Beijing opening its door to Foreign Arbitral Institutions

Prior to the opening policies for foreign arbitral institutions, there was  great uncertainty as to whether foreign arbitral institutions were allowed to conduct arbitrations in the People’s Republic of China (hereinafter “China”). At the legislative level, the Arbitration Law of China (hereinafter “Arbitration Law”) does not clearly specify whether or not foreign arbitral institutions may conduct arbitrations in China.. Although the Arbitration Law in its Chapter VII Special Provisions for Foreign-related Arbitration does not expressly prohibit a foreign arbitral institution from administering such foreign-related arbitration in China, the fact that the Arbitration Law stipulates, under its Article 15, that arbitration commissions shall be members of the China Arbitration Association leads to the conclusion that foreign arbitral institutions are rather not considered “arbitral commissions”. 

At the judicial level, Chinese courts are increasingly tending to the opinion that an arbitration agreement, which designates a foreign arbitral institution to hear disputes in China, is indeed valid. In a reply issued by the Supreme People’s Court of China (hereinafter “SPC”) in 2013 (No. 13 [2013] of the Civil Division IV of the SPC), the SPC held that an arbitration agreement shall be deemed valid, as long as parties to this agreement have expressed their intention of arbitration, specified the arbitration matters, and selected a specific arbitration institution. The Shanghai No.1 Intermediate People’s Court opined in a recent appellant case ([2020] Hu 01 Min Te No. 83) that, the arbitration agreement concerned, in which both parties agreed that their disputes shall be finally submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, is valid. Nevertheless, neither the SPC nor the Shanghai No.1 Intermediate People’s Court have ever directly confirmed the permissibility of a foreign arbitral institution to administer arbitrations in China.

On 28 August 2020, the State Council of China approved in principle of the Work Plan for Deepening Comprehensive Pilot and New Round of Opening-Up of Services Sectors in Beijing and Building Comprehensive Demonstrative Area of Opening-Up of State Services Sectors (hereinafter “Work Plan”). According to Point 8 of Article 3(1) of the Work Plan, the Government of Beijing will deepen reforms and conditionally permit foreigners to engage in professional services, such as accounting, finance, architectural design, and planning. More significantly, the Government of Beijing extends to permit foreign arbitral institutions to set up business organs in specified areas of Beijing for presiding arbitration over civil and commercial disputes, as well as for supporting and guaranteeing the application and enforcement of interim measures, which may have been raised by parties to such disputes in relation to either property or evidence, before and during the arbitration. 

As stipulated under the same section of the Work Plan, for any foreign arbitral institution that is intended to administer arbitration in Beijing, there are generally three pre-conditions, or rather limitations, for them to consider: 

Ultimately, the Work Plan is merely an initiative to be implemented by the Government of Beijing, and therefore, there are primarily two issues to be further clarified: first of all, it is  unknown which areas of Beijing are “specified” as the permitted location for foreign arbitral institutions to set up their intended business organs in Beijing; second, the scope of arbitration services that foreign arbitral institutions are permitted to provide is unclear, although it is presumed that such arbitration services shall likely be limited to foreign-related disputes, as can be deduced from “international commerce, international investment, etc.” in the Work Plan.

The Work Plan, along with the earlier policy adopted by the People’s Government of Shanghai Municipality, signals China’s commitment to further liberalize arbitration. However, the Work Plan provides merely a general direction rather than detailed rules. Especially, uncertainty still exist as regards the recognition and enforcement of potential awards issued by the business organs of foreign arbitral institutions operating in Beijing in the future. 

Thus, at least until more detailed local regulations or guidance of the Government of Beijing are issued for implementation of the Work Plan, we suggest to either choose a recognized Chinese arbitration commission in case the parties wish to arbitrate in China, or agree upon a foreign arbitral institution with seat outside of China, such as the Singapore International Arbitration Centre. At the same time, we will keep a close eye on any further legislation and practice concerning this development.