:

1. [Seller] shall pay US $113,361.41 for the [Buyer]'s loss of price difference.

2. [Seller] shall pay interest on the aforesaid sum, which is US $13,063.05.

3. [Buyer]'s other claims are dismissed.

4. [Seller] shall bear 70% of the arbitration fee, and the [Buyer] shall bear 30%.

[Seller] shall pay the aforesaid 1, 2, and 4 sums within 45 days after this award takes effect, otherwise, 8% annual interest shall be added.

This award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the People's Republic of China is referred to as [Buyer] and Respondent of the United States of America is referred to as [Seller]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

*** Liming (Anna) Lin, J.D. candidate 2007, Pace University School of Law. She received her MBA from University of Maryland at College Park, and her Bachelor of Science from Nanjing University, China.

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