China: Specialized Arbitration Centre Launched In Response To Rising Prominence Of PPP In China

Last Updated: 12 July 2017
Article by Richard Bell

On 16 May 2017, the China International Economic and Trade Arbitration Commission (CIETAC) launched its Public-Private Partnership Arbitration Centre in Beijing. The new arbitration centre is the first in China that has a matter specific competence dedicated to resolving disputes arising from public-private partnership (PPP) projects. Actual case processing has not begun by the time of this report. According to a published interview between CIETAC Secretary General Wang Chengjie and China Trade News (an outlet operated by CIETAC's parent organization, the China Council for the Promotion of International Trade), the PPP Arbitration Centre will use CIETAC Arbitration Rules instead of its own tailor-made rules, and will have a distinct panel of arbitrators consisting of select Chinese and international experts in PPP, construction and project management related disputes. The design seems to be balancing specialization and continuity with CIETAC's rich case administration experience under the existing rules.

Faced with a dilemma between the high capital demands from infrastructure developments and the increasingly strained local government budget, the Chinese central government recently redoubled its effort to mobilize social capital. 2014 saw heavy law-makings encouraging the use of the PPP model for public facilities and services. Several key documents published that year include the State Council's Opinion on Heightening Control of Local Government Debt, the National Development and Reform Commission's Guideline on the Utilization of Public-Private Partnership, and multiple Ministry of Finance regulations such as the Notice on Promoting the Utilization of the Public-Private Partnership and the Operating Guideline for Public-Private Partnership.

The PPP Arbitration Centre is CIETAC's response to PPP's rapidly rising significance. One factor that has deterred many private businesses from joining or proposing PPP projects is dispute resolution. Unlike in ordinary commercial contracts, parties to PPP contracts do not operate on a perfectly equal footing. The strong public implication of PPP projects, e.g., transportation, housing, education and medical care, determines that the government often acts at once as both player and regulator. Concerns have arisen about the government's ability to escape unwanted PPP contracts with impunity by indirectly frustrating the project through its wide power to regulate the market. An adjudicator's willingness to call out violations (whether direct or indirect) and its ability to address the inherent power imbalance between the government and private parties is therefore essential for the success of PPP in China. Arbitration by a body of experts dedicated to PPP dispute resolution has some advantages. Arbitration institutions are generally more distanced than courts from government authorities. This allows better insulation from external influence and local protectionism, which is still regularly observed in litigations before local Chinese courts. On a related note, the arbitrators' specialized experience gives them a stronger appreciation of the logic behind PPP projects and the need to maintain a level playing field for private participants.

While definitive assessments are probably premature, the industry is well advised to closely watch the PPP Arbitration Centre's performance, such as its efficiency, pricing and the quality of its decisions. Another issue to watch relates to the arbitrability of PPP disputes. Practice currently splits as to whether all disputes arising from PPP projects can be submitted to arbitration. While the trend may be toward full arbitrability of PPP disputes, some courts continue to insist on exclusive court jurisdiction over concession related disputes (as opposed to those arising from government procurements of private goods or services). It may take several years for Chinese courts to develop a more consistent jurisprudence as more PPP related arbitral awards are brought before them through set-aside proceedings.

The links to the full China newsletter (June 2017 edition) and other articles in this newsletter can be found below:

Specialized Arbitration Centre Launched In Response To Rising Prominence Of PPP In China

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