A new era for European companies
China’s revised Arbitration Law enters into force on 1st March 2026, representing the most significant reform of China’s arbitration framework in decades. For European companies doing business in China, Manuel Torres Salazar says the changes bring greater alignment with international practice, increased procedural flexibility and enhanced legal certainty in cross-border dispute resolution.
Why arbitration remains the preferred option
When a European company enters or expands into China—whether through a greenfield investment, the acquisition of existing operations or the establishment of commercial relationships such as import, export or distribution—one question inevitably arises in order to protect a company’s interest in this new market: how should disputes be resolved?
For decades, the prevailing answer among international practitioners has been arbitration rather than litigation before national courts. This preference is particularly pronounced in transactions between Europe and China and is grounded in several practical considerations. These are some of the key reasons:
First, arbitration offers neutrality. Neither party is required to submit disputes to the other’s domestic courts, reducing concerns about unfamiliar procedures or perceived institutional bias. This neutral forum is especially valuable when parties operate under fundamentally different legal traditions, such as continental European civil law systems and Chinese law.
Confidentiality is another decisive advantage. Court proceedings are generally public, whereas arbitration allows parties to protect commercially sensitive information, trade secrets and strategic business arrangements. For European companies active in technology, manufacturing or other innovation-driven sectors, confidentiality can be as important as the final outcome of the dispute itself.
Specialisation also plays a key role. Arbitration allows parties to appoint arbitrators with experience in the relevant industry—construction, energy, financial services, shipping or technology—rather than relying on generalist judges. This sector-specific expertise often results in more efficient proceedings and decisions that better reflect commercial realities.
Finally, the international enforceability of arbitral awards remains arbitration’s most compelling benefit. While court judgments frequently face obstacles when recognition is sought abroad, arbitral awards benefit from a well-established global enforcement regime under the New York Convention.
Chinese arbitration also follows the principle of a single and final award. Once an award has been rendered, neither party may re-submit the same dispute to arbitration or initiate court proceedings. This finality provides predictability and avoids the prolonged appeals often associated with litigation.
China’s arbitration framework and the 2025 reform
China’s arbitration system is governed by the Arbitration Law, first adopted in 1994 and previously amended in 2009 and 2017. The 2025 revision, adopted on 12th September 2025 and effective from 1st March 2026, represents a comprehensive modernisation of the framework.
Among the most notable innovations are:
- Recognition of online arbitration: Arbitration activities conducted through information networks now have the same legal effect as offline proceedings, unless a party expressly objects.
- Formal introduction of the seat of arbitration: The concept of the arbitral seat is expressly recognised as the basis for determining procedural law and court supervision.
- Greater openness to foreign expertise: Arbitration institutions may appoint foreign arbitrators with specialised knowledge.
- Expanded access for foreign arbitral institutions: Foreign institutions may establish offices in designated areas such as pilot free trade zones and the Hainan Free Trade Port.
- Enhanced transparency: Arbitration institutions must publicly disclose key information, including their rules, arbitrator rosters and fee structures.
- Stricter arbitrator disclosure obligations: Arbitrators must proactively disclose circumstances that may raise doubts about independence or impartiality.
Together, these changes move Chinese arbitration closer to international best practices and respond directly to concerns frequently raised by foreign investors.
International enforcement and applicable conventions
The cornerstone of international arbitration enforcement remains the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). With more than 170 contracting states—including China and all European Union (EU) Member States—it provides a robust mechanism for cross-border enforcement.
China acceded to the New York Convention in 1987, subject to reciprocity and commercial reservations. In practice, these reservations rarely affect European companies, as each EU Member State is also a party to the New York Convention.
The revised Arbitration Law confirms that foreign arbitral awards may be recognised and enforced by Chinese courts in accordance with applicable international treaties or, where no treaty applies, on the basis of reciprocity. Applications are generally submitted to the intermediate people’s court at the place of the debtor’s domicile or where assets are located.
The EU-China Comprehensive Agreement on Investment (CAI), concluded in principle in December 2020 but not yet ratified, also merits attention. The CAI envisages a structured investor-state dispute settlement mechanism, potentially moving away from traditional ad hoc arbitration towards a standing tribunal system. Although the ratification process has been suspended, any future progress could significantly affect dispute resolution for European investors in China. Until then, commercial arbitration remains governed by the New York Convention and China’s revised Arbitration Law.
The seat of arbitration and procedural flexibility
One of the most consequential reforms is the express incorporation of the seat of arbitration. Parties may now agree in writing on the seat, which determines the applicable procedural law and the courts with supervisory jurisdiction, unless the parties have agreed otherwise.
If the parties fail to specify the seat, it will be determined by the applicable arbitration rules or, failing that, by the arbitral tribunal based on the circumstances of the case. The arbitral award is deemed to be rendered at the seat of arbitration.
The revised law also introduces greater flexibility for foreign-related disputes, particularly in maritime matters or disputes involving enterprises registered in free trade zones or the Hainan Free Trade Port. In these cases, parties may designate China as the seat of arbitration while conducting proceedings under agreed rules and with arbitrators meeting statutory requirements. This allows European companies, for example, to use established international arbitration rules while maintaining a Chinese seat.
At the same time, the law explicitly encourages parties to foreign-related disputes to select arbitration institutions within China, including those in the special administrative regions, and to choose China as the seat of arbitration.
Interim measures: Protecting enforcement value
For European companies operating in China, the availability of effective interim measures is often decisive. Without timely asset preservation or injunctive relief, an eventual arbitral award may prove unenforceable in practice.
The revised law expands the scope of interim measures. Parties may apply for property preservation or injunctive relief where enforcement may become difficult or where other damage may occur. One important issue to highlight is that, in urgent situations, parties may apply directly to a people’s court for preservation measures even before initiating arbitration.
These provisions offer stronger tools to prevent asset dissipation or other actions that could undermine enforcement, while also imposing liability for losses caused by wrongful applications.
Arbitration agreements, challenges and enforcement
The revised law confirms that an arbitration agreement must include three elements: an intention to arbitrate, the matters to be arbitrated and a designated arbitration institution. A significant clarification is that if one party asserts the existence of an arbitration agreement and the other does not deny it before the first hearing, the agreement is deemed to exist.
The principle of separability is reaffirmed: the validity of the underlying contract does not affect the arbitration agreement.
Grounds for setting aside arbitral awards remain largely unchanged, covering issues such as the absence of an arbitration agreement, procedural violations, forged evidence or serious arbitrator misconduct. However, the time limit to apply for setting aside an award has been reduced from six months to three months, and courts must rule within two months of accepting an application. This accelerated timetable enhances finality and legal certainty.
For foreign-related awards, specific grounds for setting aside and refusal of enforcement are set out, closely mirroring international standards.
The law also introduces an explicit safeguard against abuse of arbitration. Where claims are based on fabricated facts or collusion intended to harm public or third-party interests, arbitral tribunals are required to dismiss the claims.
Practical considerations for European companies
When drafting arbitration clauses with Chinese counterparts, European companies should pay particular attention to the choice of seat, institution and applicable rules. The express legal significance of the arbitral seat makes careful drafting more important than ever. The revised law allows for either sole-arbitrator or three-arbitrator tribunals. In three-member tribunals, each party appoints one arbitrator, with the presiding arbitrator selected jointly or appointed by the institution. The ability to appoint qualified foreign arbitrators with specialised expertise may be especially valuable in complex or technical disputes.
The formal recognition of online arbitration opens new possibilities for cost-effective dispute resolution, particularly for smaller or less complex disputes where travel costs would otherwise be disproportionate.
Enhanced transparency obligations for arbitration institutions also enable parties to make more informed choices when selecting an institution.
Conclusion
The revised Arbitration Law represents a significant step in the evolution of China’s arbitration regime. By introducing the concept of the arbitral seat, recognising online arbitration, increasing openness to foreign institutions and arbitrators, strengthening interim measures and accelerating post-award procedures, the reform brings China closer to international arbitration standards.
For European companies, arbitration remains the preferred mechanism for resolving cross-border commercial disputes with Chinese counterparties. Those that understand the new framework and carefully structure their arbitration clauses—particularly regarding seat, institution and procedural safeguards—will be better positioned to manage risk and protect their interests in China’s evolving business environment.
Manuel Torres Salazar is managing partner of the Shanghai office of Garrigues and head of its China practice since 2011. He advises European and Asian companies on cross-border investments, commercial operations and dispute resolution, with a focus on China-related matters and international arbitration.
Garrigues is an international law firm providing legal and tax advice, with a presence in Europe, Latin America and Asia. In China, the firm operates through its Shanghai office, advising on inbound and outbound investment, regulatory matters and cross-border disputes. Garrigues regularly advises on arbitration involving China, including the structuring of dispute resolution clauses under the revised Arbitration Law.
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