16 May 2017
"One Belt, One Road" and Chinese Investment
By Vivienne Bath, The University of Sydney Law School
China’s changes to its inbound and outbound investment system, in addition to its programme of BIT (bilateral investment treaties) and FTA (free trade agreements) negotiations, are relevant to investments in and from OBOR countries, but are part of an on-going reform process that is not driven by the OBOR vision. The SPC and Chinese commentators recognise that investment in the OBOR will raise a number of legal issues for investors, but appear to be focused on improving China’s own legal system and its network of current and potential international treaties, primarily BITs and FTAs, as the primary method of dealing with disputes. However, it is clear that protection under China’s current network of BITs along the OBOR is by no means assured, due to the limited content of most of the treaties and potential issues in individual countries with a poor record in terms of rule of law.
Does China have – or should it have – a specific strategy in relation to investment protection agreements focused on the states along the OBOR, and if so what form should it take? In general, the individual countries with which China has negotiated and is currently negotiating FTAs are not states along the OBOR, although regional agreements and negotiations with ASEAN, the European Union and potentially a new Central Eurasian agreement may provide opportunities for strengthened investment agreement protections in some of those states. China’s current emphasis in negotiating agreements with countries along the OBOR seems to be on joint declarations for expanding cooperation and entering into comprehensive strategic partnerships rather than new BITs or investment agreements, although these may be the precursors to more formal state-to-state arrangements.
It is questionable whether China’s long-term interests and aims under the OBOR vision would be well-served by an aggressive programme of negotiating more rigorous investment agreements and attempting to enforce the rights of investors through investor-state arbitration. Indeed, despite an increase in ISDS cases, Chinese investors have been very cautious in relation to attempts to enforce their rights through these means.
This raises the question of the role of the Chinese government in both deal making and protecting the rights and interests of Chinese investors. The Vision Document and other policy documents relating to the OBOR certainly suggest that the Chinese government sees itself as playing an active role in planning and putting its weight behind the expansion outwards as contemplated in the OBOR vision. The provision of funding by Chinese owned and backed institutions,94 when combined with the on-going requirement that Chinese government approval be obtained for major acquisitions and investments and for investments in sensitive countries and investments, also indicate that the Chinese government will play an on-going regulatory role in OBOR investment. These investors may well assume that the Chinese government will continue to be closely involved in their operations and in the behind-the-scenes settlement of disputes relating to investments, particularly in states with a weak legal regime and a poor record in terms of investment disputes.
In summary, reforms to China’s current regulatory and funding regime both encourage outbound investment and support continued government involvement in both the establishment and operation of overseas investments. Due to China’s assertive policy of negotiating BITs and, more recently, FTAs, there is a network of treaties with states along the OBOR designed to promote and protect investment. However, investment protection for Chinese investors still presents challenges, due both to the restricted protections offered by the earlier treaties and the risk associated with a significant number of the host countries along the OBOR. It can therefore be anticipated that the Chinese government will play a continuing role both in encouraging and funding investment along the OBOR and in assisting with disputes.
(Lutz-Christian Wolff and Xi Chao (eds), Legal Dimensions of China’s Belt and Road Initiative, Wolters Kluwer Hong Kong Ltd, 2016, pp165-218.)
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