by Rixin Huang, Ph.D. candidate at the China University of Political Science and Law with professional experience in government regulation & global disputes, involving arbitration, regulatory authorities, and the World Bank (IFC). Rizin's LinkedIn profile: www.linkedin.com/in/rixin-bill-huang-709a5b289

“It is a very unruly horse, and when once you get astride it you never know where it will carry you. It may lead you from the sound law. It is never argued at all but when other points fail.”[1]

—Judge James Burrough

“Harmonize judgment criteria, protect the legitimate rights and interests of the parties according to law, and ensure the development of arbitration.”[2]

—Supreme People’s Court (“SPC”) of PRC

Introduction

The proliferation of mandatory rules, from economic sanctions to trade remedies, poses a growing challenge to the enforcement regime of the New York Convention (“NYC”). While the NYC presumes the enforceability of awards, national courts remain the ultimate gatekeepers, tasked with determining whether enforcement would violate the forum State’s “public policy” under Article V(2)(b).[3] The critical inquiry, therefore, is how judicial review should balance these regulatory imperatives against the pro-enforcement bias of international arbitration. The 2024 “Ten Representative Cases of Judicial Review of Arbitration” were issued by the SPC, the first case called for “strictly implementing the NYC”.[4]

China adopted a dual-track system for this assessment. The enforcement of domestic awards was historically scrutinized for violations of “social public interest” under the Civil Procedure Law of China in 2023.[5] Foreign awards, however, have all along been enforced pursuant to “international treaty (primarily the NYC)…or under the principle of reciprocity”.[6] The new Arbitration Law of China, which came into force on 1 March 2026, unifies the grounds for the non-enforcement of domestic awards into its Article 76. This codification not only harmonizes with the refusal framework of the NYC, but also modernizes the statutory language to “public interest”, thereby further cementing China’s consolidated pro-arbitration stance. This article examines how Chinese courts, operating under this evolving framework, navigate the tension between enforcing arbitral awards and upholding State economic policy.

The Prior Reporting System and the Narrow Scope of “Public Policy”

To ensure the uniform application of the NYC, China established the “Prior Reporting System” in 1995.[7] Under this mechanism, lower courts are precluded from refusing the enforcement of a foreign award without the final approval of the SPC through a formal reply.[8] This centralized review has effectively harmonized judicial standards and prevented local courts from invoking “public policy” arbitrarily to protect local interests.

The SPC’s interpretation of “public policy” is notably restrictive. In its 2021 Conference Summary, the SPC identified only one concrete stipulated scenario triggering the exception: conflict of judicial sovereignty. Specifically, enforcement may be refused if the award will “conflict with an effective ruling” rendered by a Chinese Court.[9] This aligns with the high consistency in judicial standards from the landmark Hemofarm case in 2008 and Palmer case in 2018, the only instances to date where the SPC affirmed a “public policy” defense under the NYC.[10]

Conversely, the SPC has systematically clarified the scope of “public policy” through a series of replies to lower courts. The Court has explicitly ruled that a violation of mandatory statutory provisions,[11] administrative regulations,[12] or the perceived unfairness of the substantive outcome[13] does not, in itself, constitute a violation of “public policy.” These precedents confirm that Chinese courts strictly distinguish between simple illegality and violations of fundamental legal principles.

Navigating Economic Sanctions

The intersection of economic sanctions and arbitration has gained prominence following the enactment of the Anti-Foreign Sanctions Law (“AFSL”) of China in 2021 and the Provisions on the Implementation of the AFSL in 2025 and subsequent regulatory developments. Article 12 of the AFSL creates a private cause of action, allowing entities to sue for damages resulting from the implementation of foreign “discriminatory restrictive measures”. However, the judicial application remains cautious. Rather than issuing a landmark ruling that might place the AFSL at the core of international commercial obligations, the Nanjing Maritime Court successfully resolved the dispute through mediation.[14] The SPC’s selection of this case signals a clear preference for pragmatic dispute resolution over aggressive judicial intervention that could destabilize the arbitration landscape.

When sanctions defenses are raised in enforcement proceedings, the theoretical inquiry is twofold: (1) qualitatively, can a sanction measure constitute the source of “public policy”? and (2) quantitatively, does the enforcement of a specific award violate this standard? In the 2023 Macquarie Bank v Dalian Wanda case, the only reported case directly addressing this issue, the Shanghai Financial Court first bypassed the qualitative test regarding the sanction issue.[15] Instead, the court directly dismissed the defense on technical grounds, finding the sanctions inapplicable to the transaction at hand. This reflects a judicial tendency to resolve disputes on narrow factual grounds rather than to engage in broad “public policy” reviews.

This approach mirrors the SPC’s historical treatment of other mandatory economic regulations, such as anti-dumping duties. In the Shin-Etsu cases, where the enforcement of awards based on original contract prices was challenged due to the imposition of anti-dumping duties, the SPC’s reply was telling. While the Court addressed various grounds for refusal, it remained conspicuously silent on the “public policy” defense raised by the parties.[16] This silence reinforces the view that the “public policy” operates inherently as a residual defense, pleaded strictly when other specific objections fail.

International Benchmarks and Strategic Ambiguity

To contextualize China’s approach, one must look to the international standard. The International Law Association (ILA) restricts “public policy” under the NYC to “international public policy,” encompassing only fundamental principles, public policy rules, and international obligations.[17] The SPC aligned itself with this high threshold, a standard it explicitly adopted in the Western Bulk case, defining “public policy” strictly as violations of “national sovereignty, endangerment of national and social public security…good morals… jeopardize the fundamental social public interests of our country.”[18]

Applying this to sanctions created a divergence across jurisdictions. While UN Security Council sanctions are widely accepted as part of “international public policy,”[19] and arguably mandatory for tribunals,[20] unilateral State sanctions are far more contentious. In the seminal Parsons case, the U.S. Court of Appeals for the Second Circuit held that “public policy” refers to “supranational” principles, not national political interests, thereby refusing to treat foreign policy disputes as grounds for non-enforcement.[21] Conversely, jurisdictions like India have historically adopted a broader view. In COSID, the court equated the violation of mandatory government orders with a violation of “public policy,” subjecting awards to stricter scrutiny.[22] However, the judicial standards have since evolved; in the 2019 Ssangyong case, the Indian Supreme Court narrowed the scope of public policy to “fundamental policy of Indian law” or the “most basic notions of morality or justice”.[23] Many European jurisdictions view sanctions as potential “public policy” issues, but impose a high burden of proof regarding the severity of the violation.[24]

China’s current stance can be described as one of “constructive ambiguity.” While the concept of “discriminatory restrictive measures” in AFSL provides a statutory basis for refusing enforcement, the judiciary has not yet deployed this weapon against arbitral awards. This preserves a powerful means within the toolbox, capable of being activated to counter against unjust foreign interference, while effectively maintaining a pro-arbitration status quo in practice.

Conclusion

As the global geopolitical landscape fractures, the proliferation of unilateral sanctions poses a stress test for the NYC. China, as the world’s second-largest economy, faces the dual challenge of protecting its national interests and upholding its commitments to arbitration. The evidence suggests that China is navigating this tension with prudence. By adhering to a restrictive interpretation of “public policy” that aligns with international standards, based on the limited available case law, Chinese courts have thus far refused to let economic sanctions derail the enforcement of awards. China effectively counters external geopolitical uncertainty with internal judicial certainty, signaling to the international community that its market is anchored in the rule of law.

[1] Richardson v Mellish (1824) 2 Bing 229, 252.

[2] SPC, Provisions of the SPC on Issues Concerning the Reporting of Cases Involving Judicial Review of Arbitration for Examination and Approval (2021) preamble. (hereinafter ‘Reporting Provisions’).

[3] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (adopted 10 June 1958, entered into force 7 June 1959) 330 UNTS 3 (New York Convention) art V(2)(b).

[4] SPC, Ten Representative Cases of Judicial Review of Arbitration Issued by the SPC (2024) case 1, https://www.court.gov.cn/zixun/xiangqing/423292.html.

[5] Civil Procedure Law of the PRC (2023 Amendment) art 248.

[6] Civil Procedure Law of the PRC (2023 Amendment) art 304; Arbitration Law of the PRC (2025 Amendment) art 88(1).

[7] SPC, Notice of the SPC on the Relevant Issues of the People’s Court Dealing with Foreign Arbitration and Foreign Arbitration (1995).

[8] Reporting Provisions (n 2) art 2.

[9] SPC, Conference Summary of the National Symposium on Foreign-related Commercial and Maritime Trial Work (2021) art 108.

[10] Hemofarm DD, MAG International Trading Co and Sulamo Media Co Ltd v Ji’nan Yongning Pharmaceutical Co Ltd [2008] Min Si Ta Zi No 11 (SPC); Palmer Maritime Inc v. China Animal Husbandry Industry Co Ltd [2018] Min Si Ta Zi No 140 (SPC).

[11] ED&F Man (Hong Kong) Co Ltd v China National Sugar & Wines Group Corp [2003] Min Si Ta Zi No 3 (SPC).

[12] Mitsui & Co Ltd v Hainan Textile Industry General Corp [2005] Min Si Ta Zi No 12 (SPC).

[13] GRD Minproc Ltd v Shanghai Flyingwheel Industry Co Ltd [2009] Min Si Ta Zi No 48 (SPC); see also UNCITRAL CLOUT Case 1322.

[14] A Marine Engineering Co v S Equipment Co [2024] Su 72 Min Chu No 2157 (Nanjing Maritime Court) (Civil Mediation Statement).

[15] Macquarie Bank Limited v Dalian Wanda Group Co Ltd [2023] Hu 74 Xie Wai Ren No 1 (Shanghai Financial Court).

[16] Shin-Etsu Chemical Co Ltd v Tianjin Xinmao Co Ltd [2008] Min Si Ta Zi No 18 (SPC); Shin-Etsu Chemical Co Ltd v Jiangsu Zhongtian Technology Co Ltd [2008] Min Si Ta Zi No 26 (SPC); see also UNCITRAL CLOUT Case 1686.

[17] International Law Association, ‘Resolution 2/2002: Recommendations on the Application of Public Policy as a Ground for Refusing Recognition or Enforcement of International Arbitral Awards’ (70th ILA Conference, New Delhi, 2002) rec 1(d).

[18] Western Bulk v Beijing CSGC Tiantie Iron & Steel Trade [2012] Min Si Ta Zi No 12 (SPC); see also UNCITRAL CLOUT Case 1577.

[19] Bank Melli Iran and Bank Saderat Iran v Bahrain (Award, 9 November 2021) PCA Case No 2017-25, para 381.

[20] Karl-Heinz Böckstiegel, ‘Applicable Law in Disputes Concerning Economic Sanctions: A Procedural Framework for Arbitral Tribunals’ (2014) 30 Arb Intl 605, 609.

[21] Parsons & Whittemore Overseas Co Inc v Société Générale de l’Industrie du Papier (RAKTA) 508 F2d 969, 974 (2d Cir 1974).

[22] COSID Inc v Steel Authority of India Ltd AIR 1986 Del 63.

[23] Ssangyong Engineering & Construction Co Ltd v National Highways Authority of India (2019) 15 SCC 131, [25].

[24] Oberlandesgericht Frankfurt am Main (26 June 2006) 26 Sch 28/05 42-44; SA v Société Trioplast Industrier AB (Cour d’appel de Paris, 6 December 2007) No 06/4016.