Arbitration Fails to Reduce Foreign Investors\u27 Risk in China

Arbitration is often perceived as a fair and efficient method of reducing risk associated with business transactions and investments. In China, Arbitration is constrained by statute and local protectionism such that arbitration can fail to live up to the expectations of foreign investors. Arbitration in China divides all disputes into domestic or foreign-related disputes, with different procedures for each, and different standards for enforcement and judicial review of those awards. Local protectionism presents a substantial risk to foreign parties involved in arbitration. A general lack of expertise in foreign-related disputes law, and difficulty in enforcing arbitration awards in favor of foreign parties in Chinese Courts are major problems that investors must consider. In contrast, Chinese parties that receive arbitration awards will be able to pursue enforcement in foreign countries based on the New York Convention of 1958