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Litigation Alert China Edition February 13, 2008, Arbitration in China Recent Developments By: Robert S. P, Partner, Dispute Resolution, Hong Kong Office Use of Arbitration in China Continues to Grow
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These arbitration in Mainland China were primarily concerning disputes in which the parties are state-owned. In addition, state-owned enterprises (SOEs) engaged in SOEs/business enterprises disputes were given priority in selecting arbitrators, although not as much. As of December 31, 2007, CIE TAC was administering 1,071 arbitration in Mainland China. As more Chinese companies and business persons became interested in seeking arbitration, so did the number of international arbitration proceedings held in Mainland China, including those involving SOEs and enterprises operating in China. This growth in the number of arbitration sat the CIE TAC indicates that China is becoming increasingly aware of its international arbitration obligations vis-à-vis its own foreign investors. There are several reasons for the growth in foreign arbitration in China. It is often claimed that companies investing in China wish to obtain arbitration through domestic arbitration mechanisms. There are several problems with this belief. Many of the arbitration cases involving foreign companies and foreign investors in Mainland China are filed by a foreign company against a Chinese company. These arbitration were not arbitrated under local legislation of Mainland China, but rather under bilateral or multilateral arbitration. Further, the arbitration proceedings in Mainland China take place in a legal setting where Chinese law has no place. If China ever implemented its law enforcement authority under the SOE Law, as recommended in the Chinese Ministry of Commerce Resolution Number 2007-02, China would have to implement the entire legal system in a multination administrative manner. Therefore, the growth in the number of arbitration cases that involve foreign investors is not surprising. In some cases, arbitration taken by a foreign investor involve domestic courts having jurisdiction over the matter being arbitrated. The growth in the number of arbitration involving international investors is also not surprising. The Chinese legal system does not have sufficient capacity to accommodate the number of cases being filed. As an increasing number of investment arbitration are brought to the CIE TAC, the likelihood of a litigant successfully asserting their rights increases. In addition, it is well known that courts in Mainland China lack the necessary technical expertise to be able to deal with complex disputes involving foreign companies and foreign investors. Foreign investors that have initiated claims against China in the past have rarely succeeded in their claims. There is a need for China to develop its capacity to enforce its laws and to be competent in the technical areas of arbitration that are appropriate for China to adjudicate.

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