Originally from Dispute Resolution Journal

Investing in China is a high-risk endeavor for non-Chinese entities. One of the major risks that must be faced is the possibility that a dispute will arise between the foreign investor and its Chinese partner. The method by which such disputes will be resolved is a critical issue, which should be considered and addressed contractually prior to investment. This article will evaluate the dispute resolution options available to foreign investors in China and challenge conventional assumptions as to the most favorable forum for resolving disputes.

As the most common vehicle for foreign investment in China is a joint venture,1 this discussion will be limited to disputes arising under joint venture contracts, which must be governed by Chinese law.2

Available Dispute Resolution Mechanisms

There are a number of possible mechanisms for resolving disputes arising under joint venture contracts between foreign companies and their Chinese partners. The first mechanism is negotiation, during which the parties discuss the dispute and try to reach an agreement on their own. The second mechanism, mediation, is a more formalized version of this process, in which a neutral third party provides assistance, encouraging the parties to compromise and reach a settlement.