Many international legal experts believe that the Philippines v. China arbitration award of 12 July 2016 represents a game changer for South China Sea dispute settlements because the award has brought a breathtaking legal clarity to the complex disputes. This article argues that the sweeping nature of the award had a very paradoxical effect on Chinese policy. The arbitration ruling has led to the hardening of China's claims, but it has also raised a new readiness among Chinese policymakers to renew negotiations. The sweepingness of the award makes it hard for the Philippines to reach a negotiated compromise with China on the basis of the award, but it also presents a surprising political opportunity in regional politics for the major actors involved to lower tensions and recalibrate policies. Although China's new readiness to negotiate is welcome, the overall impact of the three-and-a-half-year-long arbitration is likely to create a deadlock in negotiations in the near future. Paradoxically, this may raise the importance of political and power-centred approaches to regional dispute settlements, as the legal approach embodied by arbitration continues to meet Chinese defiance.