An Overview of Third-Party Funding in Mainland China

The global growth of litigation funding has funders, law firms and other interested parties all looking to see where the next major market could be for the widespread adoption of third-party funding. Whilst individual jurisdictions such as India or broader regional markets like Latin America are often discussed, one market that remains enticing, yet illusive, is mainland China.

A new article for Global Arbitration Review by Heng Wang, partner at Global Law Office, provides a detailed overview of the current state of third-party funding (TPF) in mainland China and offers key takeaways for those interested in exploring this market. Wang’s analysis suggests that ‘Chinese courts take a similar approach to TPF for arbitration as international practice’, with it being permitted but with an expectation that parties involved in such arbitration will disclose TPF arrangements to avoid conflicts of interest.

However, Wang emphasizes that whilst the permissibility of TPF in arbitration has repeatedly been confirmed in courts, there is less certainty over the legality of litigation funding. 

Highlighting a case in Shanghai in 2017, Wang notes that whilst the courts confirmed there was no prohibition against litigation funding in Chinese law, the funding agreement itself was ruled to be ‘contrary to public policy and good morals, and invalid’. Yet in other cases the courts have come to contradictory conclusions, having ruled in favor of allowing third-party funding agreements and even sided with funders in disputes over unpaid returns.

Wang concludes that there are clearly contradictory and divergent outcomes for the third-party funding of litigation specifically, with little sign of a consistent policy from the courts towards the practice. Importantly, Wang emphasizes that no cases involving the legality of TPF have come before the Supreme People’s Court, which does leave the door open to its use being more widely affirmed or prohibited in the future.