In China, the two general principles to determine applicable law in contracts are the same as those in the EU and US: the first is party autonomy, where parties are free to choose the applicable law governing the contract; second, the closest connection or the most significant relationship to the contract or transaction is regarded as a linking factor to determine the applicable law in the absence of choice by parties. However, China is a civil law country with written laws. There can be no choice of law element in a contract in China unless the contract includes an “international” factor. A contract is deemed to be “international” when (1) at least one party is not a Chinese citizen or legal person, (2) the subject matter of the contract is in a third country (i.e. the goods to be sold or purchased are located outside of China), or (3) the conclusion or performance of the contract is made in a third country.
Foreign-related cases have been dramatically increasing. In 2004, there were about 17,066 new foreign-related cases, an increase of about 8%.
Party autonomy/freedom of choice
In China, party autonomy is a paramount principle in determining the applicable law for contracts. The National People's Congress of the People's Republic of China enacted a unified Contract Law, which has been in force since 1 October 1999. It also deals with the applicable law in foreign contracts. Article 126 of the Chinese Contract Law provides a party autonomy rule that:
Parties to a foreign related contract may select the applicable law for resolution of a contractual dispute, except as otherwise provided by law.