China’s International Investment Law and Policy Regime—Identifying the Three Tracks
Abstract and Keywords
Being both a capital importing and a capital exporting nation, China must maintain a balance of this dual role through its international investment agreements (IIAs) system, attracting inward foreign direct investment (IFDI) and, at the same time, protecting outward foreign direct investment (OFDI). Accomplishing this balanced objective not only demands strategic planning to maintain a balance between safeguarding its offensive stakes as a supplier of FDI and protecting its defensive stakes as a receiver of FDI, but also requires leadership to introduce IIA discussions that serve national interests, promote regional integration, and contribute to the growth and development of the international investment system. China’s dual role vis-à-vis FDI, owing to its three-prong investment strategies (bilaterally, regionally, and globally), targets the ‘subsequent opening up to the outside and facilitating local reforms’, and is efficiently transforming into the global economy as a reliable rule-maker. This chapter provides a new breakdown and extensive reappraisal of China’s more radical method to international standard-setting through its advanced IIAs programme, which is required in order to enhance China’s global presence in the future. This introduction provides an explanation of the main notion and definitions in respect of China’s tripartite international investment policy..
China is expected by the rest of the world to adopt globalization fully, to protect free trade, maintain a balanced economic growth, and so on, in view of the expanding economic nationalism and undoubted economic interdependence around the globe. This is a noticeable situation for China to be in when considering that, at the 1944 Bretton Woods Conference, which founded the post-war global economic governance architecture (the UN system), China had a very small function to perform.1 But just in the past fifty years, China has metamorphosed itself across generations in international economic law jurisprudence by living up to the difficult obligations of the World Trade Organization (WTO), introducing bilateral and regional trade and investment agreements, and ultimately having a significant say in multi-lateral investment law-making and policy agenda-setting.2
In view of the Go Global strategy introduced in 1999, China’s accession to the WTO in 2001 has further increased its incorporation into the global economy and invigorated the dynamics of its local economy, accelerating the complexity of its exports through ‘bringing in’ inward foreign direct investment (IFDI).3 Two major tools of economic growth are international trade and investment. China’s international trading activities are now regulated by a rule-founded multi-lateral trading regime and supplemented by bilateral and regional favourite trade agreements, popularly called free trade agreements (FTAs).4 As the WTO negotiations are conducted under the ‘single undertaking’ doctrine, known as ‘nothing is agreed until everything is agreed’, it demands China to assume all obligations relating to the WTO agreements that encompasses goods, services, and intellectual property. To promote the local reform agenda, China agreed to more rigid conditions than other developing countries and adopted (p.2) ‘inseparable packages’ of the WTO agreement, after almost fifteen years of arduous negotiations to join the WTO.5
International investments are not regulated by a multi-lateral system like the WTO’s trade rules, which are basically negotiated agreements of the Uruguay Round among 123 countries, ranging from 1986 to 1994. Rather they are governed by a ‘fragmented’ international investment system which is made up of bilateral investment treaties (BITs) and the investment chapters of FTAs (generally called international investment agreements or IIAs). In the same vein, China’s dual investments, namely inward foreign direct investment (IFDI) in China and Chinese outward foreign direct investment (OFDI), are regulated by 129 BITs and twenty FTAs with investment chapters which have achieved worldwide geographical coverage.6
International trade law and international investment law are relatively interwoven, but their respective objectives and mode of negotiation are basically different due to previously contracted FTAs or IIAs. Most countries appreciate the contribution of free trade and foreign investment in developing their ultimate local economic development, and thus encourage the liberalization of trade and investment. The WTO system, from a legal perspective, offers its members and potential members ‘a simple proposition: join the trading club, follow the rules, and everyone benefits’. Flowing from the above logic, countries contracted FTAs, thereby establishing trading clubs, with the purpose of subsequently recompensing trade liberalization. On the contrary, investment protection and investment promotion are the two major objectives of the nations that come to the negotiating table to contract IIAs. Their method of negotiation is basically determined by their role as capital importing nations, capital exporting nations, or both.7 The basis of the contemporary international investment law is what Professor Reisman called ‘the great compact’,8 whereby capital exporting states relinquish their ability to engage their superior power to protect their investors in exchange for capital importing nations agreeing to submit investment disputes to international arbitration.9
China being both a capital importing (the world’s largest recipient of foreign direct investment (FDI)) and a capital exporting nation (the world’s second largest supplier of FDI), China must maintain a balance of this dual role through its IIAs system, attracting IFDI and at the same time protecting OFDI. To accomplish this balanced objective not only demands strategic planning to maintain a balance between safeguarding its offensive stakes as a supplier of FDI and protecting its defensive stakes as a receiver of FDI, but also requires leadership to introduce IIA discussions that serve national interests, promote regional integration, and contribute to the growth and (p.3) development of the international investment system.10 China’s dual role vis-à-vis FDI, owing to its three-prong investment strategies (bilaterally, regionally, and globally), targets the ‘subsequent opening up to the outside and facilitating local reforms’ and is efficiently transforming into the global economy as a reliable rule-maker.11 Subsequent reform measures on FDI are a basic element to Chinese economic growth because most service sectors maintain restrictions on private and foreign investors, withholding prospective economy-wide productivity gains. Above their direct influence on the level of rivalry in the restricted services sectors, a major risk is that low productivity in these sectors indirectly inhibits growth in downstream sectors. China would likely gain advantage from greater effort to enhance its FDI system in this regard. China’s major motivating force in subsequently contracting IIAs has been to strike a balance between investor protection and the government’s power to regulate, in accordance with the developments and growth in international investment law, in this period of transition.12
The remarkable story of China’s position in moulding the international economic regime has been majorly said and scrutinized by political scientists and economists. Analysis of the available hypothetical and empirical studies shows that there are principally three types of analysis. First, literatures were premised on case studies to provide Chinese company Go Global strategies with a nation-oriented or a regional-oriented appraisal.13 Secondly, scholars saw China’s dealings with international economic law, particularly its active involvement in major negotiations.14 Lastly, from China’s point of view, scholars have adjudged Chinese characteristics encouraging and protecting its OFDI and accelerating its experience with the international investment disputes resolution system.15
This book provides a new breakdown and extensive reappraisal of China’s more radical method to international standard-setting through its advanced IIAs programme, which is required in order to enhance China’s global presence in the future. This introduction provides an explanation of the main notion and definitions in respect of China’s tripartite international investment policy.
This book is designed around the emerging tripartite investment policy of China and strategy propelled by the local reforms that are presently restructuring the regulatory framework for FDI.
Part I highlights the local strategies that are being put in place to revive China’s stalled economic reforms and developmental goals, as clearly illustrated in China’s (p.4) Thirteenth Five-year Plan (2016–2020). For China’s local investors, there is a considerable opportunity in the country compared to its very high savings rate. For international investors, China has been seen as the strictest investment territory among the G20 countries. It is thus expedient for China to regulate its investment rules and policies with its major economic partners and within the Asia-Pacific region.
Part II deploys the analysis at the international level in respect to the ‘bilateral prong’. China, a nation which has preferred to transact bilaterally with foreign nations in times past, has in modern times engaged in bilateral talks with its top high-income trading partners to promote its stakes and attain more dominance. China has contracted bilateral agreements with some particular strategic partners, such as the Association of Southeast Asian Nations (ASEAN) (2010), Canada (2014), and Australia (2015). Furthermore, there are two outstanding agreements under negotiation: the US–China BIT (re-engaged in 2008) which will regulate a more complicated economic relationship between the world’s largest economies, and the European Union (EU)–China investment treaty (contracted in 2014) additionally to open up China’s economy.
Part III examines the ‘regional prong’. China has also been actively involved in adjusting the economic architecture of the Asia-Pacific region. Stimulated by regional economic integration in the West (the EU, North America Free Trade Area (NAFTA), the South American Trading Bloc (MERCOSUR), and the Pacific Alliance) and thwarted by the impasse of the WTO multi-lateral negotiations, the countries in the Asia-Pacific region are inclined towards coming together and modernizing their foreign investment rules. To achieve the ‘Asia-Pacific dream’ advocated by President Xi, since 2006 China has been advocating an Asia-Pacific trade accord, the Free Trade Area of the Asia-Pacific (FTAAP), the Regional Comprehensive Economic Partnership (RCEP), and the Trans-Pacific Partnership (TPP) as a panacea established by China and the United States towards coming together. Subsequently, in 2014, the ‘Trilateral Investment Agreement’ between China, Japan, and South Korea came into existence. The analysis must also encompass the potential coming into existence of the TPP with China not being a party; it could also have a complicated and very important effect on the region’s investment regime.
Part IV identifies a ‘global prong’, to which international solicitors have given little attention. China’s initiation of One Belt–One Road (OBOR) in 2013 resulted in it aiming to fortify its ‘going global’ policy by creating new markets and boosting the importance of cross-border business. In addition, China also took over the G20 presidency in 2016, resulting in the embracing of the ‘Guiding Principle for Global Investment Policy-Making’ (Guiding Principles) by the G20 countries. The Guiding Principles made reference in particular to an all-embracing growth and sustainable development as the purpose of investment policy-making, the execution of which will be crucial in reducing the disintegration of subsequent international investment laws advancing policy development.
Part V expands the analysis conducted in the book by tracking the evolution of China’s approach to entering into investment treaties—both as a matter of the identity of the counterparty and the substantive provisions—and considers the impact of the (relatively few) arbitrations that have been brought under these treaties. In particular, Part V seeks to explain the relative limited engagement of China with investor–state dispute settlement (ISDS).
Part I examines the local forces of China’s international investment policy. Since the embrace of China’s ‘open door’ policy in 1978, which modified its development technique from self-sufficient to full involvement in the world market and targeted to captivate foreign investments in order to boost its economic development, the basic policy for mustering IFDI remains unaltered; that is, to aid the regulation of China’s economy, to harmonize its modernization programmes and to enhance its policy of life.16 An outward concentration on foreign investment was included as part of the 1997 launch of the Go Global policy in the form of OFDI characterized to avoid trade barriers and to enhance the competitiveness of Chinese firms, which were typically state-owned enterprises (SOEs). Although this work concentrates on China’s investment policy, it is pertinent to remember the causation between local reforms and international policies. In this regard, in 2004, FDI was proclaimed in the Decision of the State Council on Reform on Investment System. Furthermore, on 3 September 2016, the Decision of the Standing Committee of the National People’s Congress on Amending Four Laws in addition to the Law of the People’s Republic of China on Foreign-Funded Companies was embraced at the Twenty-second Session of the Standing Committee of the Twelfth National People’s Congress and it came into force on 1 October 2016 to change ‘three central laws’ and the laws of the People’s Republic of China on the safeguarding of the investment of Taiwan Compatriot. The Ministry of Commerce (MOFCON) also brought out the Foreign Investment Law of the People’s Republic of China (Draft for comment) (Draft for foreign investment law) that same day. The local law of foreign investment has gone through transformations, both in quantity and quality. The most essential stage of China’s reform of its foreign investment regime must be MOFCOM’s publication of the Draft Foreign Investment Law for public remarks on the 19 January 2015, which was supported by an official clarification which highlighted the legislative backdrop, purpose, and fundamental principles behind the draft. China’s foreign investment law will not have only changed the ‘three central laws’ that presently control foreign investment, once promulgated, but it will also offer a better and all-embracing re-enactment of the foreign investment legal system in China. These reforms ushered in the development of the international policy that Part II intends to examine.
China’s inward investment is the focus of Michael J Enright in Chapter 1. The gradual shift of China’s economy to IFDI and foreign invested enterprises (FIEs) is one the most significant elements in China’s economic reform programme. Although China is very much open to IFDI, China remains more fully involved than most large enterprises. In just a few years, the obvious contradictory trends towards building a free legal environment for IFDI in addition to highly advertised examples of pushback against FIEs in China has been seen. For a comprehensive understanding of China’s approach towards IFDI and FIEs, it is mandatory to comprehend the history of IFDI and FIEs in China, the role that China plays in IFDI and FIEs, and to be fully aware that the effect of IFDI and FIEs is most often not highly esteemed. These characteristics will affect any investment treaties that are likely to be concluded by China and (p.6) the way they will be executed. Moreover, Chapter 1 talks about a wide perspective on China’s approach towards IFDI and FIEs and fully portrays the outcome of the novel method of calculating the economic importance that IFDI and FIEs have brought to China. In conclusion, this chapter provides different views for those interested in the potential for the negotiation and execution of investment agreements with China.
Hui Yao (Henry) Wang discusses China’s outward investment and, most importantly, Chinese enterprise globalization’s features, trends, and obstacles in Chapter 2. The world economy has persistently been experiencing a slow recovery from the steep downturn of 2008–2009 since 2013, but the growth was uneven. In respect to developed economies, the United States encountered a large increase while the Eurozone economies did not grow at all. Emerging economies also encountered headwinds as the force of growth for most of these countries was not enough to power a larger expansion. Not minding these ongoing growth problems, global investment has not only been stable but is also coming up. The United Nations Conference on Trade and Development (UNCTAD) proclaimed that, from 2012 to 2013, global FDI inflow increased from 1.33 trillion to 1.45 trillion on a yearly rate of 9 per cent. In respect of FDI inflow, 54 per cent went to developing countries, China with other Asian countries continuously taking in the transnational investment. The measure of global cross-border mergers and acquisitions business continued to experience growth in 2013 and 2014. Monetary services, resource extraction industries (particularly energy), in addition to transportation and IT communication, were marked by important M&A activity. Green-field investment grew gradually but its total size was bigger than the cross-border M&A. As a result of a slow global economic recovery, the economy of China expanded at an exponential pace. The endogenous momentum of China’s economic has been increasing as a result of the economic structural adjustment and transformation and upgrading progress that has been achieved and this is also firmly supported OFDI by Chinese enterprises. Simultaneously, after the Chinese government brought into the limelight the execution of the Go Global strategy following the Communist Party of China (CPC)’s Eighteenth National Congress, China’s enterprises have greatly increased their overseas direct investment (ODI).
Na Li expands the analysis by providing a comprehensive picture of the influence of tax factors on Chinese FDIs in Chapter 3. Na Li further elucidates that investment treaties are not the only factors in Chinese FDIs. Tax factors also influence FDI into China and Chinese investment to other countries (the ‘Chinese outbound investment’). This chapter also discusses the following questions: What are the influences of tax factors on FDIs? Is the Chinese experience of using tax instruments consistent with these empirical findings? Will China’s execution of an anti-tax avoidance strategy drive FDIs away from China? What are the tax competition concerns for China? The final section contains a conclusion. Furthermore, although debates are still ongoing about the influence of tax factors on FDI, the chapter demonstrates that tax factors are largely used by China both to attract FDIs into China and support Chinese outbound investment. Moreover, anti-tax avoidance measures in recent years have made it clear that tax clarity and sureness are necessary tax factors influencing business decisions. Therefore, the Chinese government must take more into consideration tax factors’ influence on business before executing forceful anti-tax avoidance strategies which could drive away FDIs.
In Chapter 4, Lu Wang considers the crucial case of SOE investments and national security protection. The quick growth of SOEs and their cross-border investment activities in modern times has attracted notable attention, specifically with regard to the anticipated effect such investments may have on the national security of host nations. (p.7) SOE investments are commonly from emerging economies, particularly China, and are eminent in the very important or ‘strategic’ industries, such as energy, infrastructure, telecommunication sectors, and financial service. In this vein, some national security considerations with regard to SOE investment have been intensified in an increasing number of countries. The role of IIAs with regard to national security protection is a vital issue. China’s IIAs are reappraised with regard to the treatment of SOEs with the purpose of discovering the extent to which state capitalism has promoted the concluding of international treaties.
Jie Huang examines China’s free trade zones (FTZs) and international investment policy and, specifically, the case of the negative list of non-conforming measures in Chapter 4. Before carrying out recondite reforms of the trade and investment legal framework, China frequently executes the reform on a small scale, usually in a particular geographic area as an experimental ground. If these experiments produce the expected outcome, the reform may then be adopted nationwide. A basic example is the five unique economic zones created in the 1980s. The first set of Chinese regulatory reforms in trade and investment took place in 1978, after the Cultural Revolution. Pioneered by late Premier Deng Xiaoping, China adopted the opening-up policy. Deng created five unique economic zones to lure foreign investment by permitting a larger role for individual self-determination and Western style market forces. The morals learnt from the unique economic zones were adopted nationwide. For instance, the Sino-foreign joint venture was first experimented in the unique economic zones and was adopted nationwide after it proved to be successful. These zones are also used to initiate tax holidays in China to lure foreign investment and many areas in inland China followed their examples. Special economic areas slowly ended their mission as experimental grounds in the 1990s. 2018 will witness an important reform, adopting a negative list to control foreign investment’s market access. It basically deviates from China’s long-time local practice and is targeted at harmonizing China’s investment law with high-standard international agreements, most importantly the China–US BIT under negotiation. This chapter also concentrates on the negative list implemented by China’s FTZs to control foreign investment’s market access and examines its importance, explaining it insufficiencies and proffering solutions for improvement.
In Chapter 6, Manjiao Chi analyses sustainable development concerns through IIAs and offers an assessment of Chinese IIAs. The international communities have been confronted with serious sustainable development difficulties in recent times. International investment law, chiefly comprising IIAs, national investment laws, and some minor rules, is frequently condemned for not being effective enough in tackling sustainable development difficulties related to transnational investment activities. This is attributable to the fact that IIAs are usually and basically established to protect and promote foreign investment, while non-investment aims such as sustainable development promotion have not been adequately tackled in IIAs. As transnational activities are expanding actively, it is usually perceived that although IIAs should not be seen as the basic legal discourse for tackling sustainable development difficulties, they could be used as helpful tools in advancing sustainable investment. As indicated in the survey carried out by the Organization for Economic Cooperation and Development (OECD), almost all OECD and non-OECD governments can be presumed to be dedicated to sustainable development aims, but the majority do not use IIAs as a tool for achieving these aims. The present legal structure for foreign investment should be worked on to make sure that it can actively foster sustainable development. Most recently, many governmental bodies, non-governmental organizations (NGOs), and international organizations have jumped knee-deep into projecting and promoting (p.8) sustainable development compatible (inclusive) IIAs where its negotiation power remains a factor in the ability/power of the IIA provisions necessarily to promote sustainable investments and, in terms of sufficiency and efficiency, the degree to which these provisions can foster the achievement of sustainable development goals in the states without reducing the protection levels of foreign investments. From the standpoint of China, sustainable development-compatible IIA enforcement is a paramount step, being one of the most successful IIA negotiating tools in the past decades and also as a result of the fact that China faces many sustainable development challenges. Against the back-drop of the Chinese sustainable development challenges, this chapter reports the level of success achieved by the Chinese IIAs in handling sustainable development challenges from a traditional perspective. In a brief introduction, and as an opening remark, this chapter outlines the developmental principles of sustainable development, after which it projects the three major variations of the sustainable development provisions in the Chinese IIAs (environmental provision, labour rights provision, and transparency provision), and their levels of efficiency in managing sustainable development challenges. Furthermore, it proposes several measures to promote the sustainable development compatibility of the Chinese IIAs on the basis of the conclusions drawn from the empirical study of major sustainable development provisions in the Chinese IIAs. On a final note, the chapter stresses that, although China has made some progress in recent times, it faces an urgent need to finalize sustainable development compatible IIAs.
II. The Bilateral Prong
China’s involvement in international investment emphasizes its contribution to join multi-lateral investment-related legal agreements and to contract IIAs. Owing to its unpleasant antecedent of contracting ‘unequal treaties’, unlike other countries, China’s involvement in the international investment system did not begin with the signing of free commerce and navigation (FCN) treaties. But, it began carefully to contract BITs with advanced countries (major capital exporting states to China at that time), concluding its first BIT with Sweden in 1982.17 In spite of not getting involved early enough, as time went on China’s expertise and involvement with the international investment system enabled it to develop towards liberalizing its IIA system, striking an equilibrium between the duties and profits relating to IIAs. Investment promotion and protection agreements were signed in the 1970s in a very direct socio-economic context. They were the marketable policy documents of the originally capital exporting states. They were intended to safeguard the investors of the north from the ultimate risks to which they were subjected by investing in the countries of the south: arbitrariness, spoliation, and discrimination. The critical question that guided the development of these documents was how best to safeguard investments contracted by foreigners against certain contumelious attitudes of the host nation. The manner in which China has participated in BITs shows a significant evolution over the past twenty years.18
(p.9) The lessons learnt from the Canada–China Foreign Investment Protection Agreement (FIPA) for the US–China BIT and beyond is highlighted by Kyle Dylan Dickson-Smith in Chapter 7. Major lessons can be drawn from reviewing a special and newly contracted BIT—the Canada–China FIPA—in order to foretell and pinpoint the chances and difficulties for prospective BIT contracting party states of China (such as the United States, the EU, India, and the Gulf Cooperation Council of Colombia). The Canada–China FIPA and the expected US–China BIT (as well as the EU–China BIT) jointly fall into a special class of investment agreements, depicting a combination of different ideologies of international investment norms/protections with two different (East and West) basic local legal and economic policies. The aim of this chapter is to understand and harness the legal content of the Canada–China FIPA in order to separate the chances and difficulties for investment agreements presently under negotiation (concentrating on the US–China BIT). This analysis is carried out from the point of view of China’s original BIT procedure and political-economic objectives, relating to that of its contracting state party. This chapter summarily addresses the economic and wider diplomatic relationship between China and Canada in contrast to that of the United States. It further analyses a wide collection of substantive and procedural duties of the Canada–China FIPA, addressing their influence individually and collectively, to deduce the lessons that can be learnt by the United States and other contracting party states. This analysis distinguishes the level investment liberalization and legal protection that China and Canada have attained, and whether these standards are meeting the two countries’ expectations. The analysis is not void of the relevant political economy and negotiating position between China and its contracting party states, the anticipated economic advantages of each party, in addition to any diplomatic sensitive hindrance between the parties. Although this chapter does not analyse each substantive and procedural right thoroughly, it offers a sufficient all-embracing basis to disclose the difficulties awaiting the negotiation of future bilateral agreements with China.
Hadas Peled and Marcia Don Harpaz examine innovation as a basic stimulant in the China–Israel investment relationship in Chapter 8. The authors further assert in this chapter that scientific and technological innovation has strengthened recent China–Israel relations. Recently, investment and trade between China and Israel have improved tremendously irrespective of the global economic decrease, underlying political economic situations, and geopolitical inhibitions. This chapter contributes to the current scholarly text by recognizing innovation as a new verifying variable in China’s bilateral investment diplomacy, via an analysis of the China–Israel connection. In spite of the decrease in global investment, and in FDI in Israel, China’s investment channel into Israel has not decreased, and is concentrated particularly on invention. However, in the long run, as evidenced by global invention statistics, China is improving tremendously, and may soon exceed Israel’s inventive ability. In the same vein, Israel is diversifying its inventive strategies. Moreover, a huge portion of Israeli invention is connected to its defence industries. In line with the special law, they are subjugated to Israeli defence export control policies. The approval of defence-related businesses is influenced by US interests and by China’s policies and interests in the Arab continent, together with the supplying arms and technology to Israel’s competitors.
Chapter 9 outlines the views of Flavia Marisi and Qian Wang on the proponents and challenges of the China–EU Investment Agreement (CAI) negotiations. The chapter examines taxation and transparency with respect to the fair and equitable treatment (FET) provision, which is the principal focus of the EU–China investment agreement. The focus on the FET is based on the fact that it is the most commonly (p.10) breached standard in investor–state cases, especially where investors assert that the host state policies are detrimental to their business. It is noteworthy that although the EU–China treaty currently under negotiation covers only bilateral investments, it is seen as the best avenue for successful FTAs. Therefore, the CAI is a rather conclusive treaty, serving as the bedrock of a better deliberate relationship between the EU and China, and not just part of the many bilateral and multilateral agreements connoting the ‘fragmented patchwork’ of international investment agreements. The general outcome of the CAI, as well as the liberalization it hopes to achieve, will have a greater effect than agreements that border around bilateral cooperation. In effect, the future of the EU–China BIT will critically follow one of two directions: both regions will either cooperate and harness the benefits of a mutual economic relationship, or they will stand against each other in competition for the largest share of the global market, relying on third states’ preferential trade agreements (PTAs). From a political view, the EU strategy in this negotiation is obviously economic on the surface: to set aside any non-conforming geopolitical issues and deliberate on economic matters. Clearly, a collaboration of this sort will symbolize the outcome of the economic position of the EU and China as both capital importing and capital exporting countries. The EU and China have good reasons to conclude a bi-directional investment promoting CAI. However, both of them will have to exert more effort in this negotiation so that, in the interest of the parties, both as home states and host states and of their investors, a satisfactory treaty can be concluded that will serve as a model for the rest of the world.
Xinquan Tu, Na Sun, and Zhen Dai examine the issue of SOEs in China’s BITs, specifically the complicated case of the US–China BIT negotiations, in Chapter 10. The issue of SOEs has never ceased to exist since China is always at the negotiating table specifically with the United States. During the period China was expecting to enter the multi-lateral trading system, there were special sections for state trading enterprises in its accession protocol in accordance with Article XVII of the General Agreement on Tariffs and Trade (GATT) 1994. In respect of the BIT negotiation with the United States, which was resumed in 2008 and has gone through twenty-nine rounds of talks, the issue of SOEs came up again and is likely to be the main point obstructing the conclusion of the agreement. However, there are many changes in the present situation compared with the one sixteen years ago: China’s economic status has increased and trade and investment relationships with its partners have achieved new dimensions. Reproducing the answer in the commitment in the WTO may not be pleasing to both sides. To advance the BIT negotiation on the SOEs issue an advanced approach is required, which requires more patience and tolerance.
In Chapter 11, Matthew Levine analyses the fourth generation of Chinese treaty practice. If China is not a rule-maker, this implies that China is a rule-taker. Some facts seem to point in this direction: among them, the decisive influence of North American Treaty practice, mainly that of the United States, and Beijing’s unwillingness to modernize its own model treaty. However, research into China’s partnership in the WTO and negotiation of regional trade agreements (RTAs) points to an optional notion. On this approach, Beijing is neither a rule-maker nor a rule-taker, but basically acts as a ‘rule-shaker’. Even though this term has been used by a group of scholars to take into consideration similarities and differences between Chinese, Japanese, and Korean dealings with international economic law, it does not appear to be clearly spelt out. This is crucial for explaining China’s most recent IIAs, as discussed in this chapter. Specifically, it pays to make the best use of particular sections that other authors have referred to as ‘puzzling’ and enable us to depart from tagging Beijing’s most current treaties as ‘incoherent’. The first section assesses the categories that have been used by scholars to (p.11) classify China’s large investment treaty practice. This brought about the line of thought that IIAs contracted from 2008 onwards as part of a universal Fourth Generation. This embraces several alterations of substantive investment protection sections. Most of these new concepts are reflective of a wider trend whereby nations are striving to strike a balance between investment protection and non-investment aims. It is therefore necessary to distinguish two forms of balancing mechanisms: interpretative ones and substantive ones. A frontline reason for the growth of balancing mechanisms in China’s Fourth Generation is the ‘NAFTA-ization Thesis’. However, in reviewing the specific provisions in depth, it becomes manifest that this provides only an incomplete elucidation. Ongoing negotiations with the United States and the requirement to choose novel language in that nation’s present method of IIAs drafting offers proof for the complementary explanation of selective adaptation.
III. The Regional Prong
China is also actively involved in the ASEAN-led RCEP negotiations, a large regional trade contract between ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and its six FTA partners (Australia, China, India, Japan, South Korea, and New Zealand). The ‘regional prong’ is discussed in Part III. More so, China has been fully involved in acclimatizing the economic framework of the Asia-Pacific region. Instigated by the regional economic integration in the West (EU, NAFTA MERCOSUR, Pacific Alliance) and thwarted by the halt of the WTO multi-lateral negotiations, the nations in the Asia-Pacific region depend on harmonization and modernization of their foreign investment rules. To actualize the ‘Asia-Pacific dream’ talked about by President Xi, China has been elevating an Asia-Pacific trade pact, the FTAAP, arguably with RCEP and the Transatlantic Trade Partnership (TTP) as gateways formed by China and the United States towards harmonization since 2006. Additionally, in 2014, the ‘trilateral investment agreement’ between China, Japan, and South Korea came into actualization in the Thirteenth Five-Year Plan (2016–20), promoting the OBOR initiative as the ‘climax’ of its Go Global policy.19 The Chinese government encourages enterprises from all nations to invest in China, and admonishes Chinese companies to involve themselves in structural construction in other nations along the Belt and Road, and industrial investment there (Vision and Actions).
Won-Moi Chog discusses the substantive provisions of the East Asian trilateral investment agreement and their implications in Chapter 13. The Korea–China–Japan Investment Promotion Facilitation and Promotion Agreement is the first treaty in the economic area to join three Northeast Asian countries on a single legal instrument. The provision of dispute settlement procedure in the treaty will enhance the making of a profitable investment climate in the host nation. Although there have been fears concerning vexatious claims that could inhibit legitimate control actions by (p.12) the government, the construction of an investment chapter in the Korea–China–Japan FTA under negotiation is required by all in the region. Any appropriate answers to such an examination need to thoroughly contrast advantages and drawbacks of any development of rules and governance. At the end, a quest for an improved international investment governance in Northeast Asia in the future needs a thorough evaluation of lessons from the past and present.
Heng Wang emphasizes the RCEP investment rules and China’s contribution to the RCEP negotiation in Chapter 13. The chapter analyses China’s FTA approach to investment in terms of flexibility and its results for the RCEP. The following questions are analysed: What is the trend of China’s FTA approach to investment in respect to flexibility? Is China a rule-follower, rule-shaker, or rule-maker? How may China approach the RCEP negotiations with respect to investment? Within China’s FTAs, the chapter centres on the China–Korea FTA and China–Australia Free Trade Agreement (ChAFTA) while China’s other FTAs are referred to when needed. The chapter shows that China is ready to consider improved rules and embrace newer-style investment that will be done in the future. For example, the US–China BIT negotiations show China’s new development of investment freedom. China’s FTA includes innovative guidelines of regulatory autonomy and ISDS procedural characteristics, in addition to the roster of arbitration penalties, the general welfare notice, the code of conduct for offenders, and the combined explanation of the annex by treaty parties. What is more, China will likely be a rule-shaker in a short or medium period and likely becomes a rule-maker in the long run. Its pattern may vary from selective adoption to innovations that are on plan. The purpose is clear as China will be largely involved in the development of investment norms because of the need to protect its outbound investment and improve investment trust in inbound investment. Being a rule-shaker in the RCEP negotiations, China will often qualify proposals of partners rather than offer a new set of clauses. The flexibility of China’s FTAs will likely continue in the RCEP. In conclusion, the chapter stresses that the RCEP investment rules may be low-level ones with an early harvest approach. This derives from a number of elements, among which there is the special nature of mega FTAs, the ‘stockpile’ of already existing investment agreements, and China’s approach to the ASEAN. The totality of these factors means that China will most likely take a more malleable stand in the RCEP than in bilateral FTAs. In any event, the RCEP will affect China’s FTA approach to investment.
In Chapter 14, Amokura Kawharu and Luke Nottage re-examine the models for investment treaties in the Asian region and options for China. Many parallelisms and sporadic distinctions are present in Asian investment with regard to their laws screening FDI and current ways towards investment treaties, in addition to the present politically delicate issue of ISDS. This chapter likens important areas of existing treaties already signed by key Asian nations/entities (China, ASEAN) plus evident positions set forth by Australia and New Zealand in an opened investment chapter for the RCEP or ‘ASEAN+6’ agreement. Owing to the concern about the US-style treaty drafting shown recently by Indonesia and India, major economies are still bargaining the RCEP with New Zealand and Australia in addition to bilateral agreements with Australia.
Horia Ciurtin asks whether there is a new era in cross-strait relations in Chapter 15. The author provides ‘a post-sovereign enquiry’ into Taiwan’s investment treaty system. Going beyond the traditional legal divisions, Taiwan has shown that it can bypass such limitations, being a main trend-setter who is innovating the area of international economic law. Specifically, a close look at Taiwan’s nexus of investment treaty is eye-opening; Taiwan concluded twenty-nine BITs (some of them with countries that do not recognize Taiwan as a sovereign country), and six ample economic cooperation (p.13) agreements with related investment provisions. The number and the importance of these agreements reveal that the concept of international recognition (and ensuing diplomatic relations) does not directly influence the behaviour of states which are willing to interact legally and economically. In this regard, non-diplomatic (but formal) relations might be used as a step forward, as Taiwan is closer to concluding an agreement with another post-sovereign entity, the EU. This relevant global actor may open up the scene for a multi-tier dynamic where some of its component member states are in principle against any liaison with Taiwan but will be bound to it because of their membership of the EU. To solve such legal (and geopolitical) contradiction, the established instruments of international law cannot be applied, and a new theoretical framework shall be developed. Obviously, the right answers can only be obtained by asking the right questions. To this end, the starting point must be to discuss sovereignty thoroughly. The chapter assesses the polity’s effort for the development of diplomatic structures by means of investment and trade agreements, in this way avoiding the problems related to recognition. These kinds of agreement can be considered as a litmus test, showing Taiwan’s capacity to shift traditional categories of Westphalian international law and emerge as a self-standing actor. The chapter will also show the Taiwanese expedient approach to using (or not using) the newly finished legal instruments for enforcing obligations. Further, the chapter demonstrates that Taiwan can obtain relevant advantages from further dealing with the EU, being linked to economic partners through (non-)diplomatic relations.
Part III shows that China is in a good position to close the contrast in the RCEP group and to support the togetherness of rules on investments and liberalization in the Asia-Pacific region. Since 2007, the terrain of China’s IIA network has added the RCEP group. That is, China is already an IIA partner with all the RCEP concession parties, namely India (Sino–India BIT 2007), New Zealand (Sino–New Zealand FTA 2008), ASEAN (Sino–ASEAN Agreement 2009), Japan and South Korea (Trilateral Investment Agreement 2012), and Australia (Sino–Australia FTA 2015). First, it again displays the success of China’s malleable and practical way of meeting the interests and needs of both developing and developed parties. Secondly, albeit not professing ‘gold standard’ status, the coverage of China’s IIAs with the RCEP-negotiating parties shows the trend and the movement rate of ‘new generation’ IIA rule-making, following a wider and more complicated development policy plan while growing a completely advantageous investment environment, which implies that investment rules under the RCEP will not fall below anticipation of ‘building a free, facilitative and competitive investment environment in the region’. Careful thinking is needed about the interplay between RCEP negotiations on trade in goods, trade in services, and investment to ensure a standard and balanced outcome as required by the ‘Guiding Principles and Objectives for Negotiating the RCEP’, the countries involved have adjusted their positions to ensure concessions on one area that could earn them influence over others on the long run.
IV. The Global Prong
Since the initiation of the Go Global strategy in 1999 and accompanying the process of China’s WTO entry, China has been strategically adopting globalization and has internally and externally liberalized its trade and FDI rules. The execution of the Go Global plan has been emphasized in successive Five-Year Plans. The Eleventh Five-Year Plan (2006–2010) called for a ‘better execution’ of the Go Global system. The Twelfth (p.14) Five-Year Plan (2011–2015) promised to speed up the execution of the Go Global plan. In the Thirteenth Five-Year Plan (2016–2020), the ‘capstone’ of its Go Global policy is moving the OBOR initiative forward.
The Chinese government welcomes enterprises from all nations to invest in China and urges Chinese companies to become involved in the infrastructure of other nations along the Belt and Road and to ensure industrial investments there. On the global scale, China has also laid the main work for multi-lateral investment policy-making under its G20 governance through the G20 Guiding Principles for Global Investment Policy-Making (G20 Guiding principles). Within the WTO structure, the Agreement on Trade Related Investment Measures (TRIMs) and the General Agreement on Trade in Services (GATS) become most necessary to China’s FDI inflow and outflow. Upon obtainment, China conceded to comply with the TRIMs Agreement by removing and ceasing the application of performance conditions of any type such as local content, transfer of technology, and the requirement for export performance. Same as all WTO members, China made greater GATS ‘commercial presence’ (Mode 3) commitments than in the other modes (namely Mode 1, Mode 2, and Mode 4). Although while the agreement presents a number of provisions directly or indirectly pertaining to investment-related matters, its areas are not as complete as those provided by the large majority of BITs. At the same time, China’s loyalty to the WTO has had a positive effect on its OFDI. Lowered trade obstacles have seen foreign goods and services flowing into China’s market, resulting in Chinese firms pursuing markets abroad by increasing OFDI. Similarly, China’s adherence to TRIMs and GATS has helped to increase investment.
Karl P Sauvant discusses the idea that China is moving the G20 towards an international investment framework and investment facilitation in Chapter 16. China, being the leader of the G20 in 2016, has had an avenue to increase the deliberation on these matters. The country has a special interest in international investment, judging from the decision to form the G20’s Trade and Investment Working Group. This shows both the function of FDI in China’s own development and especially its recent rise as a necessary outward investor, included in the rise of emerging markets as host countries of multi-national enterprises (MNEs). The chapter also includes an explanation of some policy issues associated with the rise of FDI from emerging markets. A short explanation of matters centred on the future of international investment law and policy rules follows, in addition to an examination of the adoption of non-binding rules showing the structure of a complete framework on international investment. Finally, the chapter centres on a strong proposal for a sustainable investment progressive programme that could be initiated as a backup for discussions proclaimed under China’s leadership.
Anna Joubin-Bret and Cristian Rodríguez Chiffelle discuss the G20 Guiding Principles for Global Investment Policy-Making (G20 Guiding Principles), in whose growth China has had a necessary role, in Chapter 17. They view the G20 Guiding Principles as a stepping stone for multilateral rules on investment. One of the most necessary and strong outcomes of China’s G20 governance was the formation of a Trade and Investment Working Group (TIWG), seeing that large and sustainable trade and investment encourages economic growth and calling for high G20 trade and investment cooperation. The Chinese governance reformed approach was not only to bring investment cases to the G20 table, but also to rekindle the conversation on investment and trade policy-making by getting them closer together again. This has opened the way for clear, integrated discussions on trade and investment for the first time in fifteen years in the global political arena. On the issue of investment, the TIWG upheld (p.15) the G20 Guiding Principles, a major achievement of the Chinese government. These were approved by the G20 ministers of trade in Shanghai in July 2016 and later by the G20 heads of state at the Hangzhou Summit in September 2016, with the purpose of promoting an open, transparent and conducive global policy environment for investment; advancing cooperation in national and international investment policy-making; also advancing all-embracing economic growth and sustainable development. The G20 Guiding Principles are contained in this chapter. The chapter commences with an overview of their crafting and several attempts to formulate guiding principles on international investment, and outlines some of the guidelines that have prepared the way for the Principles. Further, it considers their prospective effect on policy-making at the national and international levels. Finally, this chapter examines the wider work of the G20 TIWG, with trade and investment linkage, addresses the general state of affairs of G20 countries’ investment agreements, and draws some preliminary conclusions and looks at ways forward.
In Chapter 18, Sophie Meunier discusses the political challenges presented by China’s direct investment in Europe and the United States. The rapid growth of Chinese direct investment has been met in some issues by controversy and even resistance, both in developed and in developing economies. In the wider world, critics have expressed worry and fear related to the possible dangers of this investment: among the most common concerns there are the reduction of local labour standards, the declining competitiveness of its industrial core through repatriation of assets, and acquisition of dual-use technology. Alarmist media headings have warned against Chinese takeover of national economies one controversial investment deal at a time. The resulting political backlash has often had significant media attention and expectations over later deals. What elucidates the political challenges posed by the explosion of Chinese direct investment over the past few years in the United States and the EU? How and why have attitudes and policies in the West been changed over the past ten years towards Chinese FDI? This chapter looks at two different explanations for the political challenges provoked by Chinese investment in Western nations. The first is that Chinese FDI results in political unease because of its newness. The second is the view that there is something really distinct about the nature of Chinese FDI and, therefore, it should not be handled politically like any other foreign investment. These two analyses lead to a distinct set of predictions for the future of Chinese FDI in Europe and the United States. Section I explains how the originality of Chinese FDI may pose political challenges to Western politicians and the general public, and makes a comparison between the present situation and past examples of politically problematic sources of FDI. Section II explains the argument that there is something deeply distinct about Chinese FDI, namely that it stems from an emerging economy, a unique political system and a non-ally in the security dimension. Section III analyses the domestic political context in which these obstacles are raised: in Europe, the euro crisis and the rise of populism; in the United States, the focus on geopolitical contest and the rise of economic nationalism. In the conclusion some considerations are given about if and how these kinds of political challenge may influence the future of Chinese outward investment.
Ka Zeng discusses the political economy of Chinese OFDI in OBOR countries in Chapter 19. The main function of the OBOR initiative in China’s total economic development strategy demands for a thorough scholarly analysis of China’s trade and investment relations with OBOR countries and the possibility of the initiative to improve the country’s economic growth. This chapter discusses such a task and provides an explanation of Chinese OFDI in OBOR nations from 2005 to 2014. Empirical results yield some important findings. First, there is hard proof supporting (p.16) the resource-seeking motivation behind Chinese OFDI in OBOR countries. Secondly, in comparison to previous studies—which either discover that host-country political risk has no impact on Chinese OFDI or that Chinese OFDI is often likely to be attracted to nations with a high risk in terms of their political environment—this study yields some initial proof that Chinese OFDI is likely to select countries with low political risks. This outcome points to likely changes in the behaviour of Chinese investors in the future, as they increase the scale of their business operation, collecting a wider experience, and thus becoming more qualified players in the worldwide marketplace. Thirdly, the analysis obtained proof that is in line with earlier findings: OFDI tends to go to countries having good political relations with China, or to countries selected according to their geopolitical importance for China’s total foreign policy programme. However, the study goes beyond previous studies, which dwell on the host-country political interaction with China and the United States, and looks at some preliminary evidence suggesting that countries with good political relations with the United States are more likely to host Chinese OFDI. Adding these results together shows that as long as OBOR countries are involved, Chinese investment tends to flow to nations with rich natural resources. This may also improve Beijing’s influence, not only countries which have been in the past and still are closer with Beijing’s values, preferences, and agenda, but also vis-à-vis countries that shared common values with the United States. This could strengthen a China-centric pattern of trade and investment in the Asian region. These results therefore focus on the suggestion that the nature of Chinese OFDI investment in OBOR nations is politically driven, and that it is likely that China will have a central role in guiding Chinese investment in the region.
Manzoor Ahmad, in Chapter 20, further increases the Belt and Road Initiative (BRI) elucidation by focusing on China’s role and interest in Central Asia and, specifically, the China–Pakistan economic corridor (CPEC). The chapter gives an encompassing explanation of the CPEC, which is the most developed and ambitious of the six economic corridors comprised in the OBOR initiative. It was announced in November 2014 but has been under consideration for many years. It focuses on the Karakoram Highway joining north-west China (Xinjiang Province) and Pakistan, built from 1959 to 1979, and Gwadar, a port on the Arabian Sea built from 2002 to 2006. The main focus of CPEC will be linking these two infrastructures and contributing to the development of industrial zones along the route. The time schedule envisages a number of phases covering about fifteen years. Although most of the power and Gwadar-development projects are expected to be finished by 2020, the rail and water projects are likely to be completed in the final stage of the project. CPEC will also help Pakistan to capitalize on its strategic location, at the intersection of South Asia, Central Asia, China, and the Middle East, to its economic advantage. By means of CPEC, the seaports of Pakistan can offer the shortest routes to connect China and Central Asian countries with the rest of the world, despite the fact that at present hardly any transport trade passes through them. This chapter revisits the Chinese investments made in the sectors of energy, transport, and water with the objective of checking the dangers related to them. The chapter further showcases the main obstacles that will have to be addressed by China in the OBOR project: if CPEC proves to be a success, it could be duplicated in the other five main corridors of the global project.
In Chapter 21, Susan Finder reviews the shortcoming of the international fraud and corruption sanctioning system in the context of Chinese SOEs. This chapter concentrates on an unexplored feature of Chinese SOEs carrying out business abroad, the relationship of these enterprises with the integrity scheme adopted by the multi-lateral development banks and development institutions, targeted at curtailing fraud, (p.17) corruption, and other abuses in projects funded by those institutions. Recently, many Chinese companies have begun engaging in business overseas, being inspired by the ‘Go Global policy’ and the OBOR project and have been actively bidding for MDB projects. Owing to many reasons, some Chinese enterprises come into conflict with the MDBs’ integrity systems. This chapter offers a short examination of the integrity systems developed by the MDBs, dwelling on the interactions between Chinese companies and MDBs, the efforts of the Asian Infrastructure Investment Bank (AIIB) to incorporate that system, and the view of the Chinese government towards this system. It focuses on the position of and viable trends in the incorporation of the Chinese anti-corruption regulatory system with the MDB system.
Joel Slawotsky discusses China as a global power in Chapter 22. The chapter re-examines the potential ramifications of the new international law architects. It explains the need for China to have an ever-greater impact on international investment law, which is the main focus of international economic law. By engaging the mechanics of the present structure to take on a leadership role, China may become the new mastermind of a global legal and monetary framework. New structures and development banks, a growing application of the Yuan, and other incentives usher the emergence of an era of new international law architects. As long as new institutions may first work in collaboration within the subsisting structure, it is likely that the new architects will achieve sufficient influence to achieve an independent role in the international economic and legal regimes. This metamorphosis will probably lead to re-enacting the rules and will act as a means to downgrade the institutions which have implemented the global government architecture over the past seventy years. At least, the substitution of the current architects will offer a precise implementation challenge with respect to international law. A separate code of conduct may interfere with current standards of international law and will require concentrating on the likely division between the former and the new norms and traditions. The failure to handle the imminent conflict of customs may lead to the breakdown of global cooperation and implementation of international law, reduced prosperity, and the promotion of economic and military conflict.
Part IV of this book shows that China is an increasing presence on the global stage. In addition to the force achieved under China’s G20 presidency, the adoption of the G20 Guiding Principles might be further developed to accomplish an all embracing economic growth and sustainable development as a panacea for multi-lateral rules on investment. This ‘soft law’ method of global economic governance is often a more feasible and ‘realistic’ method in some situations, and it is specifically viable in an international regime which is undergoing a legitimate crisis. A ‘soft law’ method is non-binding by nature, thus deviating from conventional formal arrangements under public international law which are organized using a ‘hard law’ method, treaty-based (e.g. WTO, NAFTA) and/or institution-based (e.g. OECD, APEC) to regulate global economic issues.
Notwithstanding the disadvantages of ‘soft law’—its non-enforceable nature which does not impose any formal duties on the state, risking a ‘cheap exit’ from their expectations—a major advantage of the ‘soft law’ method is its ability to accomplish and maintain political agreement that to a large extent can enable the negotiation of an agreement in which conflicting issues will be handled and controlled. Corporate social responsibility and the resolution of investment disputes, are major areas of impasse in negotiations, and might even lead to a total dissolution of such agreement. Without doubt, investment as a tool for sustainable economic development requires a global meeting of minds and is enshrined in the UN Charter. Although relating to top-down (p.18) methods, since the 1990s several international organizations have made efforts to make multi-lateral binding rules on investment, both substantive and procedural, but they have failed to do so.
The bottom-up method, with states as conventional law-makers in collaboration with NGOs, technocrats, civil society, and so on need to be utilized as an optional approach to global economic governance. By using the hard and soft law method of global economic governance together will supplement and surmount integral structural mistakes and weaknesses. In maintaining this momentum, China can and should add to the establishing of multi-lateral rules on investment, taking good advantage of its consensus building capability. China could apply the G20 Guiding Principles to equip a new (comprehensive and balanced) Model BIT at home. Additionally, China could help to accelerate the conclusion of the RCEP, building on its largely coherent treaty practice with ASEAN abroad. China could advance further by building on the political meeting of minds reached under its G20 leadership together with the assembly among the G20 nations’ IIA practice towards a multi-lateral agreement on investment. Increasingly, China’s position in and between Brazil, Russia, India, China, and South Africa (BRICS) and the G20 would strengthen multi-lateral investment policy-making and rule-making by luring more participants from the global south to be in alliance not only in trade, finance, and development, but also in investment rule-making. China could also extend the scope of the negotiations to take into consideration the wide and sometimes conflicting interests of investment safeguard and liberalization and sustainable development.
V. The Challenges of Investor–State Dispute Settlement
Investment dispute resolution and China seem to reveal a paradox. Presently China has the second largest BIT programme worldwide after Germany and has undergone three generations of BITs. Domestically, China has made an important amendment in its Constitution, in which foreign investments were permitted and protected for the first time, under the 1982 Constitution of the People’s Republic of China (PRC).20 After the accession of China to the International Centre for the Settlement of Investment Disputes (ICSID) Convention, most BITs featured in the second generation of Chinese BITs (1990–1997) referred to ICSID as a venue to arbitrate investor–state disputes with regard to the amount of compensation for expropriation.21 China has also completed ten FTAs, improving political dealings with Asian neighbours and constructing closer business ties with resource-rich countries in Asia, Latin America, and Africa, although the investment rules presented in China’s FTAs ‘do not exceed the boundaries’ of China’s new BITs in terms of the level of safeguard and liberalization of investment. (p.19) In addition to the change of Chinese BITs in the level of the breadth and depth of investment rules, China’s involvement in international investment rules is also influenced by the critics of the present ISDS system and investment claims, even though only a small portion of investment claims was brought against China.22 Flourishing, China has realized the necessity of the balance between the protection of investors and the right to control, and will therefore ‘embody an improved dispute settlement mechanism’ in its future BITs. China’s attempt to involve itself in the international investment regime not only delivers greater safeguards to both Chinese investors abroad and foreign investors in China by enriching its domestic rule of law. In the end, China is able to better to take its place in the world economy. Notwithstanding the significant number of international treaties and domestic reforms on investment law combined with the considerable volume of foreign investments in China, it is noteworthy to see that China has not been involved (as home or host country) in so many investment disputes. Part IV explores the reasons that explain past experience and sheds light on what the near future could be.
The role of China in international investment arbitration is examined in Chapter 23 by Matthew Hodgson and Adam Bryan. This chapter carefully investigates China’s approach to bilateral agreements and makes some observations about its potential future strategy. This chapter analyses the relation between the development and nature of China’s inward and OFDI with the protections offered in the BITs, taking into consideration the identity of China’s partners therein. As in the West, confidence in investment treaties is at a low point—in view of the public dissatisfaction in Europe towards the draft Transatlantic Trade and Investment Partnership (TTIP) and the opposition of the Trump administration to investment treaties in general, and in particular to NAFTA and TPP—there might be a chance for China to display leadership and cooperation with domestic and global economic partners. This chapter first outlines the development of the protections offered in China’s investment treaties, from the elementary safeguards in the early generation investment treaties to the broad-scale coverage in the more current ones. This chapter also ponders the extent to which China has succeeded in safeguarding its outward investment, with the repercussions of these protections on inward investment. It analyses the (relatively few) cases that have been brought under Chinese investment treaties and carries out a statistical analysis of the protection accorded to Chinese investment stocks, making a comparison with competitor economies. Lastly, this chapter considers where it is likely that China will focus its attention next, in view of the orientation of Trump’s administration in the United States and China’s investment priorities.
Jane Willems highlights the investment disputes under China’s BITs in Chapter 24. This chapter reviews and contrasts the decisions delivered by arbitral tribunals and state courts on the scope of the agreed clauses contained in first-generation Chinese BITs, with the judgments delivered under other BITs with analogous wordings. The judgments relating to Chinese BITs have added to the debate on the interpretation of treaties taking into consideration the following decisions: arbitral awards related to the determination of the arbitral jurisdiction, and the subsequent state courts judgments that have reviewed, and on most instances sanctioned, these awards. These decisions (p.20) bear more details relating to BITs concluded by socialist nations than features characteristic of China’s BITs. The circumstance is different from other jurisdictional issues. The territorial jurisdiction of arbitral tribunals under the Chinese BITs—and whether they are applicable to Special Administrative Regions (SARs)—was analysed by interpreting the territorial scope of agreements and under the moving frontier rule and the exceptions to these principles, in particular the intention alleged by China. The question of the nation of origin of the investor requesting the protection offered by Chinese BITs permitted arbitral tribunals for the first time to adopt, at an international level, the nationality test for both corporations and individuals established in the SARs contained in domestic law.
In Chapter 25, Claire Wilson reviews the major case Ping An v Belgium, which marks an important improvement in ISDS jurisprudence. It is the first case in which a mainland Chinese company has brought a claim before the International Centre for the Settlement of Investment Disputes (ICSID), and the first ICSID case with Belgium as a respondent. The dispute is of great public significance and resulted from actions taken during the 2008 global financial crisis. The claim centres on the standard of protection granted to Chinese investments in host countries with which China concluded successive treaties. The claim also offers additional knowledge from a strategic point of view. According to the investor, Belgium’s financial restructuring measures enacted in 2008 amounted to a breach of the 1986 China–Belgium BIT, which the investor invoked for the ground of his claim but relying upon a subsequent 2009 BIT attempting to establish jurisdiction. Until recent times, only a few BIT claims regarding measures taken during financial crises have been brought against member states of the EU; of these most were restricted to claims resulting from measures issued in Cyprus and Greece. However, circumstances in Europe were very different from those characterizing Argentina’s crisis, a point made in order to highlight the contrast between the EU and Argentina, where emergency legislation had damaged foreign investors’ interests. The recent Argentinian bond cases entail new types of BIT claims related to bail-outs and forceful restructurings undertaken in the period of the 2001 crisis. Unlike other claimants, Ping An was unable to obtain a favourable outcome against Belgium: on 30 April 2005 the ICSID tribunal dismissed Ping An’s claim for lack of jurisdiction, a decision which generated heavy criticism.
Sungjin Kang examines the possible problem of China’s competitive steps under IIAs in Chapter 26. Since 2008, when the Anti-Monopoly Law (AML) was adopted in China, many cases have been brought, in several sub-branches of competition law. It is noteworthy that the Chinese government has been very keen to sample the experience of other countries and upgrade China’s competition law implementation system in a short time, although lawyers and scholars have observed some procedural issues relating to the implementation of AML, mostly against foreign companies.
In essence, AML made room for possible judicial review by a competent court of China, although, in actual practice, most foreign companies are still not comfortable with the independence of China’s judiciary and are still hesitant to refer the decisions of the relevant Chinese competition authorities to the Chinese courts. Furthermore, there are some occasions where Chinese competition authorities engage AML to foster China’s own industrial policy instead of ensuring fair competition in the markets in question. In view of this, foreign companies do not have absolute trust in the judgment of the Chinese competition authorities applying the AML honestly to protect fair competition between Chinese enterprises and foreign enterprises. Therefore, foreign investors looking for a way to ensure the enforcement of ‘fair and equitable’ treatment prefer, in the alternative, a ‘national treatment’ under the investment agreements (p.21) between China and its main trading partners. Luckily, there is an increasing number of investor–state cases against the Chinese government. Furthermore, there is an increasing scholarly debate on whether it is possible to engage the ISDS, particularly to contest the judgments of competition authorities on procedural grounds. The chapter’s author is of the opinion that it is time for foreign investors in China to regard ISDS as an alternative to contest procedural aspects of the implementation of Chinese competition law. The author concentrates on the cases where the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC) use AML against the international syndicates’ misuse of dominance cases. Of course, as the history of AML implementation is essentially brief, there are various avenues for the Chinese competition authority to improve, by bracing up with other competition governments. But by instituting an AML case before an ISDS tribunal, foreign investors may lure Chinese competition authorities to respect the due process and fair implementation of the competition laws, thereby advancing openness and predictability of the competition law implementation in China.
Finally, in Chapter 27, Shu Shang explores the option of implementing investor–state mediation in China’s next generation of investment treaties, an interesting proposal taking into consideration that China could act as the respondent. The chapter first discusses the rise of mediation in international commercial and business dispute settings, and mediation’s potential applications in resolving investor–state claims. It then discusses the background of the recent rise of alternative dispute resolution (ADR) in China, which may lead to the adoption of an investor–state mechanism in the country’s future BITs, and how such a mechanism should be devised. At the end, it wraps up the discussion by arguing that rather than returning to political means of settling investor–state disputes, the recent rise of interest-based investor–state mediation indicates that, as the parties become more experienced with investment treaty claims, they may consider the amicable interaction between parties as more desirable and effective.
VI. Concluding Remarks
With great strength comes enormous responsibility. China has been required to review its BIT and FTA method. Since 1982, the major objective of Chinese IIAs was to attract and maintain FDI in China even though, in this era, China’s ODI gradually increased. In 2014 for the first time China’s OFDI surpassed its IFDI.23 In the conclusion of IIAs, obligations and rights must be balanced so as to attain similar commitments between China and foreign nations, and to attain common interests between China and foreign investors. In addition, modern international investment policy should maintain a certain degree independence to enable China to respond to its developing economy.
Internationally, without the efficiency and implementation of the international legal system, a realistic accomplishment of international affairs is that it is power and not law that triggers the formation, function, and transformation of the international rule of law, as Kenneth Waltz has elucidated. Non-compliance with the international rule of law will increase reputational costs, which in turn could reduce coordination (p.22) and cooperation from others if one state tries to promote its national interest on the international stage. At the sixtieth anniversary ceremony of Five Principles of Peaceful Coexistence, President Xi Jinping revalidated the responsibility of international rule of law in global governance:
[we] should jointly promote the rule of law in international relations. We should encourage all parties to comply with international law and well-recognised basic principles regulating international relations and use broadly applicable rules to distinguish between right and wrong and embrace peace and development.
One of the most striking characteristics of investment agreements is that they have transformed little in form and in substance since the first agreements were concluded in the 1970s. The international investment exchanges have drastically transformed and investment flows have themselves become more complicated. Most investors from developing nations and nations in transition are now migrating overseas to improve their economic activities (in the context of south–south and south–north flow). In fact, over the last ten years or so, there have been plans to reform IIAs—originally introduced by a few states and then passed by certain international organizations such as UNCTAD and the OECD. This modern trend has not yet eradicated the imbalance contained in these documents.
FDI, as long as it enables the transfer of technology and generates remarkable task revenues, is considered to be one of the major tools for sustainable development. Nevertheless, international normative documents take little notice of this sustainable development obligation and this is likely where China’s leadership will be assessed. The separation of rights and obligations is blatant in the clash between states and foreign investors. IIAs can result in a real brake on the enforcement of public policy in favour of sustainable development. This is not just the treaties themselves, but the manner in which they are applied by some investors. Establishing the dispute mechanism is at the centre of this current discussion on the desired and desirable development of the IIAs. The importance of accepted international standards needs to be recognized in describing responsible investment, thereby incorporating investment agreements into a broader set of informal and formal normative documents that can interact with one another. From a participatory point of view, which is centred on a normative process whereby each of the stakeholders has been associated with the applicable law, this needs the involvement of states, international institutions, investors, and some NGOs.
This book is the product of careful research and a real quest to comprehend the contemporary dynamics of China’s approach towards international investment law and policy, which has been backed by the General Research Fund (GRF), Hong Kong SAR Research Grants Councils, 2016–2018. This effort resulted in the Asia FDI Forum II held in Hong Kong on 29–30 November 2016, an event jointly sponsored by the Chinese University of Hong Kong (CUHK) Law Faculty and the Columbia University Centre for Sustainable Investment. Launched by the CUHK Faculty of Law in 2015, the series of meetings of the Asia FDI Forum offers a multi-stakeholder platform anchored in Hong Kong for participants from academia, government, the private sector, and civil society to discuss regional investment trends, highlight specific characteristics of investment treaties and policies, analyse Asia’s relationship with other nations of the world, and explore the several legal and policy implications of the emergence of new actors, issues, and norms which determine the future of Asian FDI. The Asia FDI Forum has been established to offer an avenue for expert discussion based on academic research and policy-based analysis, mostly related to legal development but also key economics and politics issues on FDI in Asia.
(1) See Jin Zhongxia, ‘The Chinese Delegation at the 1944 Bretton Woods Conference: Reflections for 2015’ (Official Monetary and Financial Institutions Forum Paper, July 2015) https://www.omfif.org/media/1067515/chinese-reflections-on-bretton-woods-by-jin-zhongxia.pdf (last accessed 17 April 2018).
(2) See Congyan Cai, ‘China-US BIT Negotiations and the Future of Investment Treaty Regime’ (2009) 12 Journal of International Economic Law 457.
(3) See World Trade Organization, ‘China and the WTO’ https://www.wto.org/english/thewto_e/countries_e/china_e.htm (last accessed 17 April 2018).
(4) The words ‘regime’, ‘system’, or ‘framework’ in this book are loosely used in the sense of political science rather than international law, as defined by Robert Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (first published 1984, Princeton University Press 2005) 57: ‘international regimes as “sets of implicit or explicit principles, norms, rules and decision-making procedures around which actors” expectations converge in a given area of international relations’.
(5) See Lee Branstetter and Nicholas Lardy, ‘China’s Embrace of Globalization’ in Loren Brandt and Thomas Rawski (eds), China’s Great Economic Transformation (Cambridge University Press 2008) 650.
(6) On the purpose and scope of IIAs see Jeswald W Salacuse, The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital (Oxford University Press 2013) 393.
(7) See Tim Büthe and Helen Milner, ‘The Politics of Foreign Direct Investment into Developing Countries: Increasing FDI through International Trade Agreements?’ (2008) 52(4) American Journal of Political Science 741, 750.
(8) See W Michael Reisman, ‘The Empire Strikes Back: The Struggle to Reshape ISDS’, White & Case International Arbitration Lecture (The Lamm Lecture) for Delivery at University of Miami School of Law on 9 February 2017.
(9) See also Duncan Williams, ‘Policy Perspectives on the Use of Capital Controls in Emerging Nations: Lessons from the Asian Financial Crisis and a Look at the International Legal Regime’ (2001) 70 Fordham Law Review 561, 614.
(10) See David Collins, The BRIC States and Outward Foreign Direct Investment (Oxford University Press 2013) 111.
(11) See Matthias Busse, Jens Königer, and Peter Nunnenkamp, ‘FDI Promotion through Bilateral Investment Treaties: More than a Bit?’ (2010) 146(1) Review of World Economics 147.
(12) See Yongjie Li, ‘Factors to be Considered for China’s Future Investment Treaties’ in Wenhua Shan and Jinyuan Shu (eds), China and International Investment Law: Twenty Years of ICSID Membership (Brill 2015) 176.
(13) See eg Philippe Le Corre and Alain Sepulchre, China’s Offensive in Europe (Geopolitics in the 21st Century) (Brookings Institution Press 2016); Huiyao Wang and Miao Lu, China Goes Global: The Impact of Chinese Overseas Investment on its Business Enterprises (Palgrave Macmillan 2016); Kerry Brown, China and the EU in Context: Insights for Business and Investors (Palgrave Macmillan 2014).
(14) See eg Lisa Toohey, Colin B Picker, and Jonathan Greenacre (eds), China in the International Economic Order: New Directions and Changing Paradigms (Cambridge University Press 2015); Ilan Alon, Marc Fetscherin, and Philippe Gugler (eds), Chinese International Investments (Palgrave Macmillan 2012) 466.
(15) See eg Wang Guiguo, International Investment Law: A Chinese Perspective (Routledge 2014); An Chen, The Voice from China: An CHEN on International Economic Law (Springer 2013); Zhang Hong, China’s Outward Foreign Direct Investment: Theories and Strategies (Enrich Professional Publishing 2014).
(16) For a detailed analysis on the economic implications of the ‘open door’ policy see Guocang Huan, ‘China’s Open Door Policy, 1978–1984’ (1986) 39 Journal of International Affairs 1.
(17) See Qingjiang Kong, ‘Bilateral Investment Treaties: The Chinese Approach and Practice’ (1999) 9 Asian Yearbook of International Law 107.
(18) See also Leon E Trakman, ‘Geopolitics, China and Investor-State Arbitration’ in Lisa Toohey, Colin B Picker, and Jonathan Greenacre (eds), China in the International Economic Order: New Directions and Changing Paradigms (Cambridge University Press 2015) 271–8.
(19) English version of the Thirteenth Five-year Plan, translated by Compilation and Translation Bureau, Central Committee of the Communist Party of China, in respect of foreign investment see Article 49 Section 4 (foreign capital and outbound investment), Chapter 50 Section 1 (robust business environment), and Section 2 (the regulation system for Chinese overseas investment), http://22.214.171.124/videoplayer/P020161207645765233498.pdf?ich_u_r_i=0fcfc6c4af81270b7e3d674322521be9&ich_s_t_a_r_t=0&ich_e_n_d=0&ich_k_e_y=1745048917752163062456&ich_t_y_p_e=1&ich_d_i_s_k_i_d=9&ich_s_e_q=212115804&ich_u_n_i_t=1 (last accessed 20 November 2017).
(20) Article 18 of the Constitution of the PRC states:
The People’s Republic of China permits foreign enterprises, other foreign economic organizations and individual foreigners to invest in China and to enter into various forms of economic cooperation with Chinese enterprises and other Chinese economic organizations in accordance with the law of the People’s Republic of China. All foreign enterprises, other foreign economic organizations as well as Chinese-foreign joint ventures within Chinese territory shall abide by the law of the People’s Republic of China. Their lawful rights and interests are protected by the law of the People’s Republic of China.
(21) See J R Weeramantry, ‘Investor–State Dispute Settlement Provisions in China’s Investment Treaties’ (2012) 27(1) ICSID Review 192.
(22) For commentary on the jurisdiction of ICSID to investment disputes relating to China see Jane Y Willems, ‘The Settlement of Investor State Disputes and China: New Developments on ICSID Jurisdiction’ (2011) 8(1) South Carolina Journal of International Law & Business 1 and Monika C E Heymann, ‘International Law and the Settlement of Investment Disputes Relating to China’ (2008) 11(3) Journal of International Economic Law 507.
(23) See Ben Yunmo Wang, ‘China “Going Out” 2.0: Dawn of a New Era for Chinese Investment Abroad’, Huffington Post, 4 November 2015, http://www.huffingtonpost.com/china-hands/china-going-out-20-dawn-o_b_7046790.html (last accessed 20 November 2017).