Architecture, financing, and nature of the arbitration institutions in China

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arbitrators. Furthermore, according to Art. 14 of the CAL, arbitration institutions should be independent of any administrative organ and without any subordinate relationship with any of the administrative organs. Interestingly, Art. 15 of the CAL provides that the arbitration institutions in China should be supervised by the China Arbitration Association (“CAA”). Yet, as discussed below in this Chapter, the CAA has not been created until now and as of today, there is no clear indication whether it will be established in the near future.

In the period of transition after 1995, many arbitration institutions in China were dissolved and many were reorganized. In general, the Soviet model of administrative arbitration controlled by the state was largely abandoned. Yet, not entirely. One of the challenges in the post-1995 era was to equip the arbitration institutions with staff. In the process of reorganization, the first members of the institutions were to be appointed by the local governments from candidates recommended by various governmental departments. Therefore, at the initial stage of restructuring, the vast majority of the arbitration institutions’ leadership was composed of government officials. However, the practice of having governmental officials in the institutions’ management continued also after the initial period of reorganization, and as such, the fact is that as of today, with the notable exception of a few leading arbitration institutions, in many local institutions, government officials still perform the function of the institutions’ members.¹⁶⁰

Furthermore, Art. 12 of the CAL provides that the arbitration institution should be composed of a chairman, two to four vice-chairmen, and seven to 11 members, who should be experts in law and economy and trade with the practical work experience. No less than two-thirds of the institution members should be experts in law, economy and trade. Yet, as Chen’s empirical studies suggest, this is not necessarily the reality for all of the institutions in China.¹⁶¹

As to the financing of the Chinese arbitration institutions, the situation varies. Initially, it is important to emphasize that because of a high number of institutions in China (over 230 at the time of writing), unsurprisingly, some of them are busier and some less busy in terms of their work and accordingly – the income they are able to generate. Therefore, while some of the institutions in China declare that

160 See ibid., 235-236.; Sun and Willems, 8-9.; Fan, Arbitration in China, A Legal and Cultural Analysis, 135.; Gu, Arbitration in China: Regulation of Arbitration Agreements and Practical Issues, 104-107. and Chapter 6 p. 151-153.

161 Fuyong Chen, The Unfinished Transformation: An Empirical Study of the Currenr Status and Future Trends of China Arbitration Institutions [Original Title: 未竟的转型：中国仲裁机构现状与发展趋势实证研究] (Law Press China, 2010), 36-43.

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they do not rely on any of government’s help for their financing (as it is the case for CIETAC and the BAC),¹⁶² there are institutions, which need the governmental support for their very survival.¹⁶³ Quite likely for the reason that unprofitable arbitration institutions needed the financial support, the Ministry of Finance introduced a regulation that obliges the institutions to report their revenues to the Ministry (or its local branches) for the purpose of a subsequent redistribution of resources. The redistribution should be done based on the budgets approved by the relevant ministerial departments.

The Ministry scheme is commonly referred to as “income and expenses separate” management (收支 两条线管理, shōu zhī liǎng tiáo xiàn guǎn lǐ).¹⁶⁴ Moreover, financing obtained by the arbitration institutions within this system has a limited relation to the revenues reported by them.¹⁶⁵

The alternative way of financing, though permitted only in exceptional cases and also commercially uneasy, is discussed below in the context of the BAC.¹⁶⁶ Briefly speaking, the BAC managed to obtain a status of a business enterprise and it pays taxes in exchange for its financial freedom. Summarizing, except for the few leading arbitration institutions, the majority of the institutions in China are “still operated in the shadow of local governments in many respects, in terms of personnel, funding and so on”.¹⁶⁷

As to the nature of the arbitration institutions in China, the CAL does not address this issue. The local legal community represents mainly two views on that point. One of the groups believes that arbitration institutions should be considered as “public institutions” (事业单位, shì yè dān wèi), which refers to

“organizations run by state organs or other organizations using state-owned assets for the purpose of social and public interests and conduct activities such as education, science and technology, culture,

162 See Moser and Yu, 557.; Shengchang Wang, "CIETAC's Perspective on Arbitration and Conciliation

Concerning China," in New Horizons in International Commercial Arbitration and Beyond ICCA Congress Series ed. Albert Jan van den Berg (Kluwer Law International, 2005), 35.; Fuyong Chen, "Striving for Independence, Competence, and Fairness: A Case Study of Beijing Arbitration Commission," American Review of International Arbitration 18, no. 3 (2007), 325.

163 See Yuen, McDonald, and Dong, 235. also Fan, Arbitration in China, A Legal and Cultural Analysis, 134-135.;

Song, Zhao, and Li, 176.

164 Notice of the Ministry of Finance, the National Development and Reform Commission, the Ministry of Supervision and the National Audit Office on Strengthening the Two-Channel Management of the Receipts and Disbursements of the Administrative Charges and Other Revenues of Central Departments and Entities (Circular 29) from 9 May 2003. [财政部、国家发展和改革委员会、监察部、审计署关于加强中央部门和单位行政事 业性收费等收入“收支两条线”管理的通知, 财综[2003]29号, 2003年5月9日]. See also Chen, "Striving for Independence, Competence, and Fairness: A Case Study of Beijing Arbitration Commission," 326.

165 Sun and Willems, 9.

166 See this Chapter p. 47-48.

167 Yuen, McDonald, and Dong, 225.

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and public health, etc.”¹⁶⁸ According to the other group, arbitration institutions should be considered as “social organizations” (社会团,体shè huì tuán tǐ), which are “non-profit-seeking social organizations voluntarily composed of Chinese citizens that perform activities in accordance with the articles of association for the realization of the common desires of the membership.”¹⁶⁹ It seems that under the current legal framework, the arbitration institutions in China are more like “public institutions”, and the direction to follow is rather toward the “social organizations” operating for public good, but independently from the governmental bodies. The limitation of the reliance on the governmental bodies seems to be the view supported by the whole community – irrespective of the doctrinal disagreement presented above.¹⁷⁰