Foreign-Related Commercial Dispute Resolution in China: a focus on litigation and arbitration

The significant increase of foreign investment and trade is an important impetus for China’s economic development after the 1978 reform. The prosperity of foreign investment and trade brings both opportunities and challenges: accompanied by the increasing investment and trade opportunities is the rise in the number of commercial disputes between foreign businessmen and their Chinese partners. Facing the challenges, China adopts a dual legal system in which the resolution of domestic and foreign-related commercial cases (commercial cases with foreign elements) is separated in litigation and arbitration. Accordingly, special legal settings for foreign-related commercial cases have been introduced to enhance the quality of litigation and arbitration services for foreign-related commercial disputants.

However, the sole introduction of special legal settings cannot solve all the problems in the litigation and arbitration systems. Setting up special legal rules in law also does not necessarily ensure their effective implementation in practice. More importantly, the constant legal reforms over the past three decades have significantly changed China’s litigation and arbitration systems in both the general and foreign-related sectors. Therefore, it seems necessary to investigate whether the current foreign-related commercial litigation and arbitration systems can provide reliable and quality services to foreign-related commercial disputants.

This research aims to provide a systematic and comprehensive evaluation on the current status of foreign-related commercial litigation and arbitration in China, which is conducted with the following four steps. First, by reviewing international legal documents and literature, the research summarizes the core principles of litigation and arbitration, based on which a common analytical framework for evaluating litigation and arbitration systems is established. Second, the research examines the institutional and procedural settings for foreign-related commercial cases to illustrate how they are resolved in litigation and arbitration, and what are the main differences between domestic and foreign-related commercial cases. Third, by connecting the core principles with the law and practice of foreign-related commercial litigation and arbitration, the research provides an evaluation analysis to show whether and to what extent the core principles are fulfilled in these two systems. Fourth, the research summarizes the previous findings and points out the remaining deficiencies in foreign-related commercial litigation and arbitration, based on which the recommendations for reforming these two systems are made.

The research shows that the core principles of litigation and arbitration, on the whole, are generally recognized in law and basically followed in practice. However, there are also several deficiencies remaining, which exert negative effects in terms of arbitral accessibility, adjudicators’ independence and integrity, procedural autonomy, information publication, and efficiency and enforcement. Therefore, further efforts are still needed to tackle these deficiencies in future legal reforms. Meanwhile, although the dual legal system plays a positive role in enhancing the quality of foreign-related commercial litigation and arbitration at the current stage, its usage should be gradually reduced in the long run. A more fundamental solution is to establish well-developed litigation and arbitration systems which can provide reliable and quality services to both domestic and foreign-related commercial disputants.