Chapter XII

International Contracts

International contracts are commonly defined in China as the contracts that

involve so-called “foreign elements”. For this reason, the international contracts
in China are quite often called foreign contracts. In general, a contract that has
a “foreign element” is referred to either of the following: (1) a contract in
which at least one of the parties to the contract is foreigner, stateless person,
foreign enterprise or organization, (2) a contract that is concluded or per-
formed in a foreign country or outside the territory of China, or (3) a contract
that contains the subject matter located in a foreign country.1 Although the
term “foreign” normally denotes the place crossing the border of the nation,
it in China may also include Hong Kong, Macao and Taiwan because of the
unique status of these three regions.2

1
An British scholar defines the “foreign element” to mean “simply a contact with some sys-
tem of law other than that of the ‘forum’. . . . Such foreign elements in the facts of a case
are quite common place: a contract was made with a foreign company or to be performed
in a foreign country, or a tort was committed there, or property was situated there, or one of
the parties is not English”. See John H.C. Morris, The Conflict of Laws (5th ed), 2 (Sweet
& Maxwell, 2000).
2
For historical reason, China treats Hong Kong and Macao differently from the mainland.
The structural format under which Hong Kong and Macao are being administrated after the
handover is phrased as “one country with two systems.” As part of its scheme to reunite the
country, China has been trying to employ the same idea to deal with Taiwan, though there
are tremendous resistances from Taiwan.
328 Chinese Contract Law

As indicated at the beginning of this book, the international contracts or

foreign contracts were governed by a separate contract law named “Foreign
Economic Contract Law” before the Contract Law was adopted in 1999. At
that time, making foreign contracts was viewed as the business activities that
required special rules. For example, in the Foreign Economic Contract Law,
Chinese citizen was not eligible to be a party to a foreign contract.3 The prom-
ulgation of the Contract Law unifies the laws that regulate all contracts
regardless of foreign elements or nature. Thus, the international contracts and
domestic contracts now are all under the same umbrella of the Contract Law
But the international contracts possess some distinctions that the domestic
contracts do not have. A notable distinction is that in international contracts,
both jurisdiction and choice of law are the issues that must be considered
because of involvement of the foreign elements. To be accurate, for an inter-
national contract, the Chinese law may not apply to the disputes over the con-
tract or the contract may be beyond the reach of the judicial power of the
Chinese courts even though the contract is concluded or performed in China.
In some contract cases, however, due to the concern about the state interests,
the application of Chinese law is mandatory, which leaves no choice to the
parties to select a foreign law as the governing law.

1. Choice of Law in International Contracts

The choice of law problem occurs wherever the parties have been subject to
the authority of more than one sovereign state or nation. In the international
business transactions, the most distinctive feature is that the transactions
invoke the jurisdictions of multiple sovereigns, which makes the choice of law
the matter mostly confronted by the lawyers engaged in international practice.
Thus when drafting an international contract, the lawyer must think through
the issues as to which law the contract will be subject, according to which
rules the rights and obligations of the parties to the contract will be deter-
mined, and under which mechanism the disputes over the contact will be
resolved. With a well-worded choice of law clause in the contract, the certainty
and predictability about the transactions involved will be greatly enhanced.

3
The Foreign Economic Contract Law applied to “economic contracts, concluded between enter-
prises or other economic organizations of the People’s Republic of China and foreign enter-
prises, other foreign economic organizations or individuals”. Clearly, the Chinese individuals
were excluded from making a foreign contract. See Foreign Economic Contract Law (1985),
art. 2. An English translation is available at http://www.qis.net/chinalaw/preclaw20.htm.