Author: * Lu Zhang
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Introduction
There has not previously been in the Chinese Mainland a complete endorsement to parties’ autonomy of its choices of the seat of arbitration and law to govern the arbitration agreement itself and the underlying contract. Precluded by the 2025 judicial interpretation (the “Interpretation”) issued by the PRC Supreme People’s Court (the “SPC”), campaigned as “Hong Kong-Invested, Hong Kong Law and Hong Kong Arbitration”, the China’s new arbitration law effective since March 2026 (the “New Arbitration Law”) may break the ice.
Previous Limitation
Pre-existing rigid limitations on parties’ autonomy of choices of both governing law and seat of arbitration has made PRC diverged from the global curve. For instance, India as another developing country for comparison. In 2021 PASL Wind Solutions v. GE Power Conversion India, the supreme court of India emphasized that party autonomy should be given priority, allowing purely domestic entities to select foreign seats of arbitration.
As compared, there was not a full endorsement in Chinese Mainland to below.
1. The parties’ autonomy of choosing governing law of contracts, no matter it is the arbitration agreement or the underlying contract
Previously, only PRC law (excluding not only foreign laws, but also, among others, HK/Macau law) can be chosen as the governing law of contracts, with a carve-out when there are “foreign-related elements”. i.e. at least one of the parties are not entities of, or the subject matter and performance of the contract are not in, Chinese Mainland.
The first codification of China’s “three-element” principle for determining the existence of foreign-related elements can be located in Article 304 of the SPC’s Opinions on Several Issues Concerning the Application of the Civil Procedure Law of the PRC (1992). Subsequently, Article 1 of the SPC’s Interpretation (1) on Several Issues Concerning the Application of the Law of the People’s Republic of China on the Application of Law to Foreign-Related Civil Relations (2012), reiterated in Article 522 of The SPC’s Interpretation on the Application of the Civil Procedure Law of the People’s Republic of China (2015), provides more detailed prescription along with a catch-all in its limb(5): “other circumstances that may be determined as foreign-related civil relations.”
To date, PRC courts have not authoritatively clarified the exact scope of the above limb(5) catch-all, which is rarely invoked in judicial practice for its concrete implications, in spite of a few dabbling on the edge. For instance, see Siemens v. Golden Land (2013) SH1CPC Recog. No.2 (the “Siemens Case”) to be further discussed below.
Such a moderation on the freedom of contracts has accordingly led to near impossibility in arbitration autonomy, the relaxation of which may be a result of China’s willingness to accord leeway to international market participants to choose governing laws with which they are more familiar.
2. The parties’ autonomy of choosing “seat of arbitration” and the applicability of its law as governing law of the arbitration agreement
- The concept of “seat of arbitration” makes its PRC debut officially through the New Arbitration Law
Historically it was the arbitration institution’s domicile that was frequently applied, while (physical) place of arbitration, i.e. venue, emerged into the big picture in the recent years. However, even with such emergence, still the benchmark is the “physical location” of the arbitration, not the “legal place” which “seat” creates by construction.
- no foreign arbitration without foreign-related elements
With the available “(physical) place of arbitration” concept, parties do not actually have the autonomy to choose.
According to Item 83 of the SPC’s Fourth Civil Division’s Answers to Practical Questions in Foreign-Related Commercial and Maritime Trial Practice (I), where PRC parties agree to submit purely domestic contractual disputes or property rights disputes (with no foreign-related elements) to a foreign arbitration institution or for ad hoc arbitration abroad, the court shall hold such arbitration agreement invalid.
Thus, previously if PRC entities choose Hong Kong as “place of arbitration”, no matter the parties’ intention is to set it as the seat or merely the hearing venue, such choice would likely not to be effective.
Developments brought by the Interpretation
1. Regarding governing law of contracts
When at least one of the parties to a contract is a HK or Macau invested entity registered in city of Shenzhen or Zhuhai, HK/Macau law may be set as the governing law of the contract, provided that the application of HK/Macau law does not violate any mandatory provisions of PRC law or public policies.
As the SPC does not distinguish between governing law of underlying contract and arbitration agreement in the Interpretation, it can be inferred that the previous limitation on setting HK law as the governing law of the arbitration agreement between two PRC entities, as well as underlying contracts, has been lightly eased to a certain degree.
2. Regarding place of arbitration, and accordingly the inclusion of its law into choice of law analysis on the governing law of the arbitration agreement
When at least one of the parties to a contract is a HK or Macau-invested enterprise registered in one of the nine mainland municipalities in the Greater Bay Area (also including, among others, Shenzhen and Zhuhai), along with both parties’ consensus on HK/Macau arbitration, such choice shall be upheld even without a HK/Macau element in the relevant dispute.
The practical implication is that, for instance, an UK company can set up a subsidiary in HK, then in turn such HK subsidiary may register a PRC enterprise in Shenzhen, which can still enjoy the common law system to which the UK grandfather company is familiar with, along with certain concepts not shared by PRC law, such as keepwell deeds.
One may inquire that, whether “place of arbitration” in the Interpretation refers to seat of arbitration, arbitration institution’s domicile, or the hearing venue? For instance, whether ICC’s arbitration awarded in Hong Kong falls into the scope of “Hong Kong arbitration”? Or, whether HKIAC’s arbitration with hearings in Singapore is still within the coverage?
(1)Development in the PRC Courts’ View
To begin with, at least “arbitration institution’s domicile” may be a concept already abandoned by the PRC courts, manifesting in its judicial practice starting from 2009 Notice of the SPC on Issues Concerning the Enforcement of Hong Kong Arbitral Awards in the Mainland and 2010 Official Reply of the SPC’s Regarding the Case Concerning the Application of DMT SAS (France) for Recognition and Enforcement of a Foreign Arbitral Award Against Respondents Chaozhou Huaye Packaging Material Co., Ltd. and Chao’an Huaye Packaging Material Co., Ltd..
(2) HKIAC’s Translation
In responding to the above inquiry, it may be also worthwhile to turn to HKIAC’s 2019 English translation of the SPC’s Interpretation and Application of the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region. Interesting to notice that HKIAC has used “seat” in such translation, with the full sentence being “the seat of arbitration shall be Hong Kong. This is the primary requirement for determining ‘arbitral proceedings in Hong Kong’” despite that this concept of “seat of arbitration” had not been officially adopted into the PRC law when such translation was published. It may be implied that in the arbitration community of both HK and Mainland, a silent consensus may have already been reached years before.
(3) the New Arbitration Law’s After Confirmation
By formally introducing the concept of “seat of arbitration” into the PRC legislation through its Article 81, the New Arbitration Law may provide an answer to the above inquiry, confirming the implication suggested by the HKIAC’s translation. It permits parties to agree on a seat for foreign-related arbitrations, and further provides that the seat determines the applicable procedural law (unless otherwise agreed) and the supervisory court and that awards are deemed rendered at the seat.
(4) Potential Doubts per the Arrangement
Attention shall be brought to the abovementioned reciprocal arrangement (the “Arrangement”) as well, stating “the mainland courts enforce arbitral awards made in the Hong Kong Special Administrative Region…” Hence, only the awards made “in” Hong Kong, may be enforced by the PRC courts per the Arrangement. This, along with a gentle reminder that only the arbitral institutions on a specific list published by the Department of Justice of Hong Kong can satisfy the enforcement criteria, may shed light from another perspective on the SPC’s intention by referring to “place of arbitration”. To elaborate, HK as the seat does not necessarily lead to that the location of arbitration awards must be in HK. Lack of enforceability in Chinese Mainland, critical to most involved parties in HK arbitration, may reduce the territory that the concept of “seat” could have allowed.
Carve-out on a Carve-out, or an Expansive Explanation?
The Interpretation invites two competing readings: is this an additional carve-out paralleling to the existing carve-out of “foreign-related elements” on the default prohibition on foreign law as the governing law, or an expansive explanation of “foreign-related elements”, as obscurely referred to in the abovementioned catch-all “other circumstances that may be determined as foreign-related civil relations”?
1. An Expansive Explanation of “Foreign-related Elements”?
As the lift on both governing law of contracts and seat of arbitration exclusively applies to certain enterprises registered in specific cities with only law of/place of HK/Macau are newly into the big picture, it can hardly be construed as purely an expansion explanation of “foreign-related elements”, otherwise under literal interpretation of relevant laws quoted above, all kinds of foreign laws/seat of arbitration shall be permitted, rather than only that of HK/Macau.
2. A policy carve-out on top of the existing carve-out “Foreign-related Elements”?
To further distinguish between the lift on governing law and seat of arbitration. In respect of the latter, as still the PRC law applies, such disputes are more likely the ones without foreign-related elements, conforming to a policy carve-out paralleling to the existing carve-out of “foreign-related elements”.
Meanwhile, it may be more sensible to interpret the lift on governing law of the contracts/arbitration agreement as an exploration into catch-all of “foreign-related elements” as discussed above.
3. a Comparable Analysis
To draw an analogy, the author refers to a comparable analysis of the SPC’s Opinions on Providing Judicial Services and Safeguards for the Construction of Pilot Free Trade Zones (the “FTZ Judicial Safeguard Opinions”), stipulating that “an arbitration agreement under which wholly foreign-owned enterprises registered in an Free Trade Zone submit their commercial disputes to offshore arbitration shall not be deemed invalid solely on the ground that the disputes lack foreign-related elements.”
Whether it implies that such disputes fall into the scope of “foreign-related”, in that being FTZ wholly foreign-owned enterprises constitute foreign-related elements itself, or a policy accommodation to merely exceptionally afford FTZ entities offshore arbitration?
Based on the same logic above that should there be foreign-related elements, not only foreign arbitration shall be allowed, but also foreign law as governing law shall be permitted. In that regard, seems there was no existence of foreign-related elements, considering that there was no mentioning of the latter part.
That said, the author points back to the Siemens Case mentioned above, one of the precedents on which FTZ Judicial Safeguard Opinions was built up, where the court characterized such disputes as atypically foreign-related, an example of “foreign-related element” catch-all “other circumstances that may be determined as foreign-related civil relations”. By this logic, it might be not too far a stretch to classify FTZ disputes among wholly foreign-owned enterprises, as well as HK/Macau investments being discussed, into atypical foreign-related elements, and accordingly an expansive explanation of such.
4. “Foreign-related elements” limitation would still be relevant under the New Arbitration Law
The aforementioned Article 81, which codifies the concept of “Seat of Arbitration”, is classified under Chapter seven “Special Provisions for Foreign-Related Arbitration” of the New Arbitration Law. Such classification may show the drafter’s intention that “seat of arbitration” concept is applicable only when there are foreign-related elements.
Conclusion: Steps taken and Questions to be Answered
No matter it is a carve-out on a carve-out, or an expansive explanation of “foreign-related elements”, when it comes to determining of governing law of an arbitration agreement, the author is pleased that parties’ autonomy, a key spirit of arbitration, will be addressed with higher deference in the PRC context, in spite of remnants of heavy limitation, and even without parties’ own choice of governing law, as the law of seat of arbitration, HK law, as part of common law system with a wider international recognition, may be the next choice up in the chain.
One of the clarifications to be made is, in foreign related arbitrations, are parties free to choose wherever as the “seat” under the New Arbitration Law? For instance, if neither party is a HK-invested company in Shenzhen/Zhuhai, are they allowed to set Hong Kong, or even as bold as New York, as the seat of arbitration?
In October 2025, the 1st ruling under “HK invested, HK law and HK arbitration” was handed down by a Shenzhen court. Parties of that case were a HK-invested company incorporated in Shenzhen and a PRC person, who entered into a contract prescribing HK arbitration. Can this step, along with the anticipated relaxation under the incoming New Arbitration Law, be an overture to a generally increased parties’ autonomy in choices of law and freedom of contract, not only in arbitration? “The board is set, the pieces are moving. We shall see.”
References
Zuigao Renmin Fayuan Guanyu Shenli She Ji Changzhang Haiyang Shengtai Huanjing Sunhai Peichang Anjian Ruogan Wenti de Guiding (Fa Shi [2025] No. 3) (Sup. People’s Ct. Feb. 14, 2025) (China).
Arbitration Law of the People’s Republic of China (promulgated by the Standing Comm. Nat’l People’s Cong., 9 Dec. 2025, effective 1 Mar. 2026).
PASL Wind Sols. Priv. Ltd. v. GE Power Conversion India Priv. Ltd., Civil Appeal No. 1647 of 2021 (Sup. Ct. India Apr. 20, 2021), available at https://main.sci.gov.in/supremecourt/2021/6644/6644_2021_1_1501_28213_Judgement_20-Apr-2021.pdf.
Zuigao Renmin Fayuan Guanyu Shiyong Zhonghua Renmin Gongheguo Minshi Susongfa Ruogan Wenti de Yijian (Fa Fa [1992] No. 22) (Sup. People’s Ct. July 14, 1992) (China).
Siemens AG v. Golden Land Travel & Tours Co., No. 2 (Shanghai 1st Interm. People’s Ct., 2013) (China).
Sup. People’s Ct., Interpretation & Application of the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland & of the Hong Kong Special Admin. Region (H.K. Int’l Arb. Centre trans., 2025), available at https://hkiac.org/wp-content/uploads/2025/03/SPC-Note-English.pdf.
Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Admin. Region, Apr. 2, 2019, H.K.-P.R.C., available at https://gia.info.gov.hk/general/201904/02/P2019040200782_307637_1_1554256987961.pdf.
Zuigao Renmin Fayuan Guanyu Renmin Fayuan Wei Ziyou Maoyi Shiyanqu Jianshe Tigong Sifa Baozhang he Fuwu de Ruogan Yijian (Fa Fa [2016] No. 34) (Sup. People’s Ct. 2016) (China).
J.R.R. Tolkien, The Lord of the Rings: The Return of the King 865 (Houghton Mifflin Harcourt 4th ed. 2005).
* Lu Zhang graduated from the University of Michigan Law School with a JD degree and quadruply-admitted to New York, England & Wales, Chinese Mainland, and Hong Kong SAR, Lu Zhang is on the panels of China Maritime Arbitration Commission, Beijing International Arbitration Court, Shenzhen Court of International Arbitration, and Shanghai International Arbitration Center. Being a member of both NAFMII’s (China’s National Association of Financial Market Institutional Investors) Legal Professional Committee and ICMA Asia Pacific Legal & Documentation Forum, Lu was named in the Chambers Most Powerful General Counsel list (Greater China Region) consecutively in 2025 and 2026. Prior to her current position as Head of Legal at Bank of China, Hong Kong Branch, Lu worked as a capital market lawyer in multiple leading international firms, including but not limited to a White-Shoe law firm.