The main governing legislation for arbitration in China is the Arbitration Law of the People's Republic of China 1994 (中华人民共和国仲裁法) (1994 Arbitration Law), which says little on how arbitration costs are to be allocated. The most relevant provision is Article 76, which states that:

Arbitration-related provisions can also be found in the Civil Procedural Law of the People's Republic of China 2012 (中华人民共和国民事诉讼法) (2012 Civil Procedure Law) and corresponding judicial interpretations. However, the number of these provisions is limited, and they are essentially silent on the issue of costs allocation.

The modest approach of Chinese legislation regarding allocation of arbitration costs gives more leeway for institutional rules. For example, the institutional rules of two of the major arbitral institutions in China, the China International Economic and Trade Arbitration Commission (CIETAC) and the Beijing Arbitration Commission (BAC), have detailed provisions on costs allocation.

In common law jurisdictions, the predominating rule on allocation of arbitration costs used to be the "Pay Your Own Way Rule", which requires parties to pay their own costs in arbitration. The UK and the US have gradually adopted different approaches. The US continued to use the Pay Your Own Way Rule, while the UK adopted the "Costs Follow the Events" principle, also known as the "Loser Pays Rule". Under the Loser Pays Rule, the losing party will undertake the costs of arbitration. The Loser Pays Rule has been widely adopted in different jurisdictions, but the application of this rule is not absolute, and arbitral tribunals still decide whether to apply it on a case by case basis, taking into account other factors.

Party autonomy also plays a critical role in the allocation of arbitration costs. Allocation of costs is subject to the parties' written agreement, as long as the agreement conforms to the laws of the seat of arbitration. If parties already have a prior agreement on costs allocation or if the parties subsequently reach an agreement during arbitration proceedings, the arbitral tribunal would most likely support the agreement and allocate the costs accordingly. Therefore, parties should specify in the arbitration agreement items such as:

This can avoid disputes on these items later in arbitration proceedings.

Wide discretion is vested in the arbitral tribunal in international commercial arbitrations. If parties do not agree on the allocation of costs of arbitration prior to the dispute, it is likely to be more difficult for them to reach common ground after the commencement of arbitration. Where the parties fail to reach agreement under these circumstances, it is necessary for the tribunal to exercise its discretionary power. When making its decision on allocation of costs, the tribunal will take into consideration a number of factors, including the outcome of the arbitration, the reasonableness of the costs and the bad faith behaviour, if any, of either party.

Over the past two decades there have been several revisions of institutional rules in Chinese arbitration practice, including the abolishment of the "10% Cap Amount" rule for allocation of costs. For example, Article 59 of the CIETAC Arbitration Rules (1995) specified that the arbitral tribunal was entitled to allocate the costs of arbitration to the losing party, but that the amount should not exceed 10% of the total amount that the winning party was awarded. This 10% cap has since been removed from the CIETAC rules.

In current practice, an arbitral tribunal has more discretion when it decides the amount of costs it should allocate to the losing party, though 10% may still be used as an informal reference.

In institutional arbitration, after the commencement of arbitration, the administrative fees of the institution as well as the tribunal's fees should be paid in advance by the parties, otherwise the tribunal is not able to proceed with its work.

There is no clear regulation in Chinese legislation that stipulates how the arbitration fees should be advanced by the parties. Article 76 of the 1994 Arbitration Law only generally provides that:

The term "parties" is vague in this context because it could refer to either the claimant or the respondent.

Chinese and international practices generally differ as follows:

Since the essence of arbitration being an alternative dispute resolution mechanism is that party autonomy serves a significant role in dispute resolution, Chinese practice could learn from the international experience in splitting the arbitration fees between the parties. This would be fairer in light of the autonomy principle, as each party would be paying its share of the fees.

Contingency fees, also called success fees, refers to a fee arrangement made between attorneys and clients where, if the client wins the case, a certain percentage of the awarded amount should be charged from the client as attorney's fees. If the client loses, then the attorneys get no fees at all. Contingency fees also fall into the category of arbitration fees in theory and should be recoverable. However, in Chinese arbitration practice, arbitral tribunals are usually reluctant to uphold claims for contingency fees. This is because it is not possible for parties to prove before the closing of arbitration proceedings that their claimed amount of contingency fees fall within the scope of actual damages. Therefore, these fees are not deemed collectable by the arbitral tribunal.

Whether the costs of in-house counsel or managing staff should be included as costs of arbitration is a controversial topic. Many current institutional rules fail to address this issue. Arbitration practice suggests that different tribunals will take different approaches to this issue. If, however, a party manages to convince the tribunal that the costs of in-house counsel or managing staff are "closely connected" to the arbitration proceedings and can support this with sufficient evidence, then the tribunal is more likely to support the claims for recovery of those costs.

There are also controversies concerning third party funding (TPF) in arbitration. According to the ICC Report, legislation on TPF in arbitration varies greatly from country to country. For example, in some common law jurisdictions such as Singapore, TPF used to be regarded as "maintenance and champerty" and was legally prohibited. However, the prohibition seems to have weakened in recent years.

In countries like the UK and Germany, TPF is regarded as a cost of arbitration and deemed collectable. For example, in the recent English High Court case of Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm), the judge decided that TPF fees belonged to the category of "other fees" in the costs of arbitration and were therefore collectable.

In other countries such as Brazil, Finland and Sweden, TPF fees are not recoverable. This is because a third party funder is not a party to the arbitration, and therefore is not entitled to make any claims for recovery of costs.

In China, there is no specific legislation or institutional rules to address this issue. However, in May 2016, CIETAC's Hong Kong Arbitration Center (CIETAC HKAC) unveiled draft guidelines on TPF in CIETAC HKAC arbitration. The guidelines are voluntary and set out principles of international best practice for parties and arbitrators in respect of arbitration proceedings in which there is or may be an element of TPF.

Since allocation of costs is one of the most critical questions in managing those costs, the arbitral tribunal's decision on how to allocate the costs can potentially face challenges from the parties after the award is rendered.

However, the grounds on which arbitral awards must be set aside under the 1994 Arbitration Law (Article 58) or refused enforcement under the 2012 Civil Procedure Law (Article 237) do not include an arbitral tribunal's false or unfair decision on allocation of costs.

Recent Chinese legal practice also suggests that an application for setting aside an arbitration award on the ground of mistakes in the allocation of costs would be rejected by a Chinese court, on the basis that it would lead to substantive judicial review of the case. This is evidence that the Chinese judiciary has developed a pro-arbitration attitude over the years.