Originally from Business Disputes In China - 3rd Edition

Recent years have seen a substantial increase in the number of business transactions between Chinese and foreign companies. Not surprisingly, one result of this “China boom” has been an increase in the number of disputes.

When a dispute occurs between a foreign company and its Chinese partner, the parties may adopt one or more of a number of different dispute resolution methods. These include direct negotiations, mediation, arbitration or litigation in the courts.

The Arbitration Advantage

In most cases, parties have found that arbitration is the preferred—and most effective—mechanism for resolving business disputes in China. Indeed, arbitration has many advantages over litigation in either a Chinese or a foreign court. One is neutrality. In litigation one party or the other will be seen to have a “home court advantage.” Arbitration can take place in a third country. The flexibility of arbitration proceedings—as opposed to complex rules of court—is another advantage. Privacy, party autonomy, and relatively greater speed and relatively less cost are additional advantages.

The most important advantage of arbitration over court proceedings, however, is enforceability. There are very significant barriers to enforcement of foreign court judgments in China and vice versa. On the other hand, under the New York Convention (which China joined in 1987) an arbitral award made in more than one of 120 member states can be enforced in China with only very limited grounds for the local courts to review the decision.