In May 1954, the central government made the decision to establish a foreign trade arbitration commission within the China Council for the Promotion of International Trade. Thus, arbitration, along with the internationally aligned principles that make arbitral awards final, binding and court enforceable, planted the first seed in the very young, five-year-old republic.
China has come a long way since then.
According to the Annual Report on International Commercial Arbitration in China (2021-2022) published by the China International Economic and Trade Arbitration Commission (CIETAC), in 2021, 270 arbitration institutions across the nation took on 415,889 cases, with a total disputed amount of RMB859.3 billion (USD118.6 billion).
As international arbitration finds bourgeoning vitality in the Asian market, it also faces criticisms of becoming lengthy and expensive, compelling institutions to optimise their practices.
What wisdom does China, a new member to the arbitration inner circle, bring to the game? And what role will Hong Kong and Shenzhen arbitration play as the Greater Bay Area pumps up into a dynamic hub for all things commercial?
For these questions and more, we sought the insights of six leading arbitration institutions in China’s legal market.
* The articles are arranged in alphabetical order by the name of institutions
Going with the global flow: arbitration developments and practice
Development of the arbitration industry requires active participation of arbitration practitioners, as well as the combined efforts of the legislative, judicial and administrative branches. These two factors in turn influence and promote each other. From a practical perspective, a significant number of international commercial disputes have been submitted to Chinese arbitration institutions, with China as the main seat of arbitration, and the proportion of international cases has increased.
In recent years, Chinese arbitration has further dovetailed with good international practice. Institutional rules have gradually been elevated to legislative consideration, with the granting of discretionary jurisdiction and power to take interim measures to arbitral tribunals to address longstanding problems in China’s arbitration practice. Courts are also willing to adopt a pro-arbitration and less judicially intrusive approach.
The World Bank’s new “Business Enabling Environment” (formerly “Doing Business”) score has also increased its examination of arbitration indicators. All parties are working together to promote an arbitration-friendly business and legal environment in China.
Meanwhile, a number of Chinese arbitration institutions, including the Beijing Arbitration Commission, have been reforming their arbitration rules, training their arbitration teams and improving their service standards in a direction more in line with the market, and respecting the development of commercial arbitration. Among them, many international explorations and new solutions deserve attention.
Arbitration cost reform. The Beijing Arbitration Commission amended its arbitration rules in 2019, becoming the first in China to clearly distinguish arbitrator compensation from institutional management fees, and providing that arbitrator compensation may be calculated at an hourly rate if agreed by the parties, further aligning it with the international arbitration cost mechanism.
Supporting rules, such as the Operational Guidelines on the Use of Hourly Rates for Arbitrator Compensation, have been published to encourage parties and arbitrators to use hourly rates for arbitrator compensation, and a wealth of practical experience has been accumulated. Among cases using hourly rates, up to half of the arbitration cost was saved for the parties.
Promoting pilot transfer of procedural leadership. In terms of procedural management, the Beijing Arbitration Commission has taken the lead in mainland China to launch a pilot project on the transfer of procedural leadership, actively promote the model of arbitrator-led arbitration proceedings, and gradually shift away from the traditional model where institutions take on more procedural and organisational duties in order to enhance the professionalism, specialisation and internationalisation of arbitrators.
Arbitral tribunal may hold hearings online. As an active response to practical concerns in the field of international arbitration during the pandemic, and to mitigate its impact on hearings, the Beijing Arbitration Commission formulated pilot guidelines on online hearings in 2020, and amended arbitration rules in 2022, empowering the arbitral tribunal to decide whether to hold hearings online, based on specific circumstances of the case.
The number of cases heard online has increased significantly year-on-year, allowing for the accumulation of valuable experience in online arbitration while maintaining its advantage of arbitration efficiency.
More ways to elect the presiding arbitrator. In addition to the “list system” and “recommendation system”, the 2022 amendments to the Beijing Arbitration Commission’s arbitration rules added new methods for appointing the presiding arbitrator, and provided that the presiding arbitrator might be chosen jointly by two other arbitrators, the applicability of which is being expanded in practice. The parties have more trust in the arbitrators they choose, and selection of the presiding arbitrator by the two chosen by the parties can be regarded as an extension of the parties’ right to choose arbitrators.
Chinese solution to investment arbitration. The Beijing Arbitration Commission issued the Investment Arbitration Rules in 2019, and the Roster of Arbitrators for International Investment Dispute and Code of Conduct of Arbitrators for International Investment Dispute in 2021, providing a Chinese solution at a time when the international community is calling for changes to investment arbitration.
These explorations and innovations have, on one hand, reduced the cost of adapting to the rules for international business entities and, on the other hand, actively contributed Chinese wisdom to the international community. Chinese arbitration institutions are seizing the opportunity of the country’s foreign trade and economic development to find a reform path that can fully attract international entities and enhance their service capacity.
As the paths of practice continue to converge, it will be increasingly difficult to distinguish between the internationalisation of Chinese arbitration and the Chinese application of international arbitration rules. How to both follow the trend and take the lead when called upon is a puzzle that awaits Chinese arbitration institutions to solve together.
Chen Fuyong is deputy secretary-general of the Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC)
Marching towards the inner circle of international arbitration
In China, arbitration, in its modern sense, is an imported and young dispute resolution system. Generally, the international status of arbitration of a country can be evaluated by gauging: (1) the global influence of its arbitration legal system and rules; (2) the global influence of its arbitration institutions; and (3) its popularity as a seat of arbitration. In terms of the above-mentioned criteria, it can be seen that the international status of China’s arbitration has been qualitatively enhanced after development over six decades, steadily marching towards the inner circle of international arbitration.
Recognition and acceptance of innovative measures by international arbitration. The arbitration cause of the People’s Republic of China began with the foreign-related arbitration practice of China International Economic and Trade Arbitration Commission (CIETAC), whose arbitration rules have always reflected the norms and prevailing practices of international arbitration.
The dispute resolution method of combining arbitration and mediation, initially proposed and practised by CIETAC, has been widely applied in disputes accepted by CIETAC that concern overseas parties, and also recognised and accepted by the international arbitration community.
In its arbitration rules, revised and implemented in 1994, CIETAC had provided a summary procedure, which contributed valuable rules and practical experiences to the more recent expedited arbitration rules formulated by the UN Commission on International Trade Law (UNCITRAL). Furthermore, the practice of many arbitration institutions in China, including CIETAC, to designate a secretary to assist the arbitral tribunal in pushing forward arbitration proceedings, has been accepted and replicated internationally.
Growing credibility and influence of institutions. As of 1 January 2022, China had a total of 270 arbitration institutions. In the past decade, the total disputed amount in monetary terms of cases handled by CIETAC reached RMB712.4 billion (USD98.3 billion), including RMB251.5 billion in international and foreign-related cases, involving parties from 152 countries and regions.
Its arbitral awards have been widely recognised and enforced across the globe, with its credibility broadly acknowledged. In May 2021, the International Arbitration Survey, conducted by Queen Mary University of London, listed CIETAC as one of the five “most preferred arbitral institutions”.
As a new destination for international arbitration, China enjoys much attention and welcome. According to statistics in the above-mentioned survey, Hong Kong, Beijing and Shanghai were among the 10 most preferred seats of arbitration, ranked as third, sixth and eighth, respectively. In May 2022, CIETAC was officially included in the “List of ODR (online dispute resolution) Providers” by the Asia-Pacific Economic Co-operation (APEC). Only three dispute resolution institutions, all of which are in mainland China or Hong Kong, have been included in this list, reflecting the recognition and trust of the industry in the dispute resolution services of Chinese institutions.