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China Dispute Resolution Clauses: Where Should You Sue or Arbitrate?

Most companies choose where to resolve disputes with a Chinese supplier by asking where they would most like to litigate. The better question is what happens if the supplier breaches and you need to enforce the contract. With Chinese companies, those two questions often have very different answers.

A client once sent our international manufacturing lawyers a contract with one of its China suppliers and asked us to review it. A Chinese lawyer in Shenzhen had drafted the agreement, and one provision immediately caught our client’s attention: disputes were to be resolved by CIETAC arbitration in Shenzhen. The client had heard that major American companies routinely require their contracts to send disputes to U.S. courts. It wondered whether agreeing to arbitration in Shenzhen meant the contract had been drafted to favor its supplier. Not necessarily, we told them, and in this case it had not been.

There Is No Best Dispute Resolution Clause

American lawyers understandably tend to favor American courts. If our client is in Los Angeles and the other party is in New York, we will usually prefer Los Angeles. That instinct becomes dangerous in an international contract when nobody stops to ask what happens after the lawsuit is won.

Suppose your Chinese manufacturer has no meaningful assets outside China. Your contract requires litigation in California, you sue there, and you win. You now hold a California judgment against a company whose bank accounts, equipment, real estate, and other assets are all in China, and you have to figure out what that judgment is worth.

Chinese courts have become more willing to recognize and enforce U.S. judgments, and the legal framework for doing so has improved. Recognition is still neither automatic nor simple. Service, jurisdiction, finality, due process, reciprocity, and the nature of the judgment can each determine whether it has any value in China. We discuss those issues in Enforcing U.S. Judgments in China: What Judgment Creditors Need to Know.

None of this means you should never sue a Chinese company in the United States. Sometimes that is exactly what you should do. The defendant may have substantial U.S. assets, there may be other defendants here, the claims may make a U.S. forum preferable, or the judgment may be enforceable somewhere other than Mainland China. Choosing a U.S. court simply because you are a U.S. company, however, leaves the most important question unanswered. As we explain in International Litigation: Winning the Lawsuit Is Often the Easy Part, the first question in many international disputes should not be “Can we win?” but “If we win, where is the money and how do we get it?”

Was CIETAC Arbitration in Shenzhen a Problem?

Our client’s contract called for CIETAC arbitration in Shenzhen, in English, and we did not consider that a serious problem. An award from a CIETAC arbitration in Shenzhen is a Chinese award, which a Chinese court can enforce against the supplier’s assets in China without the recognition fight a California judgment would face. English also works in arbitration in a way it does not in a Chinese court, which conducts its proceedings in Chinese. CIETAC itself is a well-established institution that we think highly of.

But "CIETAC arbitration in Shenzhen" does not, by itself, tell you whether the clause is good or bad. You need to read the actual clause and understand the deal. To answer that question, we want to know the following:

which institution the clause names,
what law governs and which language controls,
where the supplier’s assets are,
what kinds of disputes are most likely,
whether you may need to freeze assets or stop misuse of your tooling, and
how large the likely claims are and what arbitration will cost compared with litigation.

Those questions matter far more than whether arbitration sounds more sophisticated or neutral.

For most of our China manufacturing agreements, we prefer Chinese law, Chinese as the controlling language, and litigation in an appropriate Chinese court. CIETAC arbitration costs more than litigation in a Chinese court, and a Chinese court can do something an arbitral tribunal cannot. Most of our manufacturing contracts include a contract damages provision, and a Chinese court can use it to freeze the manufacturer’s bank account. Chinese manufacturers know this, which makes it one of the most effective ways we have to get them to abide by the contract. China’s substantially revised Arbitration Law took effect on March 1, 2026. It modernized Chinese arbitration by recognizing the arbitral seat and allowing ad hoc arbitration in limited foreign-related cases, but it did not give arbitral tribunals seated in China the power to freeze assets. That power still belongs to the courts.

Arbitration is the better choice in other situations. Chinese state-owned companies frequently require CIETAC arbitration, and arbitration often makes more sense when the Chinese company is in a small, unsophisticated city. Sometimes a Chinese court is the best forum. Sometimes CIETAC, Hong Kong, Singapore, New York, California, or another forum makes more sense. It depends on the deal.”The right forum depends on the transaction, the parties, where their assets are, and what is likely to happen if the relationship falls apart. It is also why taking a domestic U.S. contract and changing a few words for China is usually a mistake. The forum, governing law, contract language, remedies, and enforcement strategy all need to work together, as we explain in China Manufacturing Contracts: Why U.S. Drafts Do Not Work.

Should We Have Rewritten the Contract?

The client then asked whether we should redo its existing supplier agreement the way we would have drafted it from the beginning. We told them we did not think that made sense. We would have written parts of the contract differently and would have preferred a different overall structure. The contract did not, however, contain a dispute resolution problem serious enough to justify substantially rewriting it and then asking an existing supplier to renegotiate.

The amount at stake mattered too, and lawyers sometimes lose sight of this. A provision can be less than ideal without being bad enough to justify spending thousands of dollars replacing it. Our job was to tell the client whether the existing contract created enough additional risk to justify the cost and disruption of changing it, and here it did not. Had we found a dispute provision that was invalid, seriously impaired enforcement, or sent the client to an expensive forum where a favorable result would accomplish little, our advice would have been different.

For the client’s future Chinese suppliers, we recommended starting from scratch, with contracts drafted around enforcement in China and around the client’s particular transaction. Before anything is signed, we want to know who the Chinese counterparty is, where its assets are, what is most likely to go wrong, and what remedies and forum will actually work if it does. It is the same principle behind China Manufacturing Contracts: When One Agreement Is Not Enough: the contract has to work when the relationship goes bad, because that is when you will need it.

Do Not Treat the Dispute Clause as Boilerplate

Dispute resolution provisions usually sit near the end of a contract, which probably explains why so many people treat them as boilerplate. The lawyers at my firm who draft international contracts treat the dispute clause as one of the most important provisions in the agreement, and often one of the hardest to get right.We usually draft it last, once we understand everything else about the deal. On some contracts, we convene a quick meeting of two to five of our lawyers to decide forum and governing law, because the wrong answer can be expensive and surprisingly easy to reach.

Before deciding where disputes should be heard, look at where the other side’s assets are and what you are likely to need if something goes wrong. A company worried about recovering a $450,000 unpaid advance has different concerns from a company that needs to stop a factory from using its molds, selling its product to competitors, or holding millions of dollars of its inventory. The contract should account for those differences. A familiar U.S. courthouse is not much of an advantage if the defendant and everything you need to reach are 6,000 miles away, and there is no reason to force every China-related dispute into a Chinese court if the facts point somewhere else.