Every contract has a clause saying where disputes are settled. It is agreed in five minutes at the end of a negotiation about price, and it is the clause that decides whether you ever recover anything.
Why a French court judgment is usually worthless
European companies instinctively insist on their own courts. It feels like a win. The problem comes afterwards: a court judgment has to be recognised and enforced where the assets are, and there is no general treaty making a French or German court judgment enforceable in China. You obtain a judgment, and then you cannot use it.
Arbitration is different. Arbitral awards circulate internationally under a widely ratified convention to which both China and the European states are parties. An arbitral award is enforceable in China in a way a foreign court judgment generally is not. This single fact is why experienced parties arbitrate.
Where to seat it
- Hong Kong — common ground. International practice, arbitration in English, and arrangements with the mainland that make interim relief and enforcement unusually workable. The default worth arguing for.
- Singapore — equally respected, genuinely neutral, and sometimes easier to agree precisely because it is nobody's home.
- A mainland Chinese institution — what your counterparty will propose. Workable, and it puts you in a forum you do not know, in a language you do not read.
The three things the clause must actually say
- The institution, named exactly. A clause referring vaguely to arbitration in a city, with no institution, is a clause that gets litigated before the dispute is.
- The language of the proceedings. Left unsaid, it may be decided against you, and translation of a technical file is a real cost.
- The governing law, which is a separate question from the forum and is routinely confused with it.
Before any of that: is there anything to enforce against?
An award against a company with no assets is an expensive piece of paper. This is the argument for checking a counterparty's registered capital and standing at the start, and for structuring payment so that you are never carrying the whole exposure. A dispute clause is a remedy of last resort; payment terms are the remedy you use every day.
Most disputes that get resolved are resolved commercially, by people who want to keep trading. The value of a strong arbitration clause is mostly that it makes the commercial conversation go better — which is a good reason to have one and a bad reason to expect to use it.