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Arbitration in China - A Brief Report on Recent Developments

In 2014, there were 235 arbitration commissions in mainland China and they administered 113,660 cases in total, a nine percent rise from 2013. The total value of claims reached RMB 265.6 billion (USD42.7 billion), a 61 percent increase from the previous year. The annual number of cases has been increasing steadily over the past ten years. The annual value of claims in 2014 (RMB 265.6 billion) is more than five times of what it was in 2004 (RMB 51.5 billion). The development of the use of arbitration in China is impressive not only in terms of its quantity, namely the number of cases and the value of claims involved, but also in terms of the quality, namely the move to adopt international standards where possible.

The Supreme People's Court ("SPC") and major Chinese arbitration institutions are making cohesive efforts to better the legal environment for conducting arbitrations in China. The SPC issued a Reply on 15 July 2015 to address issues relating to the validity of arbitration agreements and the enforceability of arbitral awards involving China International Economic and Trade Arbitration Commission ("CIETAC") and its former South China and Shanghai sub-commissions, which, respectively, declared independence from CIETAC and rebranded themselves as the Shenzhen Court of International Arbitration ("SCIA") in 2012 and the Shanghai International Arbitration Centre ("SHIAC") in 2013. The Reply became effective from 17 July 2015 and is generally regarded as a useful guideline on solving disputes arising from the CIETAC split-off.

The SPC, in another Reply issued in the famous Longlide case (Longlide Packing and Printing Co. Ltd. v. BP Agnati S.r.l), held that an arbitral clause providing for an arbitration administered by the ICC in Shanghai is valid. The Reply conveyed an encouraging message to foreign arbitration institutions because it signaled the possibility for foreign arbitration institutions to administer arbitrations within the territory of mainland China. However, as the Longlide case is only about the validity of an arbitral clause and the enforcement issues were not addressed in the SPC's Reply, it remains to be seen whether and how an award resulting from an arbitration administered by a foreign arbitration institution, such as the ICC International Court of Arbitration, and seated in mainland China, can be enforced by a Chinese court.

According to the Notice of the State Council on Issuing the Plan for Further Deepening the Reform and Opening of China (Shanghai) Pilot Free Trade Zone, Guo-Fa [2015] No. 21, dated 20 April 2015, the internationally renowned arbitration institutions' "entering-into" the Shanghai Pilot Free Trade Zone (SFTZ) is supported. The term "entering-into" used in the Notice is not defined. Foreign arbitration institutions are keen to clarify the meaning of this magic term and would like to know whether it can serve as a solid legal basis for them to set up branches in the SFTZ to administer arbitrations in the SFTZ or to just establish liaison offices. The Hong Kong International Arbitration Centre has filed an application. Many foreign arbitration institutions are keeping an eye on the result.

Major Chinese arbitration institutions have announced new arbitration rules to provide clearer procedural guidance for their arbitration proceedings and also demonstrate their resolve to become even more internationalized arbitration institutions. For example, CIETAC, China Maritime Arbitration Commission and SHIAC's new arbitration rules became effective on 1 January 2015; Beijing Arbitration Commission's new arbitration rules became effective on 1 April 2015. These Chinese arbitration commissions took international arbitration practice into consideration when amending their own rules. One of the highlights is that BAC introduced in its new rules an "Arbitration Fee Schedule for International Commercial Arbitration," under which, in foreign-related arbitrations (i.e. arbitrations with a foreign element) the parties and arbitrators may agree that the arbitrators' remunerations shall be calculated either on an hourly basis or as a percentage of the amount in dispute. In addition, in order to enhance the transparency of arbitral proceedings, Article 40(5) of BAC's new arbitration rules provides that, upon a joint request by both parties, or a request by one party that has been approved by the BAC, the BAC may appoint a stenographer(s) to record the hearing and the resulting additional costs shall be borne by the parties or the requesting party. The CIETAC's new arbitration rules have a similar provision, which provides "[a]t the request of a party, the Arbitration Court may, having regard to the specific circumstances of the arbitration, decide to engage a stenographer to make a stenographic record of an oral hearing, the cost of which shall be advanced by the parties."

With the size of the Chinese economic power and its "one-belt-one-road" policy, Chinese parties could possess greater bargaining power on the negotiation table and, as such, the growth of foreign-related arbitrations in mainland China is expected. It would be very interesting to observe whether and how the Chinese government would continue to open its arbitration market to foreign arbitration institutions and how the Chinese arbitration commissions would improve their services to be prepared for possible competition in the future.