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Settling International Business Disputes

with China: Then and Now
Jerome A. Cohen†
A Generation Later— Substantial Progress, but . . . . . . . . . . . . . . . . . . 558 R
I. Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558 R
II. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 561 R
III. Adjudication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565 R
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567 R

The People’s Republic of China (PRC) has come a long way with
respect to settling international business disputes. At the time of my first
Chinese business discussions at the Canton Trade Fair in May 1973, the
PRC was still using only Soviet-style foreign trade companies to conduct
trade with the socialist world and other foreign entities. In early 1979,
however, the PRC began to establish many additional companies to meet
the needs of Deng Xiaoping’s new “open policy” of broader cooperation
with the bourgeois world.
These new companies wanted to attract foreign investment, not merely
trade. Yet, in initial contract negotiations, their inexperienced staff often
did not want to discuss dispute resolution. The new executives saw no need
to include the simple arbitration provision that was commonly used by
traditional PRC trading companies1 or even the customary innocuous
clause requiring parties to seek the assistance of a mediator if they were
unable to resolve their dispute through their own negotiations.2 To justify
their position, these newcomers would invoke the analogy of marriage,
arguing that the betrothed do not focus on divorce when planning their
wedding. Of course, this led me to tell the executives that, outside
proletarian China, prenuptial agreements were not uncommon if one or
both parties brought substantial assets to their union.
At that time, no Chinese lawyers took part in our contract
negotiations, as the “anti-rightist” campaign of 1957– 58 decimated their
ranks, and these lawyers were not restored to practice until 1981.3

† Professor of Law, New York University School of Law. The author would like to
thank Chaoyi Jiang for her research cooperation, comments, and translation.
1. This observation is made based on the author’s personal experience when
representing foreign companies in contract negotiations with these newly-established
Chinese companies.
2. This observation is also made based on the author’s personal experience when
representing foreign companies in contract negotiations with these newly-established
Chinese companies.
3. See Shao-Chuan Leng, Criminal Justice in Post-Mao China: Some Preliminary
Observations, 73 J. CRIM. L. & CRIMINOLOGY 204, 205 (1982).
47 CORNELL INT’L L.J. 555 (2014)
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556 Cornell International Law Journal Vol. 47

Although they lacked formal legal education, a handful of trade officials

continued to staff the Legal Department of the China Council for the
Promotion of International Trade (CCPIT) during and after the Cultural
Revolution of 1966– 76, but they generally remained in their office.4 I
called on them at the CCPIT occasionally, but I never encountered any of
them in negotiations. So the burden fell on me, in those early 1979
negotiations, to explain that, in the absence of a relevant provision in the
contract, any dispute that had to be formally resolved would inevitably end
up in court somewhere unless the parties, after occurrence of the dispute,
could agree on another method. Such agreements frequently proved
impossible.
It was not until the promulgation of contemporary China’s first law
welcoming foreign direct investment on July 1, 1979 — the Equity Joint
Venture Law (EJV Law)— that Chinese negotiators, whose companies were
new to foreign transactions, began to feel comfortable discussing dispute
resolution clauses.5 That is because Article 15 provided: “Disputes arising
between the parties to an equity joint venture that the board of directors
has failed to settle through consultation may be settled through mediation
or arbitration by an arbitration agency of China or through arbitration by
another arbitration agency agreed upon by the parties.”6
This language was permissive and left open the possibility that the
parties might also agree upon resort to the courts, a possibility that was
later explicitly authorized. Yet, during this initial period for welcoming
foreign investment, I knew that the Chinese side would not risk resorting
to the courts. Its representatives understood virtually nothing about, and
were suspicious of, American state and federal courts, as well as the courts
of other countries, including those of the Soviet Union and the other
“socialist” countries that had dominated China’s business relations since
the establishment of the PRC in 1949. Actually, Chinese negotiators knew
little even about their own country’s courts, which were only beginning to
recover from the devastation suffered by the judiciary during the Cultural
Revolution.
What surprised me before the promulgation of the EJV Law was the
number of investment negotiations in which the Chinese side did not press
for an arbitration clause. For three decades, arbitration clauses had been
standard in the PRC’s specialized foreign trade companies’ contracts with
the socialist world.7 So far as I could tell, in that opaque era, most of the
contracts that PRC trading companies had made with European and
Japanese companies during the 1970s also contained clauses calling for

4. See Jerome A. Cohen, The Missionary Spirit Dies Hard, HK ECO. J. (Sept. 3, 2011),
online as part of the “My First Trip to China” series, http://features.hkej.com/template/
features/html/first_trip/index.jsp.
5. See Law of the People’s Republic of China on Chinese-Foreign Equity Joint
Ventures (promulgated by the Standing Comm. Nat’l People’s Cong., July 8, 1979),
available at http://www.china.org.cn/english/DAT/214773.htm (China).
6. Id.
7. See e.g., Sally L. Ellis & Laura Shea, Foreign Commercial Dispute Settlement in the
People’s Republic of China, 6 MD. J. INT’L L. 155, 161 (1981).
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2014 Settling International Business Disputes with China 557

arbitration by what was then known as China’s “Foreign Trade Arbitration

Commission” (FTAC).8
During the 1973 Canton Trade Fair, I spent several evenings in the bar
of the Dongfang Hotel avidly listening to the sad tales of European
commercial attachés and businessmen who described disputes that had
arisen with China and their fruitless efforts to persuade PRC foreign trade
companies to honor their contract arbitration clauses in order to settle
those disputes. The foreigners were consistently met with the refrain
“arbitration is a very unfriendly act,”9 and were warned that insistence on
invoking the arbitration provision could terminate their cooperation with
China. Going to court was even more unthinkable. Instead, the foreigners
were offered the option of informally settling the “misunderstanding” by
receiving what the Chinese side regarded as generous terms in the next
transaction between the parties. In practice, however, that option often
disappointed the foreign party. The Chinese preferred the informal option,
of course, not only because it often reduced their economic liability for any
contractual violation but also because it did not require formal recognition
that any Chinese officials had made a mistake. This avoided both loss of
face to foreigners and adverse consequences to Chinese officials’ careers.
It was discouraging for me to learn of foreign frustrations with
Chinese arbitration practice, yet I knew that my foreign investor clients
should want even less to do with Chinese courts. To us they were a total
black box and an unacceptable risk. Arbitration seemed the only option for
foreign businesses, but arbitration outside China was plainly preferable for
significant transactions. Some potential investors, such as the major foreign
oil companies that Beijing was seeking to attract, were in a strong enough
bargaining position to resist persistent PRC demands for arbitration in
China. Others had to decide whether profit prospects justified the added
risk of agreeing to arbitration in China, which PRC reforms were striving to
make more attractive. PRC negotiators were under instruction to try hard,
down to the last hours before contract signing, to win foreign acceptance of
arbitration in China but to not lose the deal because of this issue.10
Whether they agreed to arbitration in China or abroad, all foreign
firms had to recognize the uncertainty and difficulty they would encounter
if they managed to win an arbitration award but the Chinese side refused to
comply with its terms. Even after China joined the New York Convention
on the Recognition and Enforcement of Foreign Arbitral Awards in 1987,11
if foreign companies had to enforce an award in China, they would face
formidable obstacles. In that era before PRC companies began to maintain

8. See e.g., Tang Houzhi, Arbitration – A Method Used by China to Settle Foreign
Trade and Economic Disputes Lecture, 4 PACE L. REV. 519, 520 (1984).
9. This observation is made based on the author’s personal experience when
representing foreign companies in negotiations with Chinese companies.
10. This observation is made based on the author’s personal interviews and own
experience when representing foreign companies in negotiations with Chinese
companies.
11. Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
June 6, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38.
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558 Cornell International Law Journal Vol. 47

significant assets abroad, foreign firms would in most cases have little
choice but to seek enforcement of the award against Chinese property in
China. Ultimately, there was generally no way to avoid entanglement with
Chinese courts, a course that foreign companies had sought to avoid by
opting for arbitration in the first place. But that situation only gradually
became apparent as the 1980s wore on and the number of Sino-Western
arbitrations began to increase, both in China and other countries.12

A Generation Later— Substantial Progress, but . . . .

Today, more than a generation later, foreign business confronts a
much more sophisticated Chinese dispute resolution scene, one that
reveals the substantial progress that has accompanied more than three
decades of China’s phenomenal economic development and international
cooperation. Mediation, arbitration, and adjudication remain the principal
methods for third-party participation in settling international business dis-
putes with China, but each now offers more varied and promising options
and procedures. Still, many challenges confront each of these methods, as
the following brief overview suggests.

I. Mediation
Mediation— the processes by which one or more third parties seek to
assist in the resolution of disputes without making a binding decision—
was, of course, a distinctive feature of the pre-modern Chinese legal sys-
tem.13 Ever since the dawn of the twentieth century, modernizing elites in
China have sought to adapt the traditional preference for mediation to con-
temporary needs.14 Indeed, during the PRC’s initial decades, Chinese lead-
ers suggested that their adaptation of traditional mediation was their most
prominent contribution to the Marxist-Leninist legal system that they had
imported from the Soviet Union and shared with other “socialist”
countries.15
In resolving commercial disputes with foreigners, PRC authorities
have attempted to build upon this strong domestic tradition. Most of their
international trade, licensing, and investment contracts, among other types

12. See Zhao Xiuwen & Lisa A. Kloppenberg, Reforming Chinese Arbitration Law and
Practices in the Global Economy, 31 U. DAYTON L. REV. 421, 424 (2006).
13. See Jerome A. Cohen, Chinese Mediation on the Eve of Modernization, 54 CAL. L.
REV. 1201, 1206– 09 (1966).
14. See id.; see also Stanley B. Lubman, Mao and Mediation: Politics and Dispute Reso-
lution in Communist China, 55 CALIF. L. REV. 1284, 1300– 01 (1967).
15. Ye Gulin ( ) [Yeh Ku-Lin], Chongfen Fahui Renmin Tiaojie Gongzuo Wei Jian-
she Shehui Zhuyi Fuwu De Zuoyong ( )
[Thoroughly Developing the Construction of Socialistic Service Is a Function of People’s
Mediation Work], 4 ZHENGFA YANJIU ( ) [POLITICAL-LEGAL RESEARCH] 12 (1964).
(The Journal later changed its name to FAXUE YANJIU ( ) [CHINESE JOURNAL OF
LAW]. For English translation of this article, please refer to Yeh Ku-lin, Thoroughly Devel-
oping the Construction of Socialistic Service Is a Function of People’s Mediation Work,
SELECTIONS FROM CHINESE MAINLAND MAGAZINES, No. 461, at 1-2 (1965), published by US
Embassy in Hong Kong.
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2014 Settling International Business Disputes with China 559

of contracts, obligate the parties to resort to mediation before they invoke

more binding measures,16 and the PRC has established some separate
institutions for promoting the mediation of foreign-related disputes. The
China Council for the Promotion of International Trade operates a Media-
tion Center, formerly known as the Beijing Conciliation Center.17 In 2004,
the CCPIT and the North America CPR Institute for Dispute Resolution
jointly founded the US-China Business Mediation Center.18 Although only
one of several bilateral institutions established by the CCPIT with other
countries to foster commercial mediation, it was touted as a “landmark
program” designed to demonstrate, through a broad range of related meth-
ods, “the tremendous advantages of mediated negotiation over
litigationFalse”19
Moreover, the CCPIT’s China International Economic and Trade Arbi-
tration Commission (CIETAC)— the successor to the original FTAC— and
China’s many other flourishing arbitration organizations, as well as foreign
organizations, all offer procedures and resources for disputing parties to
attempt informal settlement through mediation before completing the arbi-
tration process itself.20 China’s courts also emphasize opportunities for
mediation, before and in the midst of trials and even on appeal, especially
during one of the Communist Party’s periodic campaigns to favor media-
tion over adjudication.
As presiding arbitrator in an International Chamber of Commerce
arbitration between PRC and European companies in Geneva, I personally
reconciled the parties after the arbitration hearing, having failed to attain a
settlement in a pre-hearing mediation session. And as a member of a
Shanghai arbitration panel operating under the auspices of CIETAC, I
observed our highly-experienced Chinese presiding arbitrator, acting in
the capacity of mediator, subject Hong Kong and Mainland disputants to a
seemingly endless, high pressure but unsuccessful effort to knock heads
together.
My impression is that in many important disputes with China, as with
other countries, foreign firms do not often take formal mediation seri-

16. At that time, many substantive Chinese laws either mandated or encouraged the
disputing parties to use the mechanism to solve their problems before formal recourse to
arbitration and litigation. See e.g., The Economic Contract Law of the People’s Republic
of China, art. 42 (promulgated by the 5th Nat. People’s Cong., Dec. 13, 1981); the Equity
Joint Venture Law, art. 14 (promulgated at the 2d Session of the 5th Nat. People’s Cong.,
July 1, 1979); the Law of China on Economic Contracts Involving Foreign Interest
(promulgated at the 10th Session of the Standing Comm. of the 6th Nat. People’s Cong.,
Mar. 21, 1985).
17. See Mediation Center, CHINA COUNCIL FOR THE PROMOTION of INTERNATIONAL
TRADE, http://adr.ccpit.org/english/typeinfo.aspx?t1=117&t2=123.
18. The US– China Business Mediation Center in Beijing and New York City, ADR-
RESOURCES (Feb. 5, 2004), http://adrresources.com/adr-news/148/us-china-business-
mediation-center-beijing-new-york-city#sthash.xnjFl3Go.dpuf (last visited Oct. 17,
2014).
19. Id.
20. See Justin D’Agostino, Key changes to the CIETAC Arbitration Rules, KLUWER ARBI-
TRATION BLOG (Apr. 11, 2012), http://kluwerarbitrationblog.com/blog/2012/04/11/key-
changes-to-the-cietac-arbitration-rules/.
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560 Cornell International Law Journal Vol. 47

ously. If unable to settle matters through bilateral negotiations, they tend to

be pessimistic about mediation’s prospects for success, and avoid or short-
circuit the process, instead opting for some type of formal decision rather
than further delay the outcome. Nevertheless, in recent years the CCPIT
Mediation Center has reportedly experienced an enormous increase in its
activity.21 It is not clear how much of this increase can be attributed to
international disputes, domestic disputes involving foreign elements such
as EJVs, or purely domestic disputes. Undoubtedly, a major portion of the
increase can be attributed to the renewed emphasis that the Communist
Party placed on mediation during the period of 2006– 12, which led the
Party and the judiciary to instruct all legal institutions to prioritize media-
tion over litigation.22 The burgeoning statistics probably do not reflect a
heightened foreign enthusiasm for mediation but, rather, the CCPIT Media-
tion Center’s desire to tout its efforts to meet the demands of the latest
political-legal campaign emphasizing mediation.
We also should not overlook the roles of more informal and less visi-
ble mediators. For example, lawyers for the contending sides, on some
occasions, while participating in bilateral dispute resolution negotiations
on behalf of their clients, actually serve as de facto co-mediators. I have
done it myself. And ethnic Chinese employees of the foreign firm often seek
solutions in informal meetings with PRC counterparts. Many a problem
has been resolved over late night drinks.
Much more sinister, although seldom discussed in academic meetings,
is the role of the Chinese police as de facto, highly coercive “mediators.”
They are occasionally called in by a Chinese party that is dissatisfied with

21. Wang Chengjie, Speech at the 2013 Mediator Appointment and Training Confer-
ence of the Mediation Center of China Council for the Promotion of International Trade
(CCPIT)/China Chamber of International Commerce (CCOIC): New Development of
Business Dispute Resolution in China and Foreign Countries (Dec. 19, 2013), available
at http://lad.ccpit.org/second/index.aspx?nodeid=235&page=ContentPage&contentid=
1392.
22. See Decision of the CPC Central Committee on Major Issues of Building A Socialist
Harmonious Society, XINHUA NEWS (Oct. 18, 2006), available at http://news.xinhuanet
.com/politics/2006-10/18/content_5218639.htm; see also Several Opinions of the
Supreme People’s Court on Establishing a Sound Conflict and Dispute Resolution Mechanism
that Connects Litigation and Non-litigation (promulgated by the Sup. People’s Ct., Jul. 24,
2009) (Lawinfochina) (China), available at http://www.lawinfochina.com/display.aspx?
lib=law&id=7744&CGid=; Notice of the SPC on Issuing Several Opinions on Further
Implementing the Work Principle of “Giving Priority to Mediation and Combining Mediation
with Judgment” (promulgated by the Sup. People’s Court, Jun. 27, 2010) (Lawinfochina)
(China), available at http://www.lawinfochina.com/display.aspx?lib=law&id=8397.; Guid-
ing Opinions on Further Promoting the General Mediation of Conflicts and Disputes (jointly
issued by 16 departments, May 2011) available at http://politics.people.com.cn/GB/
1027/14557800.html; People’s Mediation Law of the People’s Republic of China (promul-
gated by the Standing Comm. of the Nat’l People’s Cong., Aug. 28, 2010), available at
http://en.pkulaw.cn/display.aspx?id=8266&lib=law&SearchKeyword=&SearchCKey
word=GMvIwR%2f7pHQG1iOGJBvEQA%3d%3d; Article 122, Civil Procedure Law of the
People’s Republic of China (2012 Amendment) (promulgated by the Standing Comm. of
the Nat’l People’s Cong., Aug. 31, 2012), available at http://www.lawinfochina.com/dis
play.aspx?lib=law&id=11161&CGid=.
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2014 Settling International Business Disputes with China 561

the progress of negotiations to settle a dispute with a foreign company.23

This is more likely to happen when the foreign company is either owned or
represented by someone of Chinese ethnicity, especially a former or pre-
sent Chinese national.24 A favorite pattern is for the Chinese company to
lure the foreign firm’s negotiator to a city in China that is not the home
base of the Chinese company— an apparently neutral location.25 Then, as
discussion gets underway, police from the home base descend and spirit
the foreign company’s representative away to detention in one of their city’s
jails, ostensibly to begin an investigation of alleged “criminal fraud.”26
They make it clear that the investigation can promptly terminate if the hap-
less detainee “agrees” to the terms of settlement that the local company
desires.27 Chinese-Americans, Taiwanese and Hong Kong residents, and
Chinese nationals have all proved particularly vulnerable to such tactics. In
one such incident, a stubborn detainee remained locked up for five years.28
The families of such detained persons have consulted me on several
occasions.

II. Arbitration
Arbitration in China has flourished in recent decades, at least statisti-
cally, and vigorous competition has developed among PRC arbitration
organizations. CIETAC no longer has a monopoly over foreign-related and
international disputes, and the PRC now has over 200 cities with their own
local arbitration commissions that are permitted to deal with such dis-
putes, as well as the domestic disputes that are grist for their mill.29

23. See e.g., Joseph Kahn, Dispute Leaves U.S. Executive in Chinese Legal Netherworld,
N.Y. TIMES, Nov. 1, 2005, available at http://www.nytimes.com/2005/11/01/internation
al/asia/01kidnap.ready.html?ei=5088&en=2a8d69f92570931f&ex=1288501200&part
ner=rssnyt&emc=rss&pagewanted=print (last visited Nov. 4, 2014); see also Chris Buck-
ley, Efforts Continue to Win Release of American in China, N.Y. TIMES, May 18 2005,
available at http://www.nytimes.com/2005/05/18/business/worldbusiness/18detain
.html?pagewanted=print (last visited Nov. 4, 2014); Stephane Fitch, Held Hostage in
China, FORBES, Nov. 14, 2005, available at http://www.forbes.com/global/2005/1114/
030A.html (last visited Nov. 4, 2014); Jeffrey Hays, Problems with Doing Business in
China, FACTS AND DETAILS, available at http://factsanddetails.com/china/cat9/sub59/
item2281.html (last visited Nov. 4, 2014).
24. See sources cited supra note 23.
25. See sources cited supra note 23.
26. See sources cited supra note 23.
27. See sources cited supra note 23.
28. See Complaint, Tiangang Sun v. China Petroleum & Chemical Corp. Ltd., No. 13-
cv-05355, at ¶ 75 (C.D. Cal. 2013), available at http://nebula.wsimg.com/955cfb43f131
2ffb661d61a026276edd?AccessKeyId=2EE73AAF1C9284F03994&disposition=0; see
also Edvard Pettersson, Sinopec Sued by Hong Kong Businessman for Imprisonment,
BLOOMBERG, July 24, 2013, available at http://www.bloomberg.com/news/2013-07-25/
sinopec-sued-by-hong-kong-businessman-for-imprisonment.html; Eric Ng, Jailed ex-chair
of GeoMaxima Energy Sun Tiangang sues Sinopec in LA, SOUTH CHINA MORNING POST, July
26, 2013, available at http://www.scmp.com/business/commodities/article/1290728/
jailed-ex-chair-geomaxima-energy-sun-tiangang-sues-sinopec-la.
29. See Nicholas Song, Arbitration in China— Progress and Challenges, MONDAQ, Apr.
17, 2013, http://www.mondaq.com/x/233922/Arbitration+Dispute+Resolution/Arbitra
tion+In+China+Progress+And+Challenges.
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562 Cornell International Law Journal Vol. 47

Although the Beijing Arbitration Commission, the most impressive in

China even including CIETAC, still handles more purely domestic disputes
than foreign-related and international ones, and not as many of the latter
two categories as CIETAC, it has steadily increased its reputation for pro-
fessionalism among foreigners.30
CIETAC, by contrast, has suffered a loss of prestige. In 2005, reflecting
not only my own experiences as both a CIETAC arbitrator and an advocate
before it but also those of many others, I called for CIETAC to undertake
many reforms in its rules and practice.31 I had become progressively disil-
lusioned by instances of corruption, government influence over decisions,
ethical deficiencies, conflicts of interest, bias against foreign companies,
faulty methods of selecting arbitrators, lapses in confidentiality, failure to
provide opportunity for a dissenting arbitrator’s opinion, and other unfair
practices.
After my published criticisms, CIETAC did take steps to remedy sev-
eral of these defects. Its principal response to me, however, was a decision
not to renew my appointment to its roster of authorized foreign arbitrators,
effectively preventing my future service on its arbitration tribunals.32
Shortly thereafter, amid a virtual news blackout, CIETAC’s able Vice Chair-
man/Secretary General was convicted and sentenced to five years in prison
for alleged corruption relating to his service as an arbitrator in a major
Sino-American dispute decided by a Stockholm Chamber of Commerce
arbitral tribunal.33 Although his CIETAC successor announced to a large
arbitration conference in New York in 2007 that CIETAC had been wrong
to remove me from its roster and would soon remedy that mistake,34 I am
still awaiting reappointment.
CIETAC has since revised its rules to eliminate several of the deficien-
cies I had pointed out, but many persist.35 The recent book by Professor
Fan Kun of the Chinese University of Hong Kong gives an excellent point-
by-point analysis of the extent to which CIETAC arbitration still differs

30. See Ellen S. Reinstein, Finding a Happy Ending for Foreign Investors: the Enforce-
ment of Arbitration Awards in the People’s Republic of China, 16 IND. INT’L & COMP. L. REV.
37, 44– 45 (Mar. 13, 2005).
31. See generally Jerome A. Cohen, Time to Fix China’s Arbitration, 168 FAR E. ECON.
REV. 31 (Jan. 2005).
32. See Reinstein, supra note 30, at 45– 46.
33. See Luo Changping, Wang growth of First Instance collar criminal five years, CAIJ-
ING (July 28, 2008), available at http://www.caijing.com.cn/2008-07-28/100076639
.html.
34. At an international workshop held by Juris Conference LLC on “Managing Busi-
ness Disputes in Today’s China” on March 26, 2007 in New York, Mr. Yu Jianlong, the
newly-appointed successor to Mr. Wang as Vice Chairman and Secretary General of
CIETAC, stated that Prof. Cohen would be reappointed to the CIETAC roster of arbitra-
tors. However, this statement was omitted from CIETAC’s official news release about the
workshop. See China International Economic and Trade Arbitration Commission, Yu
Jianlong, deputy director and secretary general of the United States led a delegation to
attend an international seminar and visits to relevant agencies (Apr. 5, 2007), available at
n.cietac.org/newsfiles/NewsDetail.asp?NewsID=55.
35. See Reinstein, supra note 30, at 45.
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2014 Settling International Business Disputes with China 563

from generally accepted international standards.36 In the meantime,

CIETAC has suffered the great public embarrassment of having its sub-
commissions in Shanghai and Shenzhen declare their independence from
its central office in Beijing and begin competing, under new names, not
only with the local arbitration commissions already existing in those cities
but also with CIETAC itself.37 This has considerably muddied the waters
for parties whose contracts have provided for CIETAC arbitration in those
places, and in certain cases it has cast doubt about the judicial enforceabil-
ity of awards made under the auspices of the feuding organizations.38
Wholly apart from the peculiar difficulties that civil war within
CIETAC has raised for enforcement of some arbitration awards, we should
note that, despite the continuing efforts of China’s Supreme People’s Court
(SPC), a considerable measure of uncertainty still exists regarding the
enforceability in China’s courts of all China-related arbitration awards
affecting foreigners, whether made abroad or in China. There is especially a
need to clarify and make more efficient the civil procedures for judicial
scrutiny of the awards made by Chinese arbitration tribunals in foreign-
related cases, and the courts reportedly have often refused to enforce such
awards.39 The more rigorous SPC requirements for higher court review of
lower court refusals to recognize and enforce foreign awards, i.e., those
made by non-Chinese tribunals operating under the New York Convention,
have resulted in more frequent enforcement of such awards.40

36. Fan Kun, ARBITRATION IN CHINA: A LEGAL AND CULTURAL ANALYSIS 235– 39 (2013).
37. China International Economic and Trade Arbitration Commission, Announce-
ment On Issues Concerning CIETAC Shanghai Sub-Commission and CIETAC South China
Sub-Commission (Dec. 31, 2012), available at http://www.cietac.org/index/aboutUs/
importantNotice/477c27336b878a7f001.cms?forIndex=index.
38. A judgment of the Shenzhen Intermediate Court in November 2012 enforced an
arbitration award by what had been CIETAC’s Shenzhen sub-commission despite the
fact that one party to the arbitration agreement had argued that, at the time the award
was rendered, the former CIETAC sub-commission was no longer the agreed arbitration
body because it had not only changed its name from “South China CIETAC” but also
made itself independent from CIETAC. See Civil ruling by the Shenzhen Intermediate
People’s Court of Guangdong Province, (2012) Shen Zhong Fa She Wai Zhong Zi No.
226 [(2012) ].
Yet, roughly half a year later, the Suzhou Intermediate Court denied enforcement of an
arbitral award by the successor to CIETAC’s Shanghai sub-commission. The arbitration
clause had provided that any dispute should be submitted to CIETAC (Seat of Arbitra-
tion: Shanghai) in accordance with the valid arbitration rules of CIETAC. After the dis-
pute was submitted to CIETAC Shanghai, the Shanghai sub-commission altered its
identity, but applied CIETAC’s 2005 Arbitration Rules to accept the case and deliver the
award on December 7, 2012. Suzhou Intermediate Court, however, decided that the
former CIETAC Shanghai sub-commission had made itself independent from CIETAC
and therefore could no longer serve as the agreed arbitration body referred to in the
arbitration clause. (See the “Civil Order” Suzhongshangzhongshenzi No. 0004 (2013)
made by The Intermediate People’s Court of Suzhou, Jiangsu on May 7, 2013;

.)
39. See Yang Honglei, Report on the Judicial Review of International Arbitration in
Chinese Courts, 9 WU DA INT’L L. REV. 1– 6 (2009).
40. See e.g., Symposium, Making the Most of International Investment Agreements: a
Common Agenda, ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (2005).
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564 Cornell International Law Journal Vol. 47

In a speech delivered at Columbia Law School in 2013, SPC Judge

Song Jianli stated that the SPC had reviewed 64 proposed lower court
refusals of foreign awards and had only approved 24 of them, remanding
the other 40 for recognition and enforcement.41 The great majority of these
SPC decisions turned on the proper interpretation of Article V of the New
York Convention.42 It is encouraging that thus far the SPC and the lower
courts have not broadly interpreted the Convention provision that autho-
rizes a reviewing court to deny enforcement to an award that it deems to
violate national public policy.43 Although many parties have opposed Chi-
nese enforcement of foreign awards on this ground, only one has been suc-
cessful since the special SPC review process began in 2000.44
Some unresolved issues relating to the legality of foreign ad hoc arbi-
trations in China, which are not explicitly authorized by the country’s Arbi-
tration Law, have raised doubts about the enforceability of such awards.45
There are also more general questions about the reliability of the courts for
enforcing awards due to the well-known serious problems of political
instructions to the courts, local protectionism, corruption, and personal
influences upon judges.46
It is also worth mentioning the special aspects of the Chinese govern-
ment’s obligation to recognize and enforce arbitration awards rendered
against it in favor of foreign investors under the Convention on the Settle-
ment of Investment Disputes between States and Nationals of Other States
(ICSID Convention).47 As Professor Julian Ku has pointed out, the PRC
“has also been one of the world’s most enthusiastic signatories of bilateral
investment treaties that grant binding mandatory jurisdiction to ICSID
arbitration tribunals.”48 Yet the PRC, for almost two decades, has not taken
the steps required to assure its recognition and enforcement of ICSID
awards through legislation, an interpretation by the Supreme People’s
Court, or a government declaration that the courts can directly apply the
ICSID Convention without legislative or judicial implementation. Appar-
ently, the PRC is not eager to facilitate ICSID foreign investor arbitrations
in practice. Only one has been brought to date, and it was subsequently
suspended by agreement of the parties.49

41. Song Jianli, Supreme People’s Court of China Judge Speaks on Arbitral Awards, Feb.
19, 2013, available at http://www.law.columbia.edu/media_inquiries/news_events/
2013/february2013/chinese-arbitral-awards?&layout=print&main.showmenu=0&main
.showjumplin%E2%80%A6 (last visited Feb. 18, 2014).
42. See Xiaohong Xia, Implementation of the New York Convention in China, 1 INT’L
COM. ARB. BRIEF 20, 22 (2011).
43. See Jianli, supra note 41.
44. See Jianli, supra note 41.
45. See Jingzhou Tao, Salient Issues in Arbitration in China, 27 AM. U. INT’L L. REV.
807, 812– 13 (2012).
46. Weixia Gu, The Judiciary in Economic and Political Transformation: Quo Vadis Chi-
nese Courts?, 1(2) CHINESE J. COMP. L. 303, 313– 15, 327 (2013).
47. See Julian Ku, The Enforcement of ICSID Awards in the People’s Republic of China,
6 CONTEMP. ASIA ARB. J. 31, 33 (2013).
48. Id. at 32.
49. Id. at 32– 33.
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III. Adjudication
Despite the persistence of the serious problems affecting judicial relia-
bility mentioned above, China’s courts have made significant progress in
the past twenty years, and they have gradually come to play an increasing
role in the resolution of international and foreign-related business disputes.
They offer the full judicial consideration of such disputes in addition to
enforcing arbitration awards.
Recent years have witnessed a dramatic increase in the number of for-
eign-related and international civil and commercial disputes to come
before China’s courts for trial.50 This has brought forth both legislative and
judicial responses. Because this new litigation has involved many difficult
choice of law and related issues, the Standing Committee of the National
People’s Congress adopted the Statute on the Application of Law to Foreign
Civil Relations (Choice of Law Statute), which went into effect in April
2011.51 The 2012 Amendments to the Civil Procedure Law were also
designed to smooth the course of foreign-related and international litiga-
tion as well as domestic matters.52 Subsequent practice has demonstrated
that, while the new legislation has introduced improvements, it has left cer-
tain problems unresolved and spawned some new ones.
In order to cope with the rising tide of foreign-related and interna-
tional civil and commercial cases, the judiciary has vastly increased the
number of courts authorized to handle these matters. Prior to 2011, only
the intermediate courts in provincial capitals and equivalent major cities
could exercise initial jurisdiction over these cases.53 Such jurisdiction was
then expanded so that 167 intermediate courts and 67 basic courts can
now hear these cases.54
Advances in legal education and training have importantly raised the
professional competence of the country’s roughly 200,000 judges and the
even larger body of lawyers who are now qualified to assist in this pro-
cess.55 Thus, foreign negotiators should no longer automatically exclude
Chinese courts from their consideration of the appropriate arena for set-
tling business disputes. In some circumstances, especially in financial
transactions, it may now be more desirable to choose Chinese litigation

50. Jin Huang & Huan Fang Du, Chinese Judicial Practice in Private International Law
2002, 4 CHINESE J. INT’L L. 643, 657 (2005).
51. Lu Song, Law of the People’s Republic of China on the Laws Applicable to Foreign-
Related Civil Relations, 1 CHINESE J. COMP. L. 1 (2013).
52. See Ashley M. Howlett, Sonny Payne & Leanne Zheng, Adding more Strings to the
Bow: the 2012 Amendments to China’s Civil Procedure Law, Commentary (Jones Day), Jan.
2013, at 4.
53. Zhang Yan ( ), Wang Jingqiong ( ) and Cao Yin ( ), Zhuanfang Zui-
gao Renmin Fayuan Shewai Fating Tingzhang Liu Guixiang
( ) [An Interview of Justice Liu Guixiang, Presiding
Judge of the Foreign-related Tribunal of the Supreme People’s Court], ZHONGGUO RIBAO
( ) [CHINA DAILY], Dec. 18, 2010, available at http://www.chinadaily.com.cn/
zgrbjx/2010-12/18/content_11727442.htm (last visited Nov. 5, 2014).
54. Id.
55. Jerome A. Cohen, China’s Legal Reform at the Crossroads, 169 FAR E. ECON. REV.
23, 25 (Mar. 2006).
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566 Cornell International Law Journal Vol. 47

over Chinese arbitration if it is not possible to obtain agreement to litiga-

tion or arbitration in a favored forum abroad.
After a five-year period when China’s previous political leadership
downplayed judicial professionalism in favor of informal dispute resolu-
tion through mediation, the successor Xi Jinping government has recently
given renewed, top-level support for improvements in the formal judicial
process.56 Party General Secretary Xi himself, the new President of the SPC
Zhou Qiang, and his colleagues have repeatedly advocated strengthening
the independence and integrity of the local courts against all the well-
known but persistent influences that have often plagued their decisions.57
Their efforts amount to more than talk. For example, plans are reportedly
being implemented to take away the powers of local authorities to appoint
and remove judges and to approve judicial budgets, and then transfer those
powers to the level of provincial governments. It is too early to tell to what
extent these efforts to strengthen provincial controls over local courts will
prove successful. Earlier attempts at such reforms were unsuccessful. Yet I
know, from personal experience during an earlier campaign to bolster the
formal legal system, that on some occasions local courts have vindicated
foreign legal claims against local parties, if only because judges were given
to understand by local leaders that such decisions would promote the
enthusiasm of foreign investors for the locality in question.
Nevertheless, in most cases even today, if the foreign firm’s bargaining
position does not permit it to obtain agreement to dispute resolution
abroad, the better part of wisdom would be to opt for arbitration in China
rather than litigation. This assumes that the contract negotiation can yield
a fairly-constituted arbitration tribunal, which, to assure foreign confi-
dence in the arrangement, usually requires that not more than one of the
three arbitrators be PRC nationals.
Before closing our discussion on the roles of Chinese courts in foreign-
related dispute resolution, it remains necessary to say a brief word about
the possibilities of enforcing foreign judicial judgments. Unlike judicial
enforcement of foreign arbitration awards, not much progress has been
made in this respect. Chinese courts continue to resist enforcement of for-
eign judgments, often finding either that sufficient reciprocity does not
exist between the courts of the country of the party seeking enforcement
and those of China, or that arrangements for the exchange of judicial docu-
ments between the countries do not meet the requirements of “due
service.”58
I know of only two cases in which Chinese courts have recognized and

56. See Stanley Lubman, An Encouraging Sign for (Limited) Legal Reform, WALL ST. J.
(Feb. 25, 2014, 11:02 AM), at 1– 3, available at http://blogs.wsj.com/chinarealtime/
2014/02/25/an-encouraging-sign-for-limited-legal-reform-in-china/.
57. See id. at 2.
58. See Wenliang Zhang, Recognition and Enforcement of Foreign Judgments in China:
A Call for Special Attention to Both the “Due Service Requirement” and the “Principle of
Reciprocity,” 12 CHINESE J. INT’L L. 143, 146– 47, 153, 160 (2013).
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2014 Settling International Business Disputes with China 567

enforced foreign judgments,59 and neither in those cases nor in the many
decisions refusing recognition and enforcement have the courts reportedly
chosen to do more than make cryptic allusions to the principles underlying
their invocation of the reciprocity and due service requirements.

Conclusion

Settling international business disputes is usually a messy, expensive,

slow, and irritating process. Is it any worse with Chinese companies than
most others? We do not have enough empirical studies or other data about
relevant experiences with either China or other countries to answer this
question. There have been a few useful empirical studies seeking to evalu-
ate the enforcement of foreign arbitration awards in Chinese courts, and
there are one or two studies concerning relevant judicial trials. Yet they
leave us with further questions, and more comprehensive and up to date
analysis is needed.
We are necessarily consigned, in the absence of sufficient research, to
the impressions of different observers who inevitably see different sides of
the elephant. My own overall impression is that dispute resolution with
Chinese companies is improving, but not fast enough to meet current
demands.
Mediation’s low-key, informal, non-binding processes seem to be less
prominent and successful than one might expect, given traditional Chinese
preferences for avoiding binding decisions. Arbitration administered by
PRC institutions varies immensely in quality depending on the organiza-
tion selected, with the Beijing Arbitration Commission offering the service
closest to international standards. Many of the other local arbitration com-
missions leave much to be desired in terms of their expertise, impartiality,
and independence from local government, Communist Party, and business

59. The first one is the 2000 B&T Ceramic Group S.R.L. case before the Foshan Inter-
mediate Court in Guangdong Province (an Italian bankruptcy judgment). In its deci-
sion, the Foshan court mainly resorted to the Sino-Italian Bilateral Treaty on Civil
Judicial Assistance in 1991 as the legal basis without examining the principle of reci-
procity or due service requirement. It only made some basic assertions that the Italian
judgment was effective and that there were no refusal grounds such as basic principles
of Chinese law, national sovereignty, security or social and public interests. See The
B&T Ceramic Group S.R.L. Case, the Foshan Intermediate People’s Court of Guangdong
Province (2000) Fo Zhong Fa Jing Chuzi No. 633, delivered on 13 November 2001
( .
The second one is the 2005 Antoine MONTIER Case before the Zhongshan Intermedi-
ate Court of Guangdong Province (a French bankruptcy judgment). The court simply
held that the French judgment satisfied the requirements set forth by Chinese law on
recognition and enforcement of foreign judgment, and therefore its effects were recog-
nized. The judgment provided no explanation as to what roles the principle of reciproc-
ity or the due service requirement played, or how the French judgment satisfied these
requirements. See Antoine MONTIER Case, The Intermediate People’s Court of Zhong-
shan City of Guangdong Province, (2005) Sui Zhong Fa Minsan Chuzi No. 146, deliv-
ered on 20 June 2005
( .
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568 Cornell International Law Journal Vol. 47

influences. CIETAC is struggling to regain ground lost because of its inter-

nal contradictions and increasing foreign awareness of its defects.
Starting from scratch at the end of the Cultural Revolution, the courts,
with the aid of legislation adopted by the National People’s Congress, have
made significant progress in developing an appropriate institutional and
procedural framework for deciding, among other things, foreign-related
business disputes. An increasingly impressive legal education system has
been training a growing number of future judges and lawyers to take part
in this effort. Yet these reforms have not been able to assure foreign firms a
consistently fair and reliable judicial forum for resolving their disputes,
including enforcement of arbitral awards. In too many cases, local judges
continue to be subject to so many distorting factors that their decisions still
lack credibility and public confidence.
Sadly, the same must be said of some Chinese arbitrators. A genera-
tion ago, I wanted to believe that resorting to arbitration in China would
enable parties to escape the adverse influences that have traditionally
plagued the nation’s courts. Experience gradually taught me that all legal
institutions in a country are subject to its political, social, economic and
ethical climate, and customs.
Much is currently riding on the extent to which China’s new leaders
can be successful in reforming the courts. The outcome will even affect the
decisions of American and other foreign courts when they are presented
with disputes relating to China. For example, assuming that the plaintiff
meets jurisdictional requirements, how should an American court treat the
defendant’s argument that the American court does not constitute as con-
venient a forum as its Chinese counterpart? Should the American court
decide that plaintiff cannot receive a fair trial in China and therefore the
doctrine of “forum non conveniens” should not apply? How many times can
a foreign country’s judges decide that China’s courts do not provide a fair
trial without damaging bilateral diplomatic relations? In the current cir-
cumstances, how should an American judge balance the demands of com-
ity with those of justice?