The question of whether a foreign judgment is capable of being enforced in China should be taken into account by all foreign investors who see China as a potential ground for expansion and development. The following should provide some clarity:
Article 126 of the Contract Law of the People’s Republic of China states:
"Parties to a contract with a foreign element may choose the law to apply to the handling of disputes, unless otherwise provided by law. If parties to a contract with a foreign element have not made a choice, the law of the State with the closest connection applies"
Additionally,Article 244 of the Civil Procedure Law of the People’s Republic of China states:
"Parties to a dispute over a contract involving foreign interests or over property rights and interests involving foreign interests may, through written agreement, choose the People’s Court in the place which has actual connections with the dispute as the jurisdiction court. If a People’s Court of the PRC is chosen as the jurisdictional court, the stipulations on jurisdiction by level and exclusive jurisdiction in this law shall not be contravened."
Therefore, it possible for parties of a contract to stipulate the use of foreign law in the relevant contract.
However,Enforcing the judgment in China is an entirely different matter. Currently there are a series of reciprocal judicial assistance arrangements with the PRC and third countries. These are also known as Sino-Foreign Treaties on Judicial Assistance. As of 2006 there were 82 such Treaties. However, such Treaties do not cover all areas of law and may only include a single area such as extradition, criminal law, civil law and commercial law. Also, very few countries are parties to such Treaties.
1993 – Extradition Treaty signed between China and Thailand
1998 – Criminal Judicial Assistance Treaty between China and South Korea
2000 – Extradition Treaty between China and South Korea
2003 – Criminal Judicial Assistance Treaty between China and Thailand
2003 – Civil and Commercial Judicial Treaty between China and South Korea
2005 – Criminal Judicial Assistance Treaty between China and France
If the country is a party to the relative reciprocal Treaty, the foreign judgment is capable of being enforced in the PRC in accordance with the Civil Procedure Laws of the PRC. If the country is not a party to a reciprocal Treaty, whether the judgment will be enforced is at the discretion of the PRC Court. According to statistics, if the country is not a party to a reciprocal Treaty the PRC Court will simply ignore the foreign judgment.
Therefore, and for example, if you brought a judgment which you received in the USA before a PRC Court, demanding enforcement, chances are the PRC Court will ignore the foreign judgment.
Hence, an emphasis and need for an arbitration clause in an agreement containing a foreign and PRC element.