The purpose of this thesis is to examine how public policy defense functions in international commercial arbitration and whether it will block the development of international commercial arbitration. Chapter II deals with the role of public policy in international private law. This chapter examines the origins of public policy in common law countries and its functions in international private law. It is difficult to evaluate public policy as a precise concept because of its relative nature. Nevertheless, to limit its application in international private law, legal scholars have tried to clarify differences between domestic public policy, international public policy, and transnational public policy. Chapter III discusses the legal history of the New York Convention and analyzes the role of the public policy exception under the Convention. Chapter IV gives an overview of the judicial application of the public policy exception in the United States. The case law shows that American courts narrowly read public policy defense in determining the arbitrability of subject matters, the propriety of arbitration procedures and the content of arbitration awards. This Chapter also analyzes why American courts adhere to a narrow construction of public policy defense. Chapter V examines how Chinese courts apply the public policy exception in practice. It seems that Chinese courts broadly, sometimes even incorrectly, invoke the public policy exception to refuse enforcement of arbitration agreements or arbitral awards though enacted laws indicate a narrow construction. Chapter VI discusses the role of the public policy exception in the future. It seems unlikely that the public policy exception will be removed from international arbitration any time soon. However, the tendency of narrowly reading the public policy exception has created the basis for the development of the notion of a transnational public policy, a policy that would facilitate predictability in international commercial arbitration.