China: Reform of Arbitration Law – Need for Action for German Companies?

• Explicit confirmation of foreign arbitrators:
  Non-Chinese nationals may now legally act as arbitrators in China. Although this was already possible in practice, it is now clearly enshrined in law. This provides greater legal certainty and signals ongoing internationalization.
• Recognition of online arbitration:
  Online proceedings save travel time and costs, as cases can be conducted digitally.
• More influence in tribunal appointments:
  Parties have more say in the appointment of the third arbitrator, leading to a fairer composition.
• Strengthened evidence-taking:
  Arbitral tribunals may collect evidence themselves or request assistance from authorities, making them less dependent on the opposing party.
• Clarity on arbitration agreements:
  If a party does not object in due time, consent is deemed given under certain conditions. This reduces the opposing party’s ability to delay proceedings.
• Shorter deadlines for challenges:
  Arbitral awards become final more quickly—within three months instead of six.
• Flexibility in choice of seat:
  Where foreign elements are involved, parties may choose their own “seat of arbitration.” This opens the door to better legal frameworks and court jurisdictions.

• Interim measures:
  Only state courts may order interim measures (e.g., freezing of bank accounts, a very effective tool). Arbitral tribunals themselves may not do so, which can slow proceedings.
• Ad hoc arbitration:
  This is only permitted in very limited contexts (maritime & free trade zones), which does not provide real flexibility for tailor-made procedures.
• Unclear role of foreign arbitral institutions in China:
  They may establish branches, but the scope of their powers is legally unclear. This creates a risk of jurisdictional conflicts.
• Shorter deadlines for challenges:
  While good for finality, clients must react very quickly, leaving less time for strategy.
• Enforcement remains shaped by Chinese courts:
  Despite internationalization, Chinese courts still ultimately decide on enforcement and interim measures.

• Seat of arbitration: With cross-border matters, parties may now freely choose the seat (e.g., Beijing, Shanghai, Shenzhen, or even outside China). Clear specification in contracts provides additional legal certainty.
• Composition of arbitrators: With the explicit admission of international arbitrators, it is worthwhile to stipulate in clauses that foreign arbitrators (e.g., German) may be appointed.
• Interim measures: As only Chinese courts may order such measures, parties should consider whether supplementary protection mechanisms are necessary.
• Deadlines for challenges: The deadline for setting aside awards is reduced from six to three months. Companies must be prepared to react much faster if necessary.

The reform brings greater internationality, transparency, and speed, which benefits German investors. However, the control of Chinese courts and the restrictions on ad hoc arbitration remain risks. Those concluding contracts in China should in the future pay even closer attention to the arbitration clause (e.g., seat, institution, language, tribunal composition).

There is no obligation to amend existing arbitration clauses. Nevertheless, it is advisable to review both existing and future clauses to make the best use of the new options (e.g., choice of seat, arbitrators, language).

We are happy to assist you in reviewing your existing contracts and in drafting new ones that reflect these current developments.