Contract Law – European Chinese Law Research Hub

The Arbitrability of Public-Private Partnership Contract Disputes in China

15. April 2025

A new paper by Xianqi Peng

A public-private partnership (PPP) is a long-term collaboration between a public authority and a private sector entity, in which the private party delivers products or provides services for the government, receiving a fee from the government or end users. The model enables the state authority to provide at less financial costs the necessary infrastructure to citizens and make projects more efficient by relying on the private sector’s expertise. Since 2014, PPP projects have boomed in China. Until 2024, more than 10,000 PPP projects have been launched, with accumulated investment of 16.2 trillion RMB, according to statistics of the Ministry of Finance. With the high number of PPP projects launched in China, many respective contract disputes have been brought to court. Between 2014 and the end of 2023, over 10,186 PPP cases, including civil, criminal and administrative cases, were handled in total. However, there is a heated debate over whether arbitration can be used for PPP contract disputes because PPP contracts are partly classified as administrative and partly as private law contracts, and the disputes may include administrative actions or contractual matters.

Against this backdrop, this article first examines whether the current legal framework of the PRC excludes arbitration as a procedure for resolving PPP contract disputes. In many jurisdictions, such as the UK, the USA, Germany and Italy, the arbitrability of PPP contract disputes is generally accepted. In China, there is still no specific PPP law to comprehensively regulate the initiation and implementation of such projects. This regulatory gap has resulted in a fragmented framework, with various national ministries and the Supreme People’s Court issuing their own regulations or guidelines to govern PPPs and their dispute resolution mechanisms within their respective administrative and/or juridical authority. Prior to May 2015, several regulations issued by the Ministry of Finance and the National Development and Reform Commission allow parties to settle PPP disputes through arbitration. However, following the enactment of the amended Administrative Procedure Law (行政诉讼法) on 1 May 2015, along with its corresponding judicial interpretation issued by the Supreme People’s Court (最高人民法院关于审理行政协议案件若干问题的规定), PPP contracts were explicitly classified as administrative contracts. These provisions established that PPP disputes fall within the exclusive jurisdiction of administrative litigation, thereby excluding arbitration as a permissible dispute resolution mechanism. However, in November 2023, the Ministry of Finance and the National Development and Reform Commission have introduced a new PPP regulation (关于规范实施政府和社会资本合作新机制的指导意见) and concession regulation allowing parties to PPP contracts to select an appropriate dispute resolution method based on the nature of the dispute. Arbitration is permitted if the dispute arises under private law. This setup contradicts the previous guideline of the Supreme People’s Court under which respective disputes fall exclusively under the jurisdiction of administrative courts. The divergence between the rules of the Ministries and those of the Supreme People’s Court creates uncertainty regarding which rules should apply in cases of conflict.

Apart from conducting doctrinal and descriptive analysis, this article develops a comprehensive case study to examine Chinese courts’ attitudes on whether arbitration is used for PPP disputes. Through a key search on the Chinese Case database, a sample of nearly 1,500 relevant cases from January 2014 to December 2023 was collected. A thorough case-by-case review identified 68 qualified cases from different courts, including 4 decisions of Basic-level People’s Courts, 34 decisions of Intermediate People’s Courts, 18 decisions of High People’s Courts, and 12 decisions of the Supreme People’s Court. The data demonstrates that debates surrounding the arbitrability of PPP contract disputes exist across different hierarchies of Chinese courts. Three patterns emerge: Courts of lower hierarchy more often permit the arbitration of PPP contract disputes than courts higher up in the hierarchy. Second, discrepancies in perspectives on the arbitrability of PPP contract disputes arise between first instance and appellate courts. Third, divergent opinions on dispute resolution for PPP contracts also arise among different tribunals within the same court.

The decisions further demonstrate that the courts adopt three distinct approaches when determining the dispute resolution mechanism for PPP contract disputes:

The legal nature of the contract determines the dispute resolution mechanism. If the court classified the contract as a private law contract, civil procedures were permitted. Conversely, if classified as an administrative contract, the administrative courts were granted exclusive jurisdiction.
The nature of the dispute determines the dispute resolution mechanism. Focus is laid on the nature of the dispute itself, specifically, whether they involved the exercise of public authority (administrative disputes) or whether they are rooted in private law issues.
Party autonomy is priority. If there is a valid court selection provision or arbitration clause, the procedure choice is made accordingly.

Building on doctrinal analysis and the examination of relevant cases, this article concludes that arbitration should not be prohibited for resolving PPP disputes. First, PPP contracts should not be uniformly classified as administrative contracts, and current Chinese law does not expressly prohibit the use of arbitration in such cases. Second, the application of the proximate cause doctrine (in China: 近因理论) is recommended to distinguish between disputes arising from administrative actions and those rooted in contractual obligations. The proximate cause doctrine establishes that when a claimant seeks redress for losses resulting from a breach of contract or tortious conduct, they must demonstrate that the ‘consequences’ of the loss were caused directly by the ‘proximate cause’ of the infringer’s breach or tortious act. This approach would enable a more nuanced and appropriate determination of the applicable dispute resolution mechanism. Third, a pro-arbitration stance should be adopted, one that favors the use of arbitration in PPP disputes while narrowly defining what constitutes an administrative dispute within the context of such contracts. This approach not only leverages the inherent advantages of arbitration, such as neutrality, flexibility, and enforceability, to effectively balance the protection of public and private interests, but also alleviates the concerns of private investors. Winning rates for private parties in administrative litigation are very low. By reinforcing confidence in fair and efficient dispute resolution, this position may encourage broader private sector participation in PPP projects and contribute to the sustainable development of the PPP model.

The full paper, titled “Arbitrability of PPP Contract Disputes in China: Based on An Analysis of 68 Chinese Cases”, is published in the Commercial Arbitration and Mediation (商事仲裁与调解), vol. 1/2025 (in Chinese). Xianqi Peng is a PhD candidate at the Faculty of Law & Criminology at Ghent University, Belgium. His research focuses on international investment law, private international law, arbitration, African law and public private partnerships. He published in journals such as African Studies and Nankai Law Review. He can be contacted at xianqi.peng[at]ugent.be.

Force Majeure or Change of Circumstances: An Enduring Dichotomy in Chinese Law?

5. June 2023

A forthcoming chapter by Qiao Liu

How does the Chinese system deal with supervening impediments to contract performance? In this article (draft), I address this question from the angle of the (unbalanced) interrelationship between two doctrines: the doctrine of force majeure (不可抗力) and that of change of circumstances (情势变更). The imbalance can be readily seen from the current judicial data showing that the doctrine of force majeure has been applied by Chinese courts ten times more often than the doctrine of change of circumstances. This article offers explanation to the reasons and implications of this striking situation.

It first briefly traces the history of the two doctrines and makes three inquiries about their interrelationship. First, do they address different events? It is noted that there is a general tendency in China to categorically characterise certain events, including the COVID-19 pandemic, as force majeure. This tendency, which neglects or downplays a proper assessment of the event’s actual or potential impact on the performance of the particular contract, is rejected in this article. I discuss various elements of the two doctrines such as the tripartite ‘unforeseeable, unavoidable and insurmountable’ requirements and the ‘non-commercial risk’ requirement, as interpreted and applied in Chinese cases or judicial documents. I conclude that all these elements are intrinsically interwoven with the particular parties and contracts and must be ascertained as such. For example, ‘commercial risks’ should be understood as no more than ‘inherent’ or ‘normal’ risks and therefore depend on the particular parties and contract for ascertaining the scope of ‘inherency’ or ‘normality’. Although this requirement seems to be reserved for the doctrine of change of circumstances, the same requirement is captured by the requirements for ‘unforeseeable, unavoidable and insurmountable’ under the doctrine of force majeure. Similarly, the latter requirements should equally be applied under the doctrine of change of circumstances. In this sense, there is a relationship of homogeneity between the two doctrines.

The second inquiry moves on to explore the different ‘contract impact’ tests applied under the two doctrines. The doctrine of force majeure encompasses two such tests: whether the event results in a situation that the affected party ‘cannot perform’ its side of the contract (the ‘cannot perform’ test) or whether the event renders the purpose of the contract ‘unfulfillable’ (the ‘contract purpose’ test). The doctrine of change of circumstances, since the enactment of the Civil Code, endorses a single test: whether the event renders continuing performance of the contract ‘manifestly unfair’ to a party (the ‘manifest unfairness’ test). This is a critical point of division between the two doctrines – they are distinguished in their respective ‘contract impact’ test(s). One problem in Chinese judicial practice is that excessive use has been made of the ‘cannot perform’ test, which is further discussed in the article. More detailed discussion of the other two tests is left to future research.

The third and final inquiry concerns the differing legal consequences attached to the two doctrines. The most notable remedial difference between the two doctrines is that contract adaptation (or modification) is available only under the doctrine of change of circumstances. This article reviews the general principles/rules for contract adaptation and its relationship with contract renegotiation. In particular, contract adaptation is distinguished from ‘exemption of liability’, which is a unique remedial consequence attached to force majeure, in that contract adaptation varies primary obligations under the contract whilst ‘exemption of liability’ affects secondary obligations only. However, there remains ambiguity as to the meaning of ‘exemption of liability’ which in practice has led to increased discretion.

The second half of the article attends to cases involving a contract affected by COVID-19, bringing the discussion above to a specific context. Cased decided and judicial documents issued by Chinese courts (especially the Supreme People’s Court) concerning SARS and COVID-19 (for a more detailed outline of Covid-19 judicial documents, see Qiao (2020)) are analyzed. I argue that a wider reception of the doctrine of change of circumstances can be observed from COVID-19 documents and should be encouraged. A categorical characterisation of COVID-19 as force majeure should be avoided. Which of the two doctrines is best to be applied in a particular case should be left to be determined through the ‘contract impact’ tests.

It is also observed that from the SARS pandemic to the COVID-19 pandemic, both the meaning and role of the ‘cannot perform’ test have undergone some transformation. The SARS cases are dominated by a narrow understanding of the ‘cannot perform’ test by unduly excluding cases where a party ‘can’, but decides not to, perform the contract. COVID-19 cases, on the other hand, display the revival of a broad interpretation, which equates ‘cannot perform’ with a ‘failure to perform’. Unfortunately, in practice, mostly due to the undisciplined extension of ‘exemption of liability’, the ‘cannot perform’ test has been much overused and abused. This article thus calls for a more structural and coherent approach to the allocation of work between the two doctrines.

Professor Qiao Liu’s article Force Majeure or Change of Circumstances: An Enduring Dichotomy in Chinese Law? is a chapter in The Making of the Chinese Civil Code – Promises and Persistent Problems, forthcoming with Cambridge University Press in September 2023. Find a draft here.

Qiao Liu is Professor and Deputy Director of the Centre for Chinese and Comparative Law, School of Law, City University of Hong Kong; Honorary Professor, TC Beirne School of Law, University of Queensland; Adjunct Chair Professor, School of Law, Xiamen University. The work described in this paper was fully supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (Project No. 11608821).

The Enforcement of Mandatory Rules against Illegal Contracts

24. June 2022

A new paper by Bingwan Xiong and Mateja Durovic

Lottery Kiosk at Xuzhou Station. Under Chinese law, lotteries are considered gambling and thus illegal -with two major exceptions: the China Welfare Lottery and the China Sports Lottery.
^{Photo by MNXANL licensed under Creative Commons Attribution-Share Alike 4.0 International.}

In the past, Chinese courts tended to directly invalidate illegal contracts, thus possibly tolerate opportunistic behaviour sometimes. Article 52(5) of the 1999 Contract Law provides that a contract is void if it violates a mandatory rule prescribed by law or administrative regulation. Empirical research shows that by April 2014, in 355 of 453 cases concerning Article 52(5) of the Contract Law, the contract was ruled void.[1]

This practice underwent a change with the compilation of the Civil Code, where Chinese scholars sought to establish better coordination between the nature of private law and its attached public or regulatory facet. Building on a 2009 judicial interpretation that introduced a classification of mandatory rules, Article 153 of the new Civil Code stipulates a doctrine of defining mandatory rules with different levels of restrictions, with the aim of relieving the state’s restraint on the transition of economy. In result, a violation of mandatory rules may now render the contract involved void ab initio, voidable or still valid, depending on the significance of illegality defined by the law.

This change of jurisprudence successfully reversed the courts’ strong stance on the invalidation of contracts, giving them much more discretion in deciding the nature of mandatory rules and the effect on contracts. The reform also aligns the treatment of illegal contracts with the general trend in other jurisdictions. Nevertheless, we argue that across jurisdictions, this doctrine is merely targeted at the connotation of mandatory rules and the theoretical effects on contracts. Scholars and judges fail to equally emphasise the enforcement of the law against the contractors after upholding the validity of their illegal contracts. In other words, they end the debate within the realm of private law and simply assume that thereafter competent regulatory agencies would duly resolve the harm of illegality.

In our paper, we look into the case of the regulation of the lottery tickets sales on credit. As per Article 18 of China’s Lottery Regulation, no lottery may sell lottery tickets on open account or credit. Such a deed may result in imposed suspension, confiscation plus fines, and punishment on the person in charge as per Article 39. Armed with the new jurisprudence that not all kinds of illegality shall render contracts void and null, Chinese civil courts tend to uphold the validity of lottery sales on credit. Though this saves the innocent party from the loss because of the invalidation of the contract, the problem is, without the following actions of administrative organs, justice stops at the decision in court and the mandatory rules are not equipped with administrative enforcement power.

We find that the major obstacle is information asymmetry between courts and regulatory agencies: not only would the contracting parties not expose the illegal deal in fear of punishment or losing their interest. Also, the courts fail to actively transmit such information to the responsible departments, despite the Supreme People’s Court of China formally encouraging local courts to issue judicial proposals to regulatory agencies.

Empirical studies show that judges seldom issue judicial proposals about their cases to regulatory agencies due to their heavy workload, worries of engaging in improper judicial interference and a lack of rewarding incentives. As it encourages contracts and prevents opportunistic behaviour, we suggest to uphold the current jurisprudence about illegality, and further propose to establish a better systematic interplay among courts and regulatory agencies. This might be achieved through institutional reforms and technological solutions that help forward information of illegal transactions so it can serve the ultimate objective of enforcing the law.

[1] Ye Mingyi 叶名怡 (2015) Empirical Research of Invalidation of Illegal Contracts in China (我国违法合同无效制度的实证研究), Science of Law (法律科学) 6, 120.

This paper by Bingwan Xiong & Mateja Durovic The Enforcement of Mandatory Rules against Illegal Contracts was published in the Asia Pacific Law Review.

Bingwan Xiong is Associate Professor at School of Law, Renmin University of China. He is also Senior Research Fellow at Renmin University Center for Civil and Commercial Law. He obtained his PhD degree from Renmin University and LLM degree Harvard University. Email: bxiong@ruc.edu.cn.

Mateja Durovic is a Reader in Contract and Commercial Law, having joined The Dickson Poon School of Law in July 2017. Prior to joining King’s, he was Assistant Professor (2015‐2017) at the School of Law, City University of Hong Kong. He holds a PhD and LLM degrees from the European University Institute; LLM degree from the University of Cambridge; and an LLB degree from the University of Belgrade. Email: mateja.durovic@kcl.ac.uk

European Chinese Law Research Hub

Tag: Contract Law

A new paper by Xianqi Peng

A forthcoming chapter by Qiao Liu

A new paper by Bingwan Xiong and Mateja Durovic