As China’s overseas investments grow amid a changing global landscape, companies face a rise in complex cross-border disputes. Sophie Cheng reports
As global tensions rise, cross-border disputes are increasing at an unprecedented rate. Chinese companies expanding overseas now face more complex legal and geopolitical risks than ever.
No longer limited to major corporations, outbound ventures now include startups, e-commerce merchants and individual investors seeking opportunities abroad. But global disruptions – from trade wars and pandemics to economic slowdowns and conflicts – have turned many of them into clients of cross-border dispute resolution services.
To manage these challenges, in-house counsel are strengthening their companies’ capacity to handle disputes across varying jurisdictions. Recent developments, including China’s revised Arbitration Law and the establishment of the International Organisation for Mediation (IOMed) headquarters in Hong Kong, are helping provide a stronger legal foundation for these efforts.
Geopolitical realignment
Dispute resolution is consistently ranked as the most fundamental business in the legal service industry, and partners at many law firms maintain a firm grip on the ebbs and flows of commercial disputes.
“While traditional sectors such as energy and infrastructure continue to generate a high volume of disputes, emerging industries are seeing an unprecedented surge in legal conflicts,” says Cao Lijun, a Beijing-based equity partner at Zhong Lun Law Firm.
In terms of dispute types, as Chinese companies expand overseas, they face not only the usual legal complexity in traditional areas such as engineering, infrastructure and trade, but also new challenges tied to their transition, from product exports to technology and brand exports, says Cao.
This leads to legal issues around equity investments, intellectual property and AI. Additionally, risks arising from post-merger integration failures, performance-linked bet-on clauses and share repurchase obligations are becoming increasingly prominent.
Shaun Wu, a partner at Paul Hastings based in Hong Kong and Shanghai, says he is now acting in increasingly high-stakes cross-border disputes, often involving multiple parties and investment across various jurisdictions.
However, there are plenty of legal risks taking effect despite the company’s best efforts at compliance and sound governance. “The reality today,” notes Wilfred Ho, a partner at White & Case in Hong Kong, “is that many disputes arise and continue against the backdrop of greater power diplomacy and are not simply isolated commercial disputes.”
Rachel Turner, a partner at Pinsent Masons in Shanghai, concurs. “Geopolitical tensions are at the forefront of the minds of those involved in cross-border disputes,” she says, noting that myriad matters, from tariffs and geopolitical conflicts to sanctions, have significantly complicated the international business climate.
Vincent Mu, a partner at Llinks Law Offices in Shanghai, shares a cautionary message. “When dealing with sanctioned regions or entities, companies may encounter not only compliance risks, but also political factors that affect how disputes are handled – ranging from the choice of jurisdiction to arbitration proceedings, and even the enforcement of final awards.”
Unfortunately, the most ideal and stable destination markets are not always available to outbound enterprises. Cao has observed a growing trend where Chinese companies direct their overseas investment towards developing countries with relatively unstable economic and political conditions, exposing themselves to greater uncertainty and multiple operational risks.
Asset recovery and enforcement abroad is another pressing issue. Cao advises that Chinese companies planning overseas investment should fully understand the legal and business environment of the host country in advance, conduct a thorough assessment of dispute risks, and incorporate it into the overall compliance system.
During the investment structuring phase, factors such as enforceability should be considered, with preference given to jurisdictions that are parties to the New York Convention. Judicial independence of the host country and its attitude towards the recognition and enforcement of awards should also be carefully evaluated.
“As geopolitical tensions intensify, Chinese enterprises’ direct investment overseas, especially in sensitive sectors such as infrastructure, energy and high-tech, is exposed to growing risks of unfair treatment or even direct expropriation by host governments,” says Cao. “Utilising the bilateral investment treaties signed between China and host countries to protect investments, and seeking compensation from host governments through investment arbitration, will serve as crucial tools for safeguarding their rights.”
Conversely, a key question looms for foreign businesses: how can they effectively protect their legitimate interests while operating in China? Ho, of White & Case, underscores the importance of enforceability and interim measures. “The option to present their case at a fair hearing before an impartial and independent tribunal is also paramount,” he says.
Keith Brandt, managing partner of Dentons Hong Kong, says he has noticed a significant stream of enquiries dealing with the shifting regulatory and political climate. “Purely on disputes concerning private parties, we are seeing more contractual disputes involving parties trying to invoke force majeure, frustration or hardship clauses in an attempt to excuse non-performance, or renegotiate terms against that backdrop,” says Brandt.
Wu, at Paul Hastings, warns: “Increasingly, dispute resolution may even be used by rivals or competitors to raise barriers for new market entrants.”
In areas such as data security, anti-monopoly, AI, IP protection, export control, supply chain and industrial security, Liu Honghuan, a Beijing-based partner at Jingtian & Gongcheng, emphasises that legal risks have transformed into derivative forms of geopolitical risks to a considerable extent. “The processing logic is no longer merely a legal judgment or business determination,” she says. “It is also necessary to consider how to avoid becoming a ‘target’ or a ‘casualty’ in geopolitical conflicts.”
Liu suggests that businesses should not only master the rules, but also build their own “neutral zone” based on the transferability of legal frameworks and the multi-tolerance of compliance logic. Specifically, when formulating litigation strategies, she says they should align legal actions with geopolitical trends and make precise judgements and flexible adjustments at critical junctures, “because in the new cycle, broad or ambiguous judgements mean higher costs”.
Frontier challenges
As technology and legal matters continue to intertwine, emerging industries such as AI, blockchain and digital currency are constantly giving rise to new and complex cross-border dispute issues.
“These types of emerging industries operate across borders, on decentralised platforms often without a clear legal nexus, and can involve parties who are pseudonymous or use systems that lack traditional human oversight, complicating liability and enforcement,” says Turner, at Pinsent Masons. “This creates challenges in determining the applicable law, jurisdiction and venue, complicating liability and introducing challenges of enforceability of judgments or awards,” she says.
On substantive issues in dispute, Cao points out that issues such as the attribution of responsibility for algorithmic decisions, the legal characterisation of virtual assets, and the compliance of digital transactions remain contentious, lacking consistent judgment standards.
New forms of evidence, such as electronic data traces and blockchain transaction records, pose challenges in terms of collection, preservation and judicial acceptance, which complicate the burden of proof for enterprises. “Jurisdictional conflicts arising from cross-border business, new types of disputes over data ownership and IP rights have also gradually become pressing issues in practice,” says Cao.
At this stage, due to the lack of a mature and unified regulatory consensus, Mu, at Llinks, notes that many jurisdictions tend to adopt relatively strict, even one-size-fits-all, regulatory approaches to guard against unknown risks.
As a result, the scope and intensity of regulation can vary significantly across countries and regions. This asymmetry, and sometimes contradiction, in the global regulatory landscape further complicates cross-border disputes in emerging industries, and adds uncertainty to the internationalisation efforts of enterprises.
In light of this, Li Ran, a partner at Tian Yuan Law Firm in Beijing, recommends that Chinese enterprises pay particular attention to local legal compliance requirements when investing abroad, and adopt tailored, jurisdiction-specific strategies to minimise compliance risks.
“For instance, in the EU, it is essential to enhance risk assessment and transparency,” she says. “In the US, state-level regulations and Federal Trade Commission enforcement should be taken into account, and in China companies must complete the filing and deploy content review, etc.”
Li stresses that companies should not be afraid of technology, but they must take rules seriously. By putting compliance first, building sound legal frameworks, drafting protective clauses, and preparing for enforcement, businesses can turn the risk of emerging technologies into a competitive edge and navigate the global digital economy with confidence.
In the long run, as technological applications and business models continue to mature, Mu envisages the rise of emerging industries as an irreversible trend, with regulatory frameworks inevitably evolving towards greater systematisation, normalisation and refinement.
“However, this is bound to be a prolonged and dynamically shifting process, during which regulatory attitudes may fluctuate,” says Mu. “This requires enterprises to closely monitor policy developments and adapt their compliance strategies and business planning with agility.”
Writing the new rules
Echoing the emerging trends in cross-border dispute resolution are new developments in legislation and institutional establishment. China’s newly revised Arbitration Law was passed in September, and is scheduled to come into effect in March next year.
The new law formally adopts the “seat of arbitration” concept, aligning China with international arbitration norms. “Designating the Chinese mainland as the seat now comes with clearer rules on interim measures, evidence-taking and judicial oversight, making arbitration more predictable and attractive for foreign-related disputes,” says Turner.
Ernest Yang, a partner at DLA Piper’s Hong Kong office and co-head of the firm’s international arbitration practice in the Asia-Pacific, describes the “seat” as an important concept because it designates the law that governs all procedural aspects of arbitration. “Failure of the parties to specify in clear terms the seat of an arbitration can lead to costly arguments before the arbitral tribunal, which will then have to designate the seat,” he says.
Turner expects that the revised law will result in more foreign-related arbitrations being handled by mainland institutions. She believes Hong Kong will remain a strong choice for enterprises that prefer a common law foundation and value its international reputation for credibility and neutrality.
“The advantage of the interim measures arrangement that permits Hong Kong-seated arbitrations to obtain relief from mainland court will also mean that Hong Kong will remain popular for China-linked disputes,” she says.
Brandt, of Dentons, adds: “With mainland corporations continuing to invest and expand overseas, and in view of the recent geopolitical situation, there is a tendency for Chinese corporations to choose the mainland or Hong Kong as the seat of arbitration.”
The new law enhances the competitiveness of mainland institutions while reaffirming Hong Kong’s strategic importance. “The expansion of one offering does not mean the shrinking of the other,” says Turner. “For Chinese and foreign enterprises alike, this means more options and greater flexibility.”
Brandt says that the new law does not affect the choice of arbitral institution for international arbitration per se, as the law of the arbitration (i.e. the seat) is separate from the rules of the institution administering it. For example, parties are free to choose a Hong Kong International Arbitration Centre-administered (HKIAC) arbitration with a seat in mainland China to obtain any desired procedural benefits from the combination.
A key question is whether the arbitration laws of the chosen seat may be inconsistent, or may limit the options available under the rules of the desired arbitration institute.
“For instance, one of the common questions we receive,” says Brandt, “is whether the tribunal can rule on its own jurisdiction – under both the HKIAC Administered Arbitration Rules, 2024, and the Hong Kong Arbitration Ordinance (HKAO, cap. 609), the power rests with the tribunal until and unless the tribunal rules that it has jurisdiction, and then the objecting party may, under the HKAO, request the Hong Kong court to decide on the matter.
“This does not seem to be the case under the China Arbitration Law, which on one hand allows the tribunal to rule on its own jurisdiction upon the request of a party, and on the other hand also allows a party to raise the matter with a PRC court, and the PRC court has priority to determine.”
With the IOMed officially setting up in Hong Kong this year, businesses now have a new option for resolving international commercial disputes.
Mu notes that international commercial dispute resolution has become more complex and time consuming in recent years. “Arbitration used to be a fast and flexible alternative to litigation, but now it’s becoming more like court proceedings, particularly known for its stricter procedural rules, and thereby blurring the line between arbitration and litigation,” he says. “This is weakening its traditional advantages in terms of efficiency and cost.”
Amid a growing market demand for a supplementary mechanism that offers lower conflict, more controllable costs, and effective dispute resolution, mediation, with its inherent flexibility and emphasis on co-operation and mutual benefit, is gaining traction.
“The arrival of the IOMed in Hong Kong represents a meaningful step towards diversifying dispute resolution mechanisms,” says Mu. “For Chinese enterprises, this may encourage a more proactive consideration of mediation as a preliminary or parallel strategy in cross-border dispute resolution planning.”
Wu, of Paul Hastings, also sees the IOMed as “complementing the range of international dispute resolution offerings across the region, and promoting Hong Kong as an integrated international dispute resolution hub”.
“For many cross-border investments, even when there is a dispute, investors are often reluctant to proceed with a ‘scorched earth’ approach to dispute resolution because they may be keen to maintain friendly relations and consider further investment opportunities locally,” he says. “This is especially true for foreign investors operating in host states worldwide.”
LESSONS FROM TREATY-BASED ARBITRATION
With geopolitical tensions felt across the international business landscape, outbound enterprises now face dispute issues that they rarely encountered before. Many such businesses have by now heard of investment treaty arbitration as an option for seeking recourse.
However, Ernest Yang, a partner at DLA Piper’s Hong Kong office and the co-head of the firm’s international arbitration practice in the Asia-Pacific, points out that they are generally unaware of the details and, as such, may be discouraged by the perceived complexity and cost of pursuing investment treaty arbitration.
“Tenders of government projects usually require the winning bidder to accept exclusive jurisdiction clauses in favour of local courts,” says Yang.
“Most Chinese enterprises often assume that suing the government or a government-related entity in the local courts is their only remedy, without realising that in some circumstances they may also have a right to pursue investment treaty arbitration regardless of the exclusive jurisdiction clause they have signed up to.”
Yang recalls enterprises he has encountered that initially believed suing in local courts was their only option. Alternatives were often explored only after local proceedings proved ineffective, by which time certain treaty rights were no longer available.
“When that happens they often find out that they have lost the right to pursue investment treaty arbitration because many bilateral investment treaties contain ‘fork in the road’ provisions, which prevent them from doing so where the same points have already been brought in the local courts,” he says.
Keith Brandt, managing partner of Dentons Hong Kong, introduces a matter the firm previously advised on concerning a potential investment arbitration claim by an investor in an emerging Pacific jurisdiction. This followed a hostile regulatory intervention by the host state into a financial institution owned and operated by the investor.
Given that the host state was not a party to the International Centre for Settlement of Investment Disputes (ICSID) Convention, Dentons assessed the viability of bringing a claim under the ICSID Additional Facility Rules.
While they identified a potential legal basis to proceed with arbitration, the matter was ultimately not pursued further due to factors including cost and logistical constraints.
Brandt believes the case, nonetheless, illustrates the growing relevance of investment treaty protections for Chinese investors in the Asia-Pacific region.
“In particular, we are observing increased engagement by Pacific jurisdictions in negotiating trade and investment agreements with China and Asean member states,” he says. “These developments suggest that investment arbitration is a growth area in the region.”
CROSS-BORDER ENFORCEMENT NOT GUARANTEED
In 2024, Chinese courts recognised and enforced 319 foreign judgments, an 11.2% year-on-year increase reflecting a growing judicial openness, according to the Report on the Work of the Supreme People’s Court delivered at the Third Session of the 14th National People’s Congress on 8 March 2025.
Rachel Turner, a partner at Pinsent Masons in Shanghai, notes that there is evidence supporting the view that Chinese courts are transitioning from a rigid “factual reciprocity” model to a more pragmatic “legal reciprocity” approach, citing Guiding Case No.235: S Shipping Co Ltd’s Application for Recognition of a Civil Judgment Entered by a Foreign Court, published on 26 November 2024.
“This means that a foreign judgment may now be recognised even without prior precedent – for example, a specific bilateral recognition agreement – provided the foreign jurisdiction’s laws allow recognition of Chinese judgments,” she explains.
Vincent Mu, a partner at Llinks Law Offices in Shanghai, says this trend is raising the bar for Chinese enterprises going global, and will even change how they approach business overseas.
“Previously, for instance, uncertainty surrounding the enforcement of cross-border judgments led some firms to take a passive stance on overseas litigation,” says Mu. “But with the strengthening of judicial co-operation mechanisms, foreign judgments are now more enforceable.”
He suggests that Chinese enterprises adopt a more forward-looking approach to litigation risk assessment and a more prudent attitude towards compliance management and litigation preparedness in cross-border business.
Taking the case of China Minsheng Trust v Fu Kwan (2025) as an example, Ernest Yang, a partner at DLA Piper’s Hong Kong office and co-head of the firm’s international arbitration practice in the Asia-Pacific, stresses that an important aspect of cross-border recognition and enforcement of court judgments is to plan ahead.
Yang says the above-mentioned case is in relation to proceedings to enforce judgments from mainland China in Hong Kong under the Mainland Judgments (Reciprocal Enforcement) Ordinance (MJREO). The Hong Kong court refused reciprocal enforcement of the judgments on the grounds that they relate to “notarised debt instruments”.
These are financial instruments which, under PRC law, can be enforced summarily through a notary office issuing (after due examination) a certificate of execution. Certificates of execution can be taken to local PRC courts without the need for a traditional adjudication process.
As this mechanism is not recognised in Hong Kong or other common law jurisdictions, the Hong Kong court decided that these judgments did not fall within the scope of the MJREO, therefore refusing enforcement.
“Where it is envisaged that a judgment can only be enforced in another jurisdiction, it is crucial to obtain legal advice from the enforcement jurisdiction to ensure a particular judgment obtained can actually be enforced,” says Yang.
Wilfred Ho, a partner at White & Case in Hong Kong, underscores the significance of distinguishing between the arrangements for mainland judgments pre and post the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (cap. 645) (the new MJREO).
According to Ho, the prior Mainland Judgments (Reciprocal Enforcement) Ordinance (cap. 597) still covers certain mainland judgments given prior to 29 January 2024, the commencement date of the new MJREO. He says the above-mentioned Minsheng case highlights the uncertainty and limitations of these ordinances’ scopes of application.
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