China and Investor-State Arbitration

Abstract

Notwithstanding China’s endorsement of investor-state arbitration more than a decade ago, few investor claims have been initiated against it and none has concluded with an award. This does not necessarily mean that foreign investors will not make such claims in the future, but rather that proceeding against China, from an economic rationalist perspective, is likely to be contentious, costly and dilatory. However, these concerns are not peculiar to China. Economically and politically powerful states, not least of all the United States, are less frequently subject to investor-state arbitration than poorer states for much the same reason.

What is increasingly likely is that China is preparing itself and its investors abroad for investor-state proceedings in the future. This is evident, for example, in China’s growing interest in the functioning of the International Center for the Settlement of Investment Disputes (‘ICSID’), among other institutions, in its inclusion of investor-state arbitration in its Model Bilateral Investment Agreement and in various regional and bilateral agreements it has concluded.

China is also aware that the price of attracting global investment is the prospect that investor claims will inevitably be lodged against it in the future. However, China is also aware that the benefits may well outweigh the costs. After all, China has grown into the second largest economy in the world. It is the second largest recipient of foreign investment. It is sixth in outward direct foreign investment. It appreciates the economic rationalist reasons for promoting foreign direct investment, as well as the risks.

This paper has three primary purposes. The first purpose is to explore these developments primarily in relation to China’s history and practice in concluding bilateral investment agreements (‘BITs’) with foreign countries. The second purpose is to examine China’s limited experience with investor-state arbitration under such BITs. The third purpose is to identify how China is likely to develop its investor-state agreements and dispute resolution regime through strategic investment alliances with other states without sacrificing its distinctive national interests including those of its investors abroad.