Since its implementation in 1995, the Arbitration Law of China (the “Current Arbitration Law”) has not undergone significant revisions, despite the substantial development in international arbitration practices. However, in 2021, the Chinese government started to formulate amendments to the Current Arbitration Law. On July 31, 2024, the Draft Amendment to the Arbitration Law (the “Draft Arbitration Law”) was approved by the Standing Committee of the State Council of China (the “State Council”). The Draft Arbitration Law is anticipated to come into effect in 2025 after legislative review.

The Draft Arbitration Law introduces pivotal amendments to the Current Arbitration Law, aiming to align with international standards, and we have summarized such amendments as follows:

1. The Validity of Foreign-Related Arbitration Agreements Recognized

The Current Arbitration Law outlines three elements that must be present for an arbitration agreement to be valid: (1) an explicit intention of the parties to arbitrate, (2) clearly defined arbitration matters, and (3) the designation of a specific “arbitration commission” which will conduct the arbitration. Article 10 of the Current Arbitration Law stipulates that an “arbitration commission” must be registered with China’s judicial administrative departments. However, foreign arbitration institutions are not required to register with such department to operate in China. Therefore, it is possible that at least some of these institutions may have not registered with such a department and thus do not qualify as “arbitration commissions” under the Current Arbitration Law. In such cases, an arbitration agreement appointing a foreign institution that has not registered may be held invalid. The Draft Arbitration Law intends to resolve this issue by introducing two core amendments:

Registration of Foreign Arbitration Institutions

The State Council has permitted foreign arbitration institutions (e.g., International Chamber of Commerce International Court of Arbitration, Singapore International Arbitration Centre) to establish business offices in Beijing, Shanghai, and other locations. Therefore, the Draft Arbitration Law introduces a registration process for these foreign arbitration institutions. If they plan to set up business offices in the territory of China, they shall register with local judicial administrative departments and the registration will be reported to the central judicial department. This amendment recognizes the legality of foreign arbitration institutions operating within China and opens up China’s arbitration market.

However, the Draft Arbitration Law limits the scope of cases handled by foreign arbitration institutions to “foreign-related arbitration business,” which means that purely domestic disputes in China still cannot be handled by these institutions.

Simplifying Arbitration Agreement Requirements

Regarding the three elements required for the validity of an arbitration agreement, the Draft Arbitration Law removes the formal requirements of specifying “arbitration matters” and “selected arbitration commission,” retaining only the “explicit intention to arbitrate.” This modification will likely reduce disputes over the validity of arbitration agreements significantly.

2. Arbitration Procedures Enhanced

Arbitration Tribunals’ Jurisdiction

The Draft Arbitration Law grants arbitration tribunals the authority to rule on their own jurisdiction. Specifically, if the parties have objections to the validity of the arbitration agreement or the tribunal’s jurisdiction, such objections shall be submitted to and decided by the tribunal itself. If the tribunal has not yet been constituted, the arbitration institution will make an initial determination based on prima facie evidence.

After the tribunal has determined if the arbitration agreement is valid, the parties can request the People’s Court of China to review such decision. However, under the Draft Arbitration Law, such a court review process will not halt the arbitration proceedings. By doing so, the Draft Arbitration Law accelerates arbitration proceedings.

Emergency Arbitrator

The Draft Arbitration Law permits parties to request the appointment of an emergency arbitrator who is authorized to grant interim measures in urgent situations, provided that the arbitration has commenced but the tribunal has not yet been constituted. These interim measures include asset preservation actions, such as freezing bank deposits, safeguarding crucial evidence, and issuing orders for parties to undertake or refrain from specific actions. Under current Chinese law, only People’s Courts have the authority to issue such interim measures. However, the Draft Arbitration Law confers this power to emergency arbitrators.

3. Substantive Review of Arbitral Awards

The Current Arbitration Law differentiates between the grounds for recognizing domestic and foreign-related arbitral awards. Domestic arbitration awards are subject to substantive review, including the examination of issues such as “forging evidence” or “concealing evidence”. In contrast, foreign-related arbitration awards are reviewed primarily for procedural fairness and are not subject to substantive review, except in cases involving public policy concerns.

In contrast, the DraftArbitration Law proposes a uniform standard for the review of both domestic and international arbitration awards. It provides that, if an arbitral award was obtained through fraud, such as malicious collusion or evidence forgery, then regardless of whether such arbitral award is a domestic or foreign-related arbitral award, it shall be set aside.

This substantive review of foreign-related arbitral awards increases the chance that a foreign-related arbitral award is not recognized by the People’s Courts. However, on a positive note, the Draft Arbitration Law reduces the timeframe for the recognition of arbitral awards from six months to three months.

4. Ad Hoc Arbitration Allowed for Foreign-Related Arbitration

The Draft Arbitration Law introduces an ad hoc arbitration system in Chapter VII, titled “Special Provisions on Foreign-Related Arbitration.” This means that ad hoc arbitration is restricted to foreign-related disputes, whereas domestic arbitration shall still be conducted via administered arbitration.

In the context of foreign-related arbitration, parties may choose ad hoc arbitration if stipulated in their arbitration agreement. Unlike administered arbitration, ad hoc arbitration affords parties greater flexibility in selecting arbitrators, determining arbitration rules, and setting procedures and deadlines. For instance, in an administered arbitration, parties can only choose arbitrators from a pre-approved list maintained by the arbitration institution. In contrast, such limitations are not present in an ad hoc arbitration. According to Article 89 of the Draft Arbitration Law, arbitrators in foreign-related disputes may include professionals with expertise in foreign law, arbitration, international trade, science, and technology.

Given that ad hoc arbitration relies heavily on agreements between the parties with respect to procedural matters, it requires a higher level of cooperation and consensus between the parties. The Draft Arbitration Law provides that, if the parties cannot agree on how to handle procedural issues regarding an ad hoc arbitration, the People’s Court will designate an arbitration institution to assist in determining the appropriate procedures.