Some Challenges and Possible Future Trends in Arbitration Practice in China

-Diane Shayne D. Lipana

I.

Introduction
Some records would say that early models of arbitration in China can be

traced as far back as the late-Qing Dynasty,1 but it only flourished in the early 1990s,
after more than a decade when China opened its doors to the global community in
1978. This evolution makes a lot of sense, from both the point of view of domestic
and foreign arbitration. At the domestic level, given that from 1949 to 1978, China
was employing a planned economy, where the government heavily controlled
commercial transactions and had a monopoly of all key industries, commercial
disputes between merchants are unlikely. Although there were merchants in the
most common sense, commerce was ultimately dominated by state-owned enterprises
or institutions. Should commercial disputes between these enterprises arise, the
National Peoples Congress (NPC), the State Council, or the Community Party of
China (Party) can easily step in and decide on the matter. Because these enterprises
owed its existence and continued existence from the Government and Party, these
enterprises have no reason to resist orders as directed.
At the international level, given that prior to 1978, China had a closed
economy, foreign-related transactions then were also scant. Although as early as
1956, in view of the Sino-Soviet trade regime, the Chinese government paved the
way for the creation of Foreign Trade Arbitration Commission (FTAC, later renamed
as Chinese International Economic and Trade Arbitration Commission [CIETAC]),
for more than 20 years (1956-1979), FTAC had only a caseload of 108 arbitration
cases. 2 The value of arbitration, arbitration law, and arbitration institutions only

Yuen, Peter, Damien McDonald, and Arthur X. Dong, Eds. Chinese Arbitration Law.
Hong Kong, Singapore, Malaysia, and India: LexisNexis, 2015, 11.
2
Fan, Kun. Arbitration in China: A Legal and Cultural Analysis. Oxford and Portland,
Oregon: Hart Publishing, 2013. Accessed May 2, 2016.
https://books.google.com/books?id=Qml6BAAAQBAJ&pg=PT129&lpg=PT129&dq=w
hy there was FTAC in 1956 in
CHINA&source=bl&ots=zkEkTxoHh0&sig=iOKhEFgTXACltZTtbc1tvyfvXLk&hl=en
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became significantly valuable after the planned economy was abandoned and the
Chinese government actively sought to move towards a socialist market economy.
With a market economy, to spur commerce and investment into China, legal and
commercial reforms had to be introduced to encourage non-government entities,
particularly from the private domestic and foreign investors, to take risks and do
business in China. Among these legal and economic reforms was the enactment of the
Arbitration Law (AL) in 1995.
With the increasing importance of China in the global economy and with the
growing tendency of governments and enterprises to employ alternative dispute
resolution mechanisms, such as arbitration, in settling commercial disputes,
arbitration practice in China, like its economy, is expanding. For the most part,
arbitration laws and practice in China seems to be mostly at par with the international
norms and standards. It has some unique attributes though, brought about by the
peculiarities of its political, economic, and social situation. Take for example the
sheer number of arbitration institutions in China. In general, each city has at least one
arbitration institution. In a country where court litigation is still the preferred mode of
dispute resolution, having more than 200 arbitration institutions is plenty, even if we
argue that China is such a vast country in size and population. However, this
peculiarity must be brought about by Chinas fragmented method of governance,
which seems to be a logical governance strategy given its vast territorial size. If
arbitration institutions will be centralized and limited just in Beijing and/or Shanghai,
like in Manila, arbitration practice might die due to obsolescence, as it might be too
inconvenient for the disputing parties to resort to arbitration, especially if the courts
are highly accessible.
Chinas arbitration practice has evolved in the last three decades, and must
have grown leaps and bounds from its status in 1949, when the Peoples Republic of
China (PRC) was established. However, like other developing countries, Chinas
arbitration law and practice remain to face many challenges. Some challenges may

&sa=X&ved=0ahUKEwjV5IvuqrrMAhVR_mMKHWXnAf4Q6AEILjAD#v=onepage&
q=why there was FTAC in 1956 in CHINA&f=false.

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require amendment of the prevailing regime to keep pace with the global community,
but some has to be continuously defended by China to protect its national interest.
Given this backdrop and the insights I picked up in class, I would like to
discuss and take a closer look on some of the challenges in the practice of arbitration
in China and predict the possible future trends in Chinese arbitration law and practice.
II.

Some Challenges in the Practice of Arbitration in China

a. Arbitration in China is as Good as the Institution
Jean-Flavien Lalive, a luminary in international arbitration, once wrote that,

arbitration is only as good as its arbitrators. He explained that, the choice of

persons who propose the arbitral tribunal is vital, and often the most decisive step in
an arbitration. To some extent, this might have some truths in China as Article 6 of
the 1995 AL guarantees that parties to an arbitration agreement have the power to
choose which member of the arbitration commission will adjudge over their dispute.
However, as we have learned in class, in Chinese arbitration practice, the more apt
adage would be that arbitration in China is as good as the institution. Arbitration
institutions or commissions are strong in China for three possible reasons: (1) the law
granted arbitration commissions a significant amount of power; (2) to be valid, the law
requires the parties to select an arbitration commission in its arbitration agreement;
and (3) arbitration commissions are strongly backed by the government.
To illustrate the first reason, although Article 31 of the law gives the parties the
autonomy to choose their own arbitrators and to jointly appoint the chairman of the
tribunal, the Chinese panel system limits the parties, especially in domestic arbitration,
as to whom they can appoint as their arbitrators. As required by Article 11(4), Chinese
arbitration commissions shall have a panel of arbitrators, who at the very least must
comply with the requisites set forth by Article 13. However, the law is silent if the
parties are allowed to choose beyond the list or limited to the panel of arbitrators listed
in their chosen arbitration commission. In Chinese practice though and as written in
the arbitration commissions rules, parties are limited to the list given by the
arbitration commission. Further, following Article 32, if the parties fail to timely and
duly appoint their arbitrators and/or chairman of the tribunal, the chairman of the

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arbitration commission will have the power to appoint their arbitrator/s. Furthermore,
the under Article 36, in case of a withdrawal of an arbitrator, the matter is again
subject to the approval of the chairman of the arbitration commission or by upon the
collective decision of the arbitration commission, in case the chairman of the
arbitration commission is serving as an arbitrator.
The law also limits arbitration in China to mainly institutional arbitration. This
is another reason why the arbitration commissions are central in the practice Chinese
arbitration. Currently, except for certain instance which will I discuss later, Chinese
law does not recognize ad hoc arbitration. Article 16 of the AL provides that a valid
arbitration agreement must contain: (1) an expression of the parties mutual wish to
resort to arbitration; (2) a description of the subject matter to be arbitrated; and (3) the
selected arbitration commission. These three requisites must exist; otherwise the
arbitration agreement may be invalidated. However, ideally it can be argued that in
case there is a defect in the third requisite, the parties can execute a supplementary
agreement to cure the defect. Article 18 of the AL provides that, whereas an
agreement for arbitration fails to specify or specify clearly matters concerning
arbitration or the choice of arbitration commission, parties concerned may conclude a
supplementary agreement. If a supplementary agreement cannot be reached, the
agreement for arbitration is invalid. However, there have been instances where the
parties only agreed on the international arbitration institution or its arbitration rules,
i.e. ICC/ICC Rules, and it remains uncertain if such statement is sufficient compliance
to Article 16(3) of the AL. Under the SPCs Interpretation of Several Questions
Concerning the Application of the AL,3 if the arbitration agreement unequivocally
selects a set of institutional arbitration rules, it must be considered valid, even if it
does not formally name a commission, because the contents of the clause make the
institution ascertainable. However in some case, as in the case of Zblin International
GmbH v Wuxi Woke General Engineering Rubber Co., Ltd.4 and Xiaxin Electronics
Co., Ltd v Socit de Production Belge AG,5 the SPC deemed that in both occasions,

SPC Interpretation came into effect on September 8, 2006.

Supreme Peoples Court Decision (2006).
5
Supreme Peoples Court Decision (2009).
4

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the arbitration agreement is invalid because the parties only referred to the ICC Rules
as the governing arbitration rules, but it failed to specify the arbitration institution. As
a result, some counsels would rather be conservative and advice their clients, that
when an arbitration agreement has to be enforced in China, the parties are better off
explicitly appointing the arbitration commission, rather than risking the arbitration
agreement or clause to be invalidated by the Chinese courts.
Finally, another plausible reason for the strong position of arbitration
commissions in China is that they are strongly backed by the government, the local
government in particular. Article 10 of the AL provides that: arbitration commissions
can be established, where needed, by the relevant departments and chambers of
commerce, under the coordination of the People's Governments of the cities where the
institution is to be set. So whilst western institutions are freely established and
organized, Chinese arbitration commissions are organized by the local government
and registered with the relevant judicial administrative department.6 Further, during its
infancy, arbitration commissions also received fiscal aid from the government.
Through these instances, we see that the overall approach of the government is to
promote institutional arbitration. This persists especially with respect to domestic
arbitration.
However, things have been changing due to the fact that in international
practice, ad hoc arbitration is widely accepted as a valid form of arbitration. To
prevent problems of enforcement and inconsistency of the domestic laws with
international practice, China has adopted the dual track approach in arbitration
practice domestic arbitration remains limited to institutional arbitration, while
international arbitration admits some exceptions. In two instances, the SPC has upheld
the validity of an ad hoc arbitration. First, the SPC has issued an opinion that an
agreement to submit a foreign-related case to ad hoc arbitration abroad is valid, and
State Courts must therefore refuse to resolve said dispute.7 Second, the SPC opined
that a foreign ad hoc award must be enforced by Intermediate Peoples Courts, where
6

Ortolani, P. "The Role of Arbitration Institutions in China." Academia.edu. September

2013. Accessed May 02, 2016.
http://www.academia.edu/5192838/The_Role_of_Arbitration_Institutions_in_China.
7
SPCs Reply Concerning Validity of Arbitration Provision, October 20, 1995.
LIPANA Student No. 1501215127|5

requested, following the procedure set forth in Article 269 of the Civil Procedure
Law.8 In sum, even if domestic arbitration is still closed to ad hoc arbitration, ad hoc
arbitration can still be valid and an ad hoc arbitration can still be enforced in China, so
long as the case is a foreign-related matter. The policy towards ad hoc arbitration has
been more relaxed with respect to foreign-related arbitration, but it remains limited.
For domestic arbitration, institutional arbitration is the only mode available and the
role of arbitration commissions remains pivotal.
b. Deprived of the Power to Grant Interim Relief
Another important striking challenge to the practice of arbitration in China is
the arbitration commission or the tribunals lack of authority to grant interim relief. In
other jurisdictions, such as the Philippines, Hong Kong, and other UNCITRAL
jurisdictions,9 for established grounds like the possible dissipation of assets and/or
evidence or the need for the preservation of the status quo, the arbitral tribunal is
authorized by domestic arbitration laws to issue interim relief to the requesting party.
In case the interim relief is needed prior to the constitution of the arbitral tribunal,
some jurisdictions allow for the appointment of an emergency arbitrator to decide on
the matter, provided the party agrees to be bound by the emergency arbitrators
decision.
In China, the AL does not grant the arbitral commission or the tribunal the
power to grant interim or provisional relief or measures to a party in the arbitration
case. The prevailing policy is that the courts, not the arbitrators or the commission,
may issue coercive measures, and that provisional remedies are coercive in nature and
may only be issued by the courts. Currently, applications for interim measures to
preserve evidence (Articles 81 of the Civil Procedure Law) and interim measures on
property and behavior preservation (Article 101 of the Civil Procedure Law) are
exclusively within the power of the courts. The most that the arbitration commission

PCs Notice of the Minutes of the Second National Meeting on Foreign Related
Commercial and Maritime Trial Work, December 26, 2005.
9
Yuen, et.al, eds., Chinese Arbitration Law, 106.
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can do is refer the matter to the competent Peoples Court.10 If not for anything else,
the usual detriment of having to resort to the courts is the possible delay in the
obtaining the relief, which may be fatal in the case especially if the asset or the
evidence involved is about to be lost completely. In the past, the parties had to refer
the request to the arbitration commission and then the arbitration commission refers
the matter to the competent court. With this two-step process, delay is more or less
inevitable. Under the prevailing rules of procedure, the parties have the option of
applying for an interim relief from the arbitration commission or from the court of
competent jurisdiction. Although the latter addresses the delay that may be caused by
the former two-step process, it still somehow defeats the purpose of alternative
dispute resolution, which is to use other non-litigious means to settle disputes or
issues between the parties, with a view of expeditious settlement of disputes and declogging the court dockets.
III.

Possible Future Trends

a. Chinese Panel System and Autonomy of Parties
There have been criticism to the Chinese Panel System practice, where parties

are limited the list of arbitrators in the panel of arbitrators of their chosen arbitration
commission, as it limits the autonomy of the parties to choose the members of their
arbitration tribunal. In international practice, some institutions, such as the
International Chamber of Commerce (ICC) do not maintain any panel list of
arbitrators, while others, such as the American Arbitration Association (AAA) and
the Singapore International Arbitration Centre (SIAC), only provide a recommended
panel list to the parties and allow the parties to freely appoint arbitrators outside the
list.11 In China, CIETAC Arbitration Rules of 2005, Article 21(2) provides that where
the parties have so agreed, the parties may appoint an arbitrator outside the panel
provided by CIETAC, provided however that such appointment be confirmed by the
Chairman of CIETAC. The same trend goes for the other main forums for foreignrelated arbitration, such as in China Maritime Arbitration Commission (CMAC),
10
11

See Civil Procedure Law, Article 272; Arbitration Law, Articles 28, 46, and 68.
Yuen, et.al, eds., Chinese Arbitration Law, 188.
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Shanghai International Arbitration Center (SHIAC), and Shenzhen Court of

International Arbitration (SCIA),12 but for the local arbitration commissions, only a
few of them, for example the Jinan and Beijing Arbitration Commissions, have
adopted this rule.13 Further for these local arbitration commissions, application of the
rule is limited only to foreign-related transactions. Although still restricted at the
domestic arbitration level, the existing policy is leaning towards affording the parties
greater autonomy in terms of choosing its arbitrators even beyond the panel list of the
arbitration commission. It is highly possible that as the Chinese arbitration
commissions get more exposed to international cases and practice, there would be
greater pressure for the arbitration commissions to relax its rules and limit itself to
recommending arbitrators within its panel list, rather making it mandatory for parties
to choose within the said list.
b. Interpretation of Article 16(3) of the AL
From the earlier cited cases of Zblin International GmbH v Wuxi Woke General
Engineering Rubber Co., Ltd.14 and Xiaxin Electronics Co., Ltd v Socit de Production
Belge AG,15 we can deduce that it may not be enough to just name the rules to be
followed in the arbitration agreement and/or add the place of arbitration (i.e. ICC Rules in
Shanghai). To this extent, we may say that Article 16(3) of the AL remains to be strictly
interpreted. However, to some extent the same article has been more liberally interpreted
by the SPC. In the past, there had been uncertainty if foreign institutions falls within the
ambit of arbitration commission as referred to in the law, but this uncertainty may have
been dispelled by the Reply of the SPC to the Shanghai Immediate Court in the case of
Anhui Longlide Packaging Co Ltd. v. BP Agnati SRL,16 where the SPC decided that an
arbitration agreement that provided for the ICC arbitration in Shanghai was valid.
From these three cases, we see that the law is clear and the courts must interpret
the law in its simple terms. The law requires that an arbitration commission must be
12

Id, 187.
Id.
14
Supreme Peoples Court Decision (2006).
15
Supreme Peoples Court Decision (2009).
16
Yuen, et.al, eds., Chinese Arbitration Law, 6, citing Min Si Ta Zi No. 13 (2013).
13

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appointed in the arbitration agreement for the same to be valid. The law does not
distinguish if the arbitration commission is a domestic or a foreign institution, hence
appointing either of the type sufficiently complies with this legal requisite. The law is
clear and the policy is consistent. Unless the NPC changes its policy towards this rule, the
current interpretation of Article 16(3) is as liberal as it gets.
c. Ad hoc Arbitration
Although domestic arbitration before arbitration commissions are still institutional
in nature, the law, the rules and the SPC interpretations have been more liberal towards
ad hoc arbitration especially in foreign-related cases. As earlier discussed, the SPC has
pronounced that ad hoc arbitration provisions in foreign- related cases shall be deemed
valid, while the foreign ad hoc awards can be duly enforced in China. Although the trend
is to be liberal towards foreign-related cases, I predict that domestic arbitration will
remain institutional in nature at least for the short-term. I believe the government enacted
the AL, which favor institutional arbitration, to promote its establishment and empower
these institutions to be the competent alternative forums in dispute resolution, and enrich
the practice of arbitration in China. Once the government is confident that the arbitration
practice in China is quite mature, and then the policy might change towards opening the
floodgates towards ad hoc arbitration to both domestic and international arbitration.
d. Interim Relief and Emergency Arbitrators
To some extent, the grant of interim relief is no longer an exclusive power of the
court, especially in the case of foreign-related cases. There may be instances where a
Chinese arbitration commission is the appointed entity to administer the case (i.e.
CIETAC), but the seat of arbitration or the arbitration rules written in the arbitration
agreement allows/empower the tribunal to grant interim relief (i.e. Philippine, Hong
Kong, or Singapore).17 In such a case, so long as the parties agreed to be bound by the
same in their arbitration agreement, the tribunal will have authority to act on the
application for interim relief. In some cases, as in the case of CIETAC, the commissions

17

Yuen, et.al, eds., Chinese Arbitration Law, 175-176.

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rule allow the tribunal to issue interim measures to preserve evidence, if the same is
permitted by the applicable law.
In the same vein, the appointment of an emergency arbitrator and the
enforcement of his/her interim order/decision have a limited, but arguably plausible
valid application in China in the case of foreign-related arbitration. As in the case of
CIETAC and the BAC, their respective rules allow for the appointment of an
emergency arbitrator and the enforcement of his/her interim order/decision. However,
because such rules have no legislative leg to stand on under Chinese laws, these rules
cannot be applied in domestic arbitration; the possible applications of these rules will
occur when: (1) a Chinese arbitrator issues the order and the interim relief is enforced
in a jurisdiction allowing the appointment of a emergency arbitrator and granting
him/her the power to issue interim order/decision; and (2) the Chinese arbitration
commission is appointed to administer the arbitration, but the seat of arbitration is in
a jurisdiction allowing the appointment of a emergency arbitrator and granting
him/her the power to issue interim order/decision.
Although the grant of interim relief by the arbitration commission or by the
emergency arbitrator could be valid in some foreign-related transaction, enforcement
still remains as an issue. Let us say a Chinese party refuses to comply with order
granting interim relief, then the prevailing party has to petition the court for the
enforcement or, worse, to go through the process again of an application for an
interim relief. Resorting to the courts, after the tribunal went through a process and
considered the merits of an application for interim relief already, may defeat the
purpose of an interim relief, which is commonly for the preservation of a thing or
status which is threatened to or in the process of dissipation. While the prevailing
party is applying for the enforcement of the interim relief or asking the courts for an
interim relief, the other party can use this period to buy time and find a way to hide or
dispose of his/her assets or the relevant evidence.
Although the grant of interim relief by the arbitration commission or by the
emergency arbitrator could be relaxed for foreign-related transaction, the same would
be ultra vires if applied in domestic arbitration, because the prevailing rule under
Chinese AL and Civil Procedure Law is that such power is restricted to the courts. At

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present, I cannot think of another substantial reason to abandon the prevailing policy
other than the mere conclusion that court enforcement or processing of an application
for interim relief is a source of delay. If that is the only reason that critics can raise,
then the NPC has more incentive putting more pressure to the courts to expedite the
issuance of a decision on an application for an interim relief, rather than granting
another entity, the tribunal or the arbitration commission, the power to grant such
application. Again, this limitation to the power of the tribunal or arbitration
commission stems from the possibility that the Government and Party perceives that
the practice of arbitration in China is not yet mature, and hence it may not be wise to
delegate the power of the courts to grant interim relief to the arbitration commission
or the tribunal. So unless and until the overarching policy of the Chinese government
changes, as a general rule, application for interim relief will have to be coursed
through the competent courts.
IV.

Conclusion
Like other developing countries, Chinas arbitration law and practice remain

to face many challenges. Some challenges may require amendment of the prevailing
regime to keep pace with the global community, but some has to be continuously
defended by China to protect its national interest. As discussed, there are two striking,
but ironic challenges to the practice of arbitration in China are: (1) the immense
powers granted by the law to arbitration commissions and (2) its lack of power to
grant interim relief.
We see in the earlier discussion that in the arbitration sphere, the law favors
the arbitration commission and grants the commissions and/or its chairman a lot
power or authority. However, in the greater sphere of dispute resolution, the law still
gives preference to the courts over the arbitration commission, as in the case of
granting interim relief in disputes subject to an arbitration agreement. I surmise that
the reason for this attitude of the NPC and of the Party is their lack of confidence
towards the maturity of the practice arbitration in China. Further, the government may
not also be willing to divest this governmental function to quasi-governmental or nongovernmental institutions, because it means relinquishing some level of government

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control over this function or service. Currently, the irony is that, the government
wants to empower arbitration commissions, but it still has to find some ways to rein it
in.
At some point though, the government has to be consistent in its policy. If it
wishes to support the practice of arbitration in China, it may have to trust the
arbitration commission and the practitioners more, by liberally allowing international
practice and standards, such as the power of the tribunal to grant interim relief, the
power to appoint an emergency arbitrator and the enforceability of his/her order, ad
hoc arbitration, greater autonomy of parties, and the convergence of the dual track
approach and universality of the practice of arbitration in China.
In the coming years, with Chinas position in the global community, it has the
advantage of making a choice, of either succumbing to the pressure of meeting the
international trend in the practice arbitration or sticking to its policy choices in its
desire to preserve national interest. Either way, the final choice will involve a
balancing of interest at every juncture. Like any rational developing country, I predict
that China will adopt a policy choice, which works best to its advantage. However,
like China in the last three decades, I predict that these policy choices will not be
shortsighted. The policy changes and progression may not be as fast as the rest of the
world expects, but it will happen in a calculated pace and with gratifying results.

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