International Arbitration in China: Beijing or Hong Kong? 

October, 2012 - Dr. Yiliang Dong

China International Economic and Trade Arbitration Commission (CIETAC), the largest arbitration commission in China, recently surprised the international arbitration community by prohibiting its two sub-commissions in Shanghai and Shenzhen to accept any further arbitration applications or otherwise to act in the name of CIETAC, just shortly after the new CIETAC Arbitration Rules have entered into effect on 1. May 2012. The two “sub-commisions” thereupon declared independence of the central CIETAC on 4. August 2012. Now the media are talking of a “civil war” between the arbitration commissions. 

The reason for the dispute is until now unknown and a quick settlement can hardly be expected. But if not approved by the “China Council for the Promotion of International Trade” (CCPIT), the two sub-commissions will lose the right to engage in foreign-related arbitration in China, because under Chinese Arbitration Law, a Chinese arbitration commission may engage in foreign-related arbitration only when it has been established by CCPIT. CCPIT has until now only established CIETAC in Beijing, which as “Central Commission” then established several sub-commissions, among which those in Shanghai and Shenzhen have been the most active and profitable. Now, as a result of the uncertainty resulted out of the “civil war” in the CIETAC group, lawyers advise clients not to agree on Shanghai or Shenzhen or even any other places in the CIEATC regime as place of arbitration. Rather, they would like to recommend Hong Kong as place of arbitration and the arbitration rules of the “Hong Kong International Arbitration Centre” (HKIAC). Of course this hurts the reputation of CIETAC, and already other questions are raised about CIETAC, e.g. concerning the autonomy of the parties in the choice of arbitrators, the regularity of procedures, transparency and efficiency of arbitration rules and possibly even the enforceability of CIETAC arbitral awards in China and abroad. 

 In contrast, Hong Kong appears to be an ideal place of arbitration, and HKIAC gets now more and more attractive for China-related arbitration. Hong Kong's advantages include a good command of the English language, the cultural understanding of Western concepts, the tradition of the rule of law, an efficient judiciary, and an excellent infrastructure. These advantages in particular apply to the arbitration related to Mainland China and the enforcement of such awards in Mainland China. The background is that Hong Kong as a “special administrative region” is in principle treated as “Overseas”. 

 It is often questioned whether a foreign arbitration award may be recognized in Mainland China, or whether an arbitral award which is administrated by a foreign arbitration institution but issued in China arbitral award is enforceable in Mainland China.The enforceability of a Hong Kong arbitral award in Mainland China is not a question any more. A judicial interpretation of the Supreme People's Court on 18. June 1999 found that all arbitral awards which are issued in Hong Kong in accordance with the Hong Kong Arbitration Ordinance are enforceable in Mainland China. The term Hong Kong arbitration awards covers not only the awards which are issued by local arbitration institutions as HKIAC arbitration or ad hoc, but also those which are issued in Hong Kong, but administrated by foreign arbitration institutions such as ICC or SCC. With the additional applicability of the New York Convention to Hong Kong, this metropolis offers more benefits than Beijing in respect of China-related international arbitration.



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