Has China met the expectations that were set during the 2016 IBA Arbitration Day?
Paul Friedland
White & Case LLP, New York
pfriedland@whitecase.com
Clemency Wang
White & Case LLP, Singapore
clemency.wang@whitecase.com1
Nearly a decade has passed since the IBA Arbitration Day in Shanghai in March 2016, the first and to date only IBA Arbitration Day held in the People’s Republic of China. Multiple speakers expressed the view during the conference that, as a jurisdiction that is rapidly globalizing with an international outlook, China’s place in the international arbitration community was established and would only expand in importance. Justice Shen Hongyu of the People’s Supreme Court gave an address describing China as an enforcement-friendly jurisdiction. Not long after the 2016 IBA Arbitration Day, one commentator addressed how China might soon become an ‘international arbitration superpower’.2 Today, in 2024, we reflect on whether these expectations have been met. The answer is: more ‘no’ than ‘yes’.
To assess the degree to which China has become integrated into the international arbitration community, this article considers the extent to which:
(a) China has become a preferred venue for international arbitration since 2016; and
(b) there is a gap between China’s arbitration laws and rules today and generally accepted international arbitration principles?
To what extent has China become a preferred venue for international arbitration since 2016?
Two tangible improvements have occurred since 2016 that have improved China’s status as an arbitration-friendly jurisdiction: first, China has, through a unique reporting mechanism, maintained a strong record of enforcement; and second, China’s CIETAC has updated its arbitration rules in 2024 to align more closely to international standards.
China’s unique reporting mechanism
China’s reporting mechanism, already in place at the time of the 2016 conference in Shanghai, works as follows: if the Intermediate People’s Court refuses to recognise or enforce an award, this must be reported to the Higher People’s Court in the region. If the Higher People’s Court upholds the Intermediate People’s Court’s decision, this too must be reported to the Supreme People’s Court for a final review. In essence, no court can refuse the recognition or enforcement of an award without the Supreme People’s Court’s review.
By contrast, if the Intermediate People’s Court decides to recognise or enforce an award, no such reporting is necessary.
Likely because of this unique reporting mechanism, China’s enforcement track record has since 2016 trended towards being ‘pro-arbitration’. Between 2012 and 2022, over 90 per cent of the foreign arbitral awards submitted to Chinese courts have been recognised and enforced.3
CIETAC’s 2024 updates of its arbitration rules
CIETAC (still the primary arbitral institution in China) has updated its arbitration rules as of 1 January 2024 to align closer with international standards.
The 2024 CIETAC Rules:
- allow the consolidation of disputes under multiple contracts even if they involve different parties (provided the disputes are sufficiently connected);4
- permit parties to submit documents in electronic form (and state this to be the preferred means);5
- grant arbitral tribunals authority to render an interim award on any issue;6
- empower arbitral tribunals to dismiss claims that are manifestly without legal merit, or manifestly outside the tribunal’s jurisdiction7 (a standard similar to that of the ICC);8 and
- apply the ‘CIETAC Guidelines on Evidence’ in CIETAC-administered arbitrations, guidelines that are substantially similar to the IBA Rules on the Taking of Evidence in International Commercial Arbitrations.9
The numbers
The increasing popularity of China as a venue for international arbitration is shown by growth in the amounts in dispute heard by CIETAC. In 2023, the total amount in dispute administered by CIETAC amounted to RMB 151 billion (approximately USD 21 billion), and CIETAC accepted 5,237 new cases.10 By contrast, in 2016 CIETAC accepted 2,181 new cases which amounted to RMB 58.66 billion (approximately USD 8 billion).11 But increasing popularity is not the same as top-destination popularity.
The enduring gap between China’s arbitration laws and rules and generally accepted international arbitration principles
To become an arbitration-friendly jurisdiction requires more than a good enforcement record and internationalised evidentiary principles. Most modern arbitration-friendly jurisdictions are popular for arbitration because they have two characteristics:
(a) neutrality—they are considered fair and neutral, such that parties choosing the jurisdiction have faith that an arbitral tribunal would not be partial towards one party over another; and
(b) certainty—they give parties sufficient legal certainty that their arbitration agreements will be deemed valid.
In both areas, China still has room for improvement. Until such improvement, China’s popularity as a venue for international arbitration will remain circumscribed.
Neutrality: The statistical preference for Chinese arbitrators in CIETAC
One key principle accepted by most arbitral institutions (including the ICC and SIAC) is that, unless the parties choose otherwise, the presiding or sole arbitrator must not be of the same nationality as either of the parties.
With CIETAC, however, there is no such requirement. In fact, the CIETAC Rules operate in a way that would have a high likelihood of resulting in the appointment of Chinese nationals as presiding or sole arbitrators. This is because:
(a) The CIETAC Rules require the parties to nominate arbitrators from CIETAC’s Panel of Arbitrators (regardless of whether they are the party-appointed or presiding arbitrator).12 This is not quite aligned with international standards: the HKIAC, ICC, LCIA and SIAC all do not require parties to nominate arbitrators from their panels.13
(b) The CIETAC Panel of Arbitrators consists of 71 per cent mainland Chinese nationals (not including Hong Kong and other regions).14
This means that a CIETAC-administered international arbitration has a good chance of playing out as follows: a party incorporated in the People’s Republic of China is in a dispute with a party incorporated from outside China, when the parties are unable to agree on the tribunal president, CIETAC appoints the president. In most cases, the tribunal president will be a mainland Chinese national. The result is one rarely seen in other institutional arbitrations: a presiding arbitrator of the same nationality as one of the parties. Not only that, but the tribunal itself will likely be a 2/3 Chinese majority (assuming the Chinese party would nominate a Chinese arbitrator).
Not only are parties likely faced with a presiding arbitrator of the same nationality as one of the parties, CIETAC’s practice is to ‘nominate a Chinese presiding arbitrator when the arbitration clause fails to provide [otherwise]’.15 CIETAC explains this is due to cost considerations,16 but whatever the reason, it undermines neutrality—whether actual or perceived—if one of the parties is a Chinese national, company or state-owned entity. Unless CIETAC changes this rule and practice, it will be difficult to surmount this appearance of partiality that has resulted in CIETAC not being preferred.17
Certainty: Open questions
It remains unclear whether non-Chinese arbitral institutions can administer arbitrations seated in China.
The source of this problem is Articles 10 and 16 of the Arbitration Law of the People’s Republic of China (the PRC Arbitration Law):
(a) Article 10 states: ‘Arbitration commissions may be established in the municipalities directly under the Central Government … The establishment of an arbitration commission shall be registered with the administrative department of justice of the relevant province…’.18
(b) Article 16 states: ‘An arbitral agreement shall contain the following … a designated arbitration commission’.19
A natural reading of these articles is that they require the parties to designate an arbitral institution established directly under the ‘Central Government’ (ie, a Chinese arbitral institution). This means that arbitration clauses selecting a foreign arbitral institution, or opting for ad hoc arbitration, are invalid. This was certainly the view back in the early 2000s.20
Recent cases have departed from this approach to uphold the validity of foreign-administered arbitrations seated in China. For instance, Longlide (2013) and Daesung (2020) upheld the validity of arbitration agreements specifying foreign arbitral institutions.21 The recent case of Brentwood in 2020 even ruled that an ICC arbitral award should be considered a domestic award, and directed the claimant to re-file for enforcement under the PRC Civil Procedure Law.22
While these cases suggest that China is moving towards permitting foreign-administered arbitrations, they leave open questions:
(a) the discrepancy between Brentwood and the other cases makes it unclear whether foreign-administered arbitral awards should be enforced as domestic or foreign awards;
(b) these cases stopped short of holding that foreign arbitration institutions fall within the definition of ‘Arbitration Commission’ under Article 16 of the PRC Arbitration Law; and
(c) under Chinese law, Chinese courts are not bound by previous decisions.
Therefore, the question of whether non-Chinese arbitral institutions can administer arbitrations seated in China is unsettled, until legislative reform.
That said, legislative reform addressing this gap is underway. In July 2021, the Ministry of Justice issued a draft version of the revised arbitration law that would permit foreign-administered arbitrations in China. To date, it remains a draft.
This revised arbitration law not only would solve the uncertainty of whether non-Chinese institutions can administer arbitrations in China but would also bring arbitration in China more in line with other international standards. For example, it expressly allows ad hoc arbitration in foreign-related disputes, fully embraces the kompetenz-kompetenz doctrine, and allows for tribunal-ordered interim measures and emergency arbitrations.23
Perhaps due to these gaps on neutrality and certainty, today many disputes related to China’s Belt and Road Initiative go to Singapore or Hong Kong.24 Survey results indicate that Singapore is the most popular arbitration seat in Asia.25
Conclusion
China has taken steps towards meeting the expectations set during the 2016 IBA Arbitration Day to become an internationally recognised arbitration jurisdiction. The exponential increase in cases administered by Chinese institutions since then is a testament to its success. But China has not yet become a preferred destination for most high-stakes international arbitrations relating to China. The gaps on neutrality and certainty described above might be the reasons for that. Nonetheless, China’s strong history of recognising and enforcing awards coupled with the impending amendment to its arbitration laws give grounds for optimism that China will soon take its place as a preferred arbitration destination for East Asian disputes.
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1 Paul Friedland is a Partner at White & Case LLP’s New York office. Clemency Wang is an Associate at White & Case in Singapore. The authors thank Nolan Lee, Legal Manager at White & Case in Singapore, for his contribution to this article.
2 Richard Bell, China – an international arbitration superpower?, Lexology, 19 April 2016.
3 Sam (Ronghui) Li et al, Recognition and Enforcement of Foreign Arbitral Awards in China Between 2012-2022: Review and Remarks (Part I), Kluwer Arbitration Blog, 12 September 2023.
4 CIETAC Rules 2024, Article 19(2).
5 CIETAC Rules 2024, Article 8(2).
6 CIETAC Rules 2024, Article 23(3).
7 CIETAC Rules 2024, Article 50.
8 ICC Rules 2021, Article 22; Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration, para. 110.
9 CIETAC Rules 2024, Article 41.
10 CIETAC 2023 Work Report and 2024 Work Plan, available here.
11 Annual Report on International Commercial Arbitration in China (2016), p. 29, available here.
12 CIETAC Rules, Article 26.
13 The ICC and LCIA do not have panels of arbitrators.
14 At the time of this writing, there are a total of 1,431 arbitrators on the CIETAC panel. 1,016 are mainland Chinese nationals. This means a percentage of 70.999 per cent.
15 CIETAC Arbitration Practice Q&A, available here.
16 CIETAC Arbitration Practice Q&A.
17 CIETAC lags behind ICC, SIAC, HKIAC and LCIA as a preferred arbitral institution; see Queen Mary University and White & Case survey, available here, p.10.
18 English translation.
19 English translation.
20 Züblin International GmbH v Wuxi Woke General Engineering Rubber Co., Ltd ([2003] Min Si Ta Zi No 23) (ruled that an arbitration clause specifying ICC arbitration in Shanghai was invalid).
21 Anhui Longlide Packing and Printing Co., Ltd. v BP Agnati SRL ([2013] Min Si Ta Zi No 13); Daesung Industrial Gases Co., Ltd. v Praxair (China) Investment Co., Ltd. ([2020] Hu 01 Min Te No 83).
22 Brentwood Industries, Inc. v Guangzhou Fa’anlong Machinery Complete Set Equipment Engineering Co., Ltd. ([2015] Sui Zhong Fa Min Chu Si Chu No 62). Here, 2015 represents the year that the claimant filed for enforcement, while the court rendered the decision in 2020.
23 Omar Puertas Álvarez et al, Can foreign arbitration institutions validly administer cases in mainland China: The last update, Spain Arbitration Review 2021(42) 119, 133.
24 Out of all the preferred seats in Asia, respondents of the Queen Mary International Arbitration Survey voted 54 per cent in support of Singapore and 50 per cent in support of Hong Kong, compared to 12 per cent in support of Beijing and 8 per cent in support of Shanghai. Multiple responses were allowed. Queen Mary University and White & Case survey, p. 6.
25 Queen Mary University and White & Case survey, p. 7.