Dean, Professor Shen Wei from Shandong University Law School held a lecture titled “Entanglement between Judicial Centralization and Local Protectionism in China: the Case of Arbitral Awards Enforcement” at the Finnish China Law Center on May 23, 2017. During his presentation, Prof. Shen presented empirical data on the internal reporting system in Chinese courts, and whether the system has been effective at tackling local protectionism and discrimination against foreign parties.
The internal reporting system on enforcing arbitral awards involving at least one foreign or foreign-related party was put in place as a part of an effort to combat local protectionism. If local courts make a decision not to recognize and enforce an arbitral award, the case is automatically reported to the provincial court. If the provincial court stays with the decision of the local court, the case is further reported to the Supreme Court for a final revision. The provincial courts may also reverse the outcome and decide to recognize and enforce the arbitral award. None of the cases that are enforced at lower levels are reported to higher levels. The cases that do not get enforced reach the Supreme Court, in which case the judges may choose to reverse the outcome and enforce the arbitral award.
Data published in 2015 by the research institute working under the Supreme Court shows that of the 98 cases involving at least one foreign or foreign-related party that have been reported during twenty years of the system’s existence, only 39 cases have not been enforced after the case had been reviewed by the Supreme Court. Of these 98 cases, 20 were initiated by domestic parties while 78 were initiated by foreign parties.
Prof. Shen’s findings show that while local courts have vested interests to support local parties, the Supreme Court is likely to enforce the arbitral award in favour of the claimant. As unrecognized cases are reported to the higher levels, a discriminative decision by local courts in favour of local parties is likely to be reversed and the award enforced by the Supreme Court. China ratified the New York Convention in 1986, and the Supreme Court is more inclined to follow the obligations assigned by the treaty. The Supreme Court is also more likely to support foreign investment and thus enforce an arbitration award claimed by a foreign party.
The fact that most of the cases are initiated by a foreign party indicates that foreigners are more likely to rely on the internal reporting system to receive a just outcome, whereas local courts are more likely to enforce the claims of domestic claimers. However, the rate of reversed outcomes by the Supreme Court is same both for foreign and domestic initiated cases. Prof. Shen’s analysis also indicates that protectionism is more likely to occur in economically less developed areas, whereas local courts in more economically developed regions have accumulated experience and are less likely to favour local parties.
Overall, China’s centralized arbitration awards enforcement system is a foreign-friendly mechanism. The centralization of decision-making to the Supreme Courts through the internal reporting system has been effective to combat local protectionism and is favourable towards foreign investment. However, transparency still lacks in reporting on purely domestic cases, as cases involving purely domestic arbitrary awards enforcement are not reported to the Supreme Court.
Dean, Professor Shen Wei is a lawyer qualified in New York practicing, mostly in Hong Kong, on foreign direct investment, private equity and mergers and acquisitions. His main research interests include financial regulation, corporate governance, international investment law and commercial arbitration. Professor Shen has published more than 130 articles in Chinese and English journals, and is the author of the books: Rethinking the New York Convention – A Law and Economics Approach (Cambridge: Intersentia 2013), The Anatomy of China’s Banking Sector and Regulation (Wolters Kluwer 2014), How Is International Economic Order Shaped? – Law, Markets and Globalisation (China Law Press 2014), Corporate Law in China: Structure, Governance and Regulation (Sweet & Maxwell 2015), and Investor Protection in Capital Markets – The Case of Hong Kong (Sweet & Maxwell 2015).
Professor Shen is an arbitrator with Hong Kong International Arbitration Centre, Shanghai International Arbitration Centre, Shanghai Arbitration Commission, and Shenzhen International Court of Arbitration. He is also the Global Professor of Law, New York University School of Law, and Adjunct Research Professor at the Centre for Banking & Finance Law (CBFL), National University of Singapore. Professor Shen Wei has visited the Center twice before. In September 2013, he spoke on international investment arbitration in China, and in May 2016, his talk involved with ADR and Arbitration of International Financial Disputes in Shanghai.
Author: Cristina D. Juola