China first introduced arbitration for political purposes, to build a socialist state. Recently, however, China's foreign-related arbitration has been developing rapidly while also carrying many problems. Many foreign parties avoid Chinese arbitration, so China's foreign-related arbitration is drifting away from internationalization. China therefore needs to make its rules on foreign-related arbitration more specialized and adopt a unified arbitration law. Many revisions and additions are needed so that arbitration is fair and equal in line with international trends.

Finally, recognizing ad hoc arbitration is essential. Ad hoc arbitration offers flexibility and speed and is the most widely used approach internationally. But so far there is little basis in China for recognizing it. For ad hoc arbitration to be recognized, not only legal amendment but also the support of the courts is essential, and guidance and supervision must be strengthened. Many institutional improvements are needed, such as expanding parties' choices and giving the party against whom an award is enforced a full opportunity to present evidence.

The problems in China's arbitration law fall within the inherent powers of China's legislature and are not yet being discussed within China. Because the shortcomings of China's commercial arbitration cannot be solved quickly, Korean companies that must deal with Chinese companies now need to prepare in advance for disputes.

First, companies should use the Korea-China Commercial Arbitration Agreement concluded in 1992. It is a private agreement in the form of a private-law contract, but because it specifies the seat, institution and applicable rules in advance, using it as the arbitration clause when drafting contracts for trade with China is recommended. Disputes between the parties are finally resolved by arbitration through civil organizations in the two countries, and the result binds both parties to the contract.

Choosing the seat of arbitration is also an important point in the parties' agreement. When an international dispute arises, it is most advantageous for a Korean party to receive an award from a Korean arbitration institution. That is partly a matter of time and cost, but above all, choosing another country as the seat can leave a party much less able to deal with that country's culture and values, putting it at a disadvantage. It is therefore advantageous to specify Korea as the seat in the contract, and if that cannot be agreed, a third-country institution should be chosen. Hong Kong and Singapore use English as the language of arbitration, which makes proceedings relatively convenient. Keeping these points in mind can prevent an arbitration agreement from being held invalid under Chinese law.

This paper examined the content and problems of China's commercial arbitration system. Influenced by its political system, China's commercial arbitration is stricter and less independent than that of other countries. Its strict procedural requirements, which leave no room for flexibility, also make it not yet fit for international use. In particular, Chinese arbitration does not recognize ad hoc arbitration and involves serious judicial interference. These features have historical and cultural roots, and the socialist system, which runs society for the interests of the collective and the state, has had a great influence. Yet trade with China grows every year, and disputes are becoming more frequent. Korean companies must understand the problems and details of China's arbitration system and prepare various alternatives to minimize harm.

To add: China's Arbitration Law was enacted in 1994 and took effect in September 1995, and it was fully revised on September 12, 2025, with the new law in force since March 1, 2026. The revised law codifies the concept of the seat of arbitration and, for the first time, allows ad hoc arbitration, but only for foreign-related maritime disputes and foreign-related disputes between companies registered in pilot free trade zones or the Hainan Free Trade Port (Article 82). China joined the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1987, and Korea joined in 1973. Even after the revision, most foreign-related disputes are still handled through institutional arbitration.