Dispute with a Chinese Counterparty: How an Arbitration Clause Determines the Outcome

Practical Implications of Choosing CIETAC for Ukrainian Businesses

Contents

• 1. When Arbitration in China Works in Your Favor — and When It Does Not
• 2. One Clause in the Contract: Where Businesses Make Mistakes
• 3. What to Consider Before Signing
• 4. Formal Requirements for the CIETAC Arbitration Clause
• 5. Conclusions
• 6. FAQ

~ 12 min read

In contracts with Chinese counterparties, dispute resolution is determined during contract execution. At that point, the parties agree on the jurisdiction and procedure for resolving potential disputes and typically opt for arbitration as a more efficient mechanism compared to state courts.

For Ukrainian businesses, it is natural to prefer dispute resolution in Ukraine or another familiar jurisdiction. This approach appears logical due to procedural familiarity and predictability. However, Chinese counterparties usually take the opposite position and insist on dispute resolution in China.

In this context, the key issue is not merely the place of arbitration, but rather the effectiveness of the enforcement of the arbitral award.

In most cross-border disputes, it is enforcement — not procedural convenience — that ultimately determines the effectiveness of legal protection.

Arbitration in China is neither inherently advantageous nor disadvantageous. Its effectiveness depends on the specific circumstances, particularly the parties’ roles and the location of the assets.

When Arbitration in China Is Beneficial

A common scenario involves a Ukrainian company acting as a buyer and a Chinese counterparty as a supplier.

Where the Chinese party fails to perform (e.g., non-delivery after advance payment), the dispute is typically straightforward from a legal standpoint. The critical issue becomes the ability to enforce the award.

In practice, this is directly related not only to the contractual terms but also to how thoroughly the counterparty was verified at the contract formation stage, including through legal due diligence.

Since the supplier’s assets are usually located in China, arbitration in China may be more effective because:

• the award is rendered in the jurisdiction where the debtor is located;
• no recognition procedure for a foreign award is required;
• enforcement mechanisms are directly accessible.

In situations where the Ukrainian party has made an advance payment and the Chinese counterparty has failed to deliver, the outcome of the dispute is generally predictable. However, the decisive factor becomes the enforcement of such an award, and it is precisely in this respect that arbitration in China offers a practical advantage.

When Arbitration in China Creates Risks

In other scenarios, arbitration in China may operate to the disadvantage of a Ukrainian party.

This includes cases where:

• the Ukrainian company acts as a supplier or contractor;
• the dispute involves complex evidentiary issues (e.g., quality of services, technical specifications, performance of works), where procedural flexibility or the active role of the parties in presenting evidence is of particular importance.

In such disputes, arbitration in China may be less predictable for the Ukrainian party due to:

• a higher degree of procedural formalism;
• limited choice of arbitrators (currently, only three individuals from Ukraine are included in the recommended list of arbitrators);
• language and cultural factors of the proceedings.

Furthermore, where the Ukrainian party is the respondent and its assets are located in Ukraine, enforcement will take place in Ukraine.

Given Ukraine’s pro-arbitration stance, foreign arbitral awards — including those rendered by CIETAC — are generally recognized and enforced unless grounds for refusal under the New York Convention 1958 are established.

In such cases, the mere possibility of challenging a CIETAC arbitral award does not imply a high likelihood that it will be set aside, as the relevant grounds are purely procedural and must be substantiated by the Ukrainian party.

This means that even where the dispute is resolved in China, the risks for the Ukrainian party acting as respondent are not absolute and should be assessed in light of the general practice of international commercial arbitration.

Balancing Interests

Accordingly, arbitration in China is not a one-size-fits-all solution.

Its appropriateness should be assessed taking into account:

• the role of the parties under the contract;
• the potential nature of the dispute;
• the location of each party’s assets;
• the anticipated dispute resolution strategy.

In this context, the arbitration clause ceases to be a formal element of the contract and becomes a tool for risk management.

Despite the strategic importance of choosing the appropriate jurisdiction, the relevant contractual clause is often treated as a standard provision and receives insufficient attention in practice.

At the same time, the arbitration clause determines not only the forum for dispute resolution but also the fundamental rules governing the proceedings. In contracts with Chinese companies, this takes on particular significance.

The Chinese approach to arbitration agreements is traditionally more formalistic compared to European practice. Inaccuracies in drafting — particularly with respect to the designation of the arbitral institution or the procedure for resolving disputes — may call into question the effectiveness of the protection of the Ukrainian party’s rights.

For this reason, the draft of an arbitration clause should not be regarded as a purely technical stage of contract negotiation, but rather as part of the overall strategy for structuring the relationship with the counterparty, including within the framework of international contract structuring.

In practical terms, this means that the parties should determine in advance:

• the specific arbitral institution;
• the applicable rules;
• the language of the proceedings;
• the composition of the arbitral tribunal.

Insufficient attention to these aspects may result in the formally agreed dispute resolution mechanism proving difficult to implement or creating additional procedural risks.

Accordingly, the drafting of an arbitration clause should not be considered in isolation, but rather in conjunction with other contractual provisions and potential performance scenarios, as it typically forms part of the comprehensive drafting and review of international contracts.

If we consider a scenario where a Ukrainian company needs to ensure enforcement of an award in China, not only the place of arbitration but also the classification of the award within the Chinese legal system becomes of key importance.

The principal arbitral institution in China is the China International Economic and Trade Arbitration Commission (CIETAC). It is among the leading arbitral institutions globally, alongside the ICAC at the Ukrainian Chamber of Commerce and Industry, the LCIA in London, and the ICC in Paris. The 2024 CIETAC Rules incorporate several developments from international arbitration practice, including the possibility of online hearings, expedited procedures, and mechanisms for the early dismissal of manifestly unmeritorious claims. By comparison, the ICAC at the Ukrainian Chamber of Commerce and Industry is also moving in this direction — from 2025, its rules expressly provide for digital procedures and broader use of international arbitration standards.

As in most jurisdictions, arbitral awards in China are classified as either domestic or foreign. This distinction is practically significant, as it determines the procedural regime for their enforcement. Awards rendered by CIETAC are treated as domestic in China. Accordingly, their enforcement does not require the recognition procedure applicable to foreign arbitral awards.

In this context, the choice of CIETAC as the arbitral institution is of practical importance in disputes with Chinese counterparties, as such awards fall within the regime of domestic enforcement, which nevertheless operates in line with the requirements of Article V of the New York Convention 1958, to which both Ukraine and China are parties.

Given the Chinese formalistic approach, parties should rely on recommended model clauses.

CIETAC standard clause:

“Any dispute arising from or in connection with this Contract shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration, which shall be conducted under the Commission’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.”

Unlike typical clauses used in Ukraine by ICAC, the CIETAC model clause does not specify the governing law, the number of arbitrators, the seat, or the language.

These elements should be expressly agreed upon to avoid uncertainty.

In relation to Chinese counterparties, an arbitration clause is not merely a technical provision of the contract but one of the key tools for managing legal risks.

The choice of jurisdiction for dispute resolution cannot be assessed in isolation from the issue of subsequent enforcement of the award. It is the procedural regime of such enforcement — in particular, the classification of the award as domestic or foreign — that largely determines the practical effectiveness of the chosen model.

Arbitration in China, particularly through CIETAC, may, in certain cases, provide a more effective mechanism for protecting the Ukrainian party’s interests, especially when the counterparty’s assets are located in China. At the same time, in other situations, this model may create additional procedural constraints.

Accordingly, agreeing to an arbitration clause requires an individual assessment, taking into account the structure of Ukrainian–Chinese relations, the parties’ roles, and the potential nature of the dispute.

In this context, a single clause in the contract can indeed determine not only how a dispute will be resolved, but also its practical outcome.

Is a CIETAC arbitration clause enforceable in Ukraine?

Yes. Ukraine is a party to the New York Convention 1958, and Ukrainian courts generally adopt a pro-arbitration approach toward the recognition and enforcement of foreign arbitral awards. CIETAC awards are enforceable in Ukraine unless procedural grounds for refusal under Article V of the Convention are established — and the burden of proof lies with the party opposing enforcement.

What is the difference between a domestic and a foreign arbitral award in China?

A domestic award is one rendered by a Chinese arbitral institution (such as CIETAC). It is enforced under China’s Civil Procedure Law without a separate recognition procedure. A foreign award — rendered outside China — requires recognition under the New York Convention before enforcement. This distinction is critical: CIETAC awards benefit from the domestic enforcement regime, which is procedurally faster and more direct.

Can I choose an arbitrator from Ukraine in CIETAC proceedings?

CIETAC maintains a recommended panel of arbitrators. As of 2026, only three individuals from Ukraine are included. The parties may also agree to appoint arbitrators outside the recommended panel, but this requires mutual consent and is less common in practice.

What happens if the CIETAC arbitration clause is poorly drafted?

Chinese courts apply a more formalistic approach to arbitration agreements compared to European practice. An imprecise designation of the arbitral institution, ambiguous wording, or failure to specify key procedural elements may render the clause inoperative — effectively leaving the claimant without an agreed dispute resolution mechanism.

Should I agree to CIETAC arbitration if I am the supplier?

It depends on the specific circumstances. Where the Ukrainian party is the supplier and the dispute may involve complex evidentiary issues (quality of goods, performance of works), arbitration in China may present additional procedural risks. In such cases, it may be more appropriate to negotiate arbitration in a neutral jurisdiction or under the rules of another leading institution (ICC, LCIA, ICAC at the Ukrainian CCI).

If your contract with a Chinese counterparty includes or is expected to include an arbitration clause, we recommend conducting a preliminary legal assessment to determine the most effective dispute resolution model for your specific situation.