Ad Hoc in the PRC: The Cautious Embrace of Flexible Arbitration in China’s Legal Reforms

I. Introduction

China’s legal landscape has historically favored institutional arbitration, a system where disputes are administered by established arbitration commissions. This preference for structured, supervised dispute resolution mechanisms has long been a defining characteristic of the People’s Republic of China’s (PRC) approach to commercial disagreements. However, a significant shift is underway with the recent amendments to the Chinese Arbitration Law, which cautiously introduce and expand the scope of ad hoc arbitration. This development marks a pivotal moment, challenging decades of traditional resistance and signaling a potential evolution in how China approaches flexible dispute resolution. This article will provide a specialized analysis of this expansion, critically evaluating its scope and inherent limitations. It will also offer an opinion on whether this change will be genuinely embraced by the judiciary and what it signifies for sophisticated parties seeking more tailored dispute resolution options in the PRC.

II. The Evolution of Ad Hoc Arbitration in China

The journey towards the recognition of ad hoc arbitration in China has been a protracted one, characterized by initial skepticism and gradual, measured reforms.

Traditional Resistance (1994-2017)

For many years, the PRC Arbitration Law, first enacted in 1994 and effective from 1995, maintained a conservative stance on arbitration. Article 16 of the law explicitly mandated the inclusion of a

selected arbitration commission in any valid arbitration agreement [2]. This requirement effectively excluded ad hoc arbitration, where parties create their own arbitral framework without the administration of a formal institution. This reflected a cautious approach, prioritizing institutional oversight and control over party autonomy.

Breakthrough in Free Trade Zones (2016)

A significant breakthrough occurred in 2016 with the issuance of the “Opinions of the Supreme People’s Court on Providing Judicial Guarantee for the Development of Free Trade Zones” [1]. This judicial interpretation created a legal foundation for ad hoc arbitration within designated Free Trade Zones (FTZs). It allowed enterprises registered in FTZs to agree on ad hoc arbitration, a move that, while limited in scope, signaled a willingness to experiment with more flexible dispute resolution mechanisms. However, this innovation was not without its challenges, as it existed in a state of structural conflict with the overarching PRC Arbitration Law, leading to uncertainties regarding the recognition and enforcement of such awards [1].

The 2021 and 2024 Drafts: A Tale of Shifting Ambitions

The 2021 “Amended PRC Arbitration Law (Draft for Comments)” initially demonstrated a bold ambition to expand ad hoc arbitration to a much broader range of “commercial disputes involving foreign-related factors” [2]. This draft even proposed removing the requirement of a designated arbitration commission, a move that would have fundamentally altered the landscape of arbitration in China. However, the subsequent 2024 Draft Revisions, which ultimately formed the basis of the newly amended law, took a more conservative turn. The scope of ad hoc arbitration was narrowed to “disputes arising from foreign-related maritime matters” and “disputes with foreign-related factors occurring between enterprises registered in FTZs” [2]. The requirement of an “arbitration commission” was also reintroduced, indicating a more cautious and incremental approach to reform.

III. Scope and Limitations of Ad Hoc Arbitration in the Amended Law

The newly amended Arbitration Law, while a step forward, presents a nuanced and limited embrace of ad hoc arbitration.

A Cautiously Defined Scope

The law permits ad hoc arbitration only in specific, carefully delineated circumstances: foreign-related maritime disputes and disputes within Free Trade Pilot Zones, the Hainan Free Trade Port, and other approved regions [1, 2]. This limited scope reflects a desire to contain the risks associated with a more liberalized arbitration regime while still catering to the needs of international commerce in specific economic zones.

Procedural Guardrails

Even within this limited scope, the law imposes procedural requirements. Parties opting for ad hoc arbitration must notify the Association of Chinese Arbitration within three days of the arbitral tribunal’s establishment, providing details such as the parties’ names, the seat of arbitration, the composition of the tribunal, and the arbitration rules [1]. This notification requirement, while not overly burdensome, serves as a mechanism for the state to maintain a degree of oversight over ad hoc proceedings.

Judicial Support and Lingering Uncertainties

The amended law does provide for judicial support for interim measures in ad hoc arbitration, with the People’s Courts designated to handle such applications [1]. However, significant uncertainties remain, particularly in three key areas:

• Asset Preservation: The process for obtaining asset preservation in ad hoc arbitration is unclear. In institutional arbitration, applications are typically funneled through the arbitration institution. Without such an intermediary, the procedure for direct application to the courts in ad hoc cases remains undefined [2].
• Judicial Review: While the “place of arbitration” is designated as the basis for determining the competent court for judicial review, the lack of a designated arbitral institution introduces a layer of complexity that parties must navigate carefully [2].
• Enforcement of Awards: The enforceability of ad hoc arbitral awards, particularly in Hong Kong and Macau, is a significant concern. Existing arrangements for mutual recognition and enforcement of arbitral awards between mainland China and these special administrative regions are tailored to institutional awards, creating potential hurdles for the enforcement of ad hoc awards [2].

IV. The Judiciary’s Embrace and Implications for Sophisticated Parties

The success of this reform will ultimately depend on the judiciary’s interpretation and application of the new provisions.

A Cautious Judiciary

Given the historical resistance to ad hoc arbitration, it is likely that the Chinese judiciary will adopt a cautious and incremental approach. Courts will likely scrutinize ad hoc arbitration agreements and proceedings to ensure they fall squarely within the limited scope defined by the law. The judiciary’s role will be crucial in shaping the practical application of these reforms and in providing clarity on the many unresolved procedural issues.

Opportunities for Sophisticated Parties

For sophisticated parties involved in foreign-related maritime disputes or operating within China’s FTZs, the new law offers a valuable new tool. Ad hoc arbitration provides greater flexibility, allowing parties to tailor the dispute resolution process to their specific needs. This can lead to more efficient and cost-effective resolutions, particularly in complex international disputes. However, these parties must also be mindful of the risks and uncertainties. Careful drafting of arbitration agreements will be essential to mitigate the risks associated with asset preservation, judicial review, and enforcement.

V. Conclusion

The newly amended Chinese Arbitration Law represents a cautious but significant step towards embracing flexible arbitration. The limited expansion of ad hoc arbitration, while not the sweeping reform that some had hoped for, is a clear acknowledgment of the growing demand for more tailored dispute resolution options in the world’s second-largest economy. The long-term impact of this reform will depend on how the judiciary navigates the inherent tensions between party autonomy and institutional oversight. While the embrace of ad hoc arbitration may be cautious, it is a genuine step forward, and one that will be closely watched by the international arbitration community. The future may see a gradual expansion of ad hoc arbitration as China gains more experience with this flexible form of dispute resolution. For now, however, the focus will be on the practical implementation of these reforms and on the ability of sophisticated parties to leverage this new tool to their advantage.

References

[1] Conflict of Laws.net. (2025, September 18). Major amendment to Chinese Arbitration Act after three decades. https://conflictoflaws.net/2025/major-amendment-to-chinese-arbitration-act-after-three-decades/

[2] Kluwer Arbitration Blog. (2025, March 5). Ad hoc Arbitration in China: Progress and Uncertainty. https://legalblogs.wolterskluwer.com/arbitration-blog/ad-hoc-arbitration-in-china-progress-and-uncertainty/