Choice of Law in Contracts: A Chinese Approach

Zhang, Mo | January 1, 2006

This article attempts to emphasize that the choice of law analysis in China is distinct from that of other countries, despite the fact that many of the theories and approaches originate in Western countries. The underlying argument is that the ongoing economic reform in China has become a dramatic and driving force for change in the country. This change necessarily shapes the development of choice of law in China in a unique way, and also de. monstrates how China is getting closer to the rest of world while searching for the “China brand” theory and approach in this regard. What seems to have emerged is what will becalled, for the purposes of this article, the “China Phenomenon.” This phenomenon can be seen in several ways. First of all, though China has a unitary legal system, the system is now entangled with the quasi-sovereign states of Hong Kong and Macao. These quasi-states raise choice of law issues not only between China and other countries, but also between China’s mainland and its quasi- sovereign regions. Second, the clash between the concepts commonly accepted in Western countries and Chinese tradition often seem so obvious that a well-balanced symmetry needs to be established. For instance, China, which has a centralized economic structure based on paternalistic traditions, is still struggling to determine the significance of the party autonomy theory, which is premised on the principle of freedom of contract. Third, China’s desire and need for a place in the global market has been a strong impetus for China to open its door to international trade. This in turn makes choice of law in China more internationally oriented. As an example of this, the international substantive law rules of international treaties and customs are commonly deemed to be a part of private international law in China. Part II of this article addresses choice of law issues in contracts that are deemed to be “foreign” in China. Part III then discusses the evolution of choice of law theories in China and the development of these doctrines. Part IV examines the ability of parties to express their own choice of law preferences in their contracts and the degree of freedom of choice. Part V focuses on judicial discretionary determination of applicable law in the absence of choice of law by the parties. In Part VI, the matters concerning application of international treaties in foreign contracts are addressed. Finally, the article concludes that while bearing strong influences from Western approaches, choice of law in China as applied to contracts is developing and will continue to develop in a uniquely Chinese way. Furthermore, such development in China may have a broader influence and help resolve complex choice of law matters in contracts in the future.