The Legal Insight Blog has a long and comprehensive post, entitled, “Overview of Doing Business in China” [link no longer exists]. And that is exactly what it is. Written by King & Wood, one of China’s leading law firms, the post sets out the basics of China’s systems as they relate to business and it does so very clearly and succinctly.

The post is broken out into the following sections:

  1. Governmental Structure
  2. Legal System
  3. Establishing a Business Vehicle in China
  4. Operating in China

It really does provide only the most cursury information, but it does a great job of doing so and it can serve as a great first source for you. Just by way of example, I pull the following from it on dispute resolution in China:

 

4.9 Dispute Resolution

As an increasing number of foreign investors penetrate the Chinese market, commercial disputes are expanding quickly both in number and in scale.  China has made significant progress in increasing the integrity and reliability of its courts.  The formal processes available for resolving such disputes in China have, in recent years, become increasingly similar to those elsewhere in the world.

If a dispute cannot be settled through negotiation between the parties, the case must be submitted for litigation or arbitration.  Under PRC law, it is permitted for the parties to choose for binding arbitration to resolve their disputes and the courts will generally enforce arbitration judgment without inquiry into the merits.  It is worthy noting that arbitration is only possible if the parties expressly agree to arbitrate. In practice, the arbitration is favored by many foreign investors in China.

(a) Litigation

The PRC courts consist of four (4) layers: the People’s Court (at the district or county level), the Intermediate People’s Courts (at the municipal level), the High People’s Courts (at provincial level), and the Supreme People’s Court (at the national level).  The level of the competent court should be generally subject to the nature and size of the disputes.  In most cases, disputes with a foreign connection may be initially in the Intermediate People’s Courts.

Court judgments may be appealed once, but the judgment of the second instance is final and binding upon the parties immediately.  Under the PRC Contract Law, it is permitted to select a foreign law to govern the contract with a foreign connection and to provide for exclusive jurisdiction in foreign courts.  In fact, it may be difficult for Chinese courts to enforce a judgment made by a foreign court, but Hong Kong’s judgments are exceptions.

(b) Arbitration

In comparison to litigation, the arbitration seems much quicker, more efficient and more reliable, thus major foreign investors would like to include an exclusive arbitration clause in their contracts.

Under PRC law, an express clause clearly indicating the parties’ selection of binding arbitration is enforceable, which should be in writing and contain a clear statement of the parties’ intention to submit the dispute to arbitration, the scope of disputes subject to arbitration, and the specific arbitral commission to resolve the dispute.  In addition, it is possible for the parties to reach an arbitration agreement after a dispute arises, but in most cases an arbitration clause is included from the outset in the operative contracts.

The China International Economic and Trade Arbitration Commission (the “CIETAC“) is one of the most frequently selected arbitration forums when the arbitration will be held within the PRC.  Foreign investors sometimes do not agree to arbitration in PRC, including arbitration at CIETAC, because they believe that Chinese parties will have a home advantage, meanwhile, Chinese parties concomitantly often object to arbitration aboard.  Therefore, Hong Kong seems as acceptable compromise to both parties.  Of course, to select a third country’s jurisdiction for arbitration is also common in practice.  Since China is a party to the United Nations Convention of Recognition and Enforcement of Foreign Arbitral Awards, it is generally possible to obtain the enforcement of an arbitration award issued by a panel in any member country.

I encourage anyone new to doing business in or with China to check it out.

 

  • MY

    “In fact, it may be difficult for Chinese courts to enforce a judgment made by a foreign court, but Hong Kong’s judgments are exceptions.”
    Does this mean that HK judgments are consistently enforced in mainland China courts? What kind of success rate is there?

  • Saskia

    For more information on the governmental structure, I can also recommend reading the article “Understanding China’s Political System” from Michael F. Martin – although there is some overlap.