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The Belt and Road Initiative (“BRI”), launched by China in 2013, has significantly expanded global infrastructure and economic development projects. With its vast scale and international scope, the BRI has given rise to complex legal disputes. To address these, China has established various mechanisms and frameworks, primarily through the China International Commercial Court (“CICC”) and the China International Economic and Trade Arbitration Commission (“CIETAC”).

The CICC was established in June 2018 to provide a dedicated platform for resolving international commercial disputes arising from the BRI. As part of the Supreme People’s Court (SPC), the CICC has jurisdiction to handle complex, high-value cases with cross-border elements.

Jurisdiction and Procedure

The CICC is designed to handle major international commercial cases, including those related to trade, investment, finance and intellectual property. It offers a streamlined procedure that combines judicial proceedings with arbitration and mediation, providing a one-stop solution for dispute resolution. This hybrid approach is intended to expedite the resolution process and reduce costs for the parties involved.

To enhance efficiency and accessibility, the CICC employs advanced technologies such as electronic case filing, virtual hearings and digital evidence submission. These innovations facilitate smoother and faster proceedings, especially for parties located in different countries.

CIETAC is one of China’s oldest and most prestigious arbitration institutions, with extensive experience in handling international disputes. It has become a preferred forum for resolving BRI-related disputes due to its expertise and reputation for impartiality and efficiency.

BRI-Specific Rules and Services

To better serve BRI projects, CIETAC has developed specific arbitration rules tailored to the needs of international stakeholders. These rules incorporate features such as emergency arbitration, expedited procedures and provisions for multi-party and multi-contract disputes, which are common in large infrastructure projects.

• Emergency Arbitration: This allows parties to seek urgent interim relief before the constitution of the arbitral tribunal. For instance, if a BRI project faces an immediate threat that could cause irreparable harm, a party can request emergency measures to protect its interests.

• Expedited Procedures: These are designed to shorten the duration of arbitration proceedings for less complex cases. For example, disputes involving smaller claims or straightforward issues can be resolved quicker, reducing costs and duration.

• Multi-Party and Multi-Contract Disputes: BRI projects often involve numerous parties and multiple contracts. CIETAC’s rules provide mechanisms to handle such complexities. For example, the consolidation of related disputes and joint hearings ensures efficient and convenient dispute resolution in relation to large infrastructure projects where several contracts and stakeholders are interconnected.

CIETAC has expanded its presence globally by establishing sub-commissions across Hong Kong, Vancouver and Vienna as well as co-operation agreements with foreign arbitration institutions such as the Singapore International Arbitration Centre (SIAC), Saudi Center for Commercial Arbitration (SCCA), Permanent Court of Arbitration (PCA), German Institution of Arbitration (DIS) and many others. This international network facilitates the enforcement of CIETAC awards in multiple jurisdictions, providing greater certainty and finality for parties involved in BRI projects.

China has also signed numerous bilateral and multilateral agreements to enhance judicial co-operation and mutual recognition of judgments and arbitral awards. These agreements are crucial in ensuring decisions made by the CICC and CIETAC are enforceable across borders, thereby strengthening the legal framework supporting the BRI.

The BRI has catalysed the development of robust dispute resolution mechanisms in China, spearheaded by the CICC and CIETAC. These institutions, with their specialised rules, technological advancements and international networks, provide comprehensive and efficient solutions for complex disputes arising from the BRI. As the initiative continues to expand, these mechanisms will play an increasingly vital role in maintaining legal certainty and fostering international co-operation.

Investor-State Dispute Settlement (“ISDS”) mechanisms have gained significance in the context of China’s expanding global economic footprint, particularly through its Belt and Road Initiative (“BRI”) and numerous Bilateral Investment Treaties (“BITs”). As Chinese investments grow worldwide, understanding China's approach to ISDS provides valuable insights into its strategies for protecting overseas investments and navigating international disputes.

China's engagement with ISDS began in the early 1980s when it signed its first BIT with Sweden in 1982. Since then, China has entered into over 120 active BITs, many of which include provisions for ISDS. These treaties reflect China's evolving stance towards international investment protection and dispute resolution.

China’s BITs typically include clauses allowing foreign investors to bring claims against the Chinese government in international arbitration forums, such as the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL). These provisions are designed to protect foreign investments from expropriation, unfair treatment and other adverse governmental actions.

China's ISDS Cases: Notable Disputes

China has been involved in several high-profile ISDS cases, as both respondent and claimant. One notable case is Ping An Life Insurance Company of China v Belgium (ICSID Case No. ARB/12/29). Ping An sought compensation for losses incurred during the Fortis bank restructuring under the China-Belgium BITs. Ping An’s claim was dismissed for lack of jurisdiction, however, the case highlights China's willingness to utilise ISDS mechanisms to protect its foreign investments.

In recent years, Chinese investors have resorted to ISDS mechanisms to address grievances related to their overseas investments. This trend underscores China's growing confidence in using international legal frameworks to safeguard its economic interests.

The BRI, launched in 2013, has led to a surge in Chinese investments in infrastructure projects across Asia, Africa and Europe. These investments, often in politically and economically unstable regions, expose Chinese companies to significant risks, including regulatory changes, expropriation and breach of contract.

To mitigate these risks, China has emphasised the importance of robust ISDS provisions in its BITs with BRI countries. These provisions provide legal recourse for Chinese investors facing adverse actions by host states, thereby enhancing the security and attractiveness of BRI investments.

Modernizing BITs

China has been modernising its BITs to align with contemporary standards of investment protection. Recent agreements, such as the China-EU Comprehensive Agreement on Investment (“CAI”), include comprehensive ISDS provisions, addressing issues such as transparency, the right to regulate and sustainable development. However, the European Parliament has frozen the ratification process of the CAI, rendering its future uncertain.

Multilateral Efforts

China is participating in multilateral efforts to reform ISDS mechanisms. It has engaged in discussions under the auspices of UNCITRAL’s Working Group III, which aims to address criticisms of the ISDS system, such as lack of transparency, inconsistency in arbitral decisions and arbitrator impartiality concerns. The 49th session is scheduled for 23 to 27 September 2024 in Vienna.

China’s participation in ISDS mechanisms reflects its dual role as both a major capital exporter and a recipient of foreign investments. Through its BITs and active engagement in ISDS reforms, China seeks to protect its overseas investments while contributing to the evolution of a fair and balanced international investment regime. As the BRI continues to expand, China’s involvement in ISDS will likely grow, shaping the landscape of global investment dispute resolution.

As the global geopolitical climate continues to change, international businesses operating in China face greater legal and compliance risks, particularly in relation to sanctions imposed by the United States and the European Union. Understanding these risks and their implications for arbitration and litigation is crucial for entities engaged in cross-border trade and investment.

US Sanctions

The United States has imposed a range of sanctions on Chinese entities and individuals, targeting sectors such as technology, defence and finance. These measures include restrictions on trade, investment and access to US financial systems. Notable examples include sanctions against technology companies like Huawei and restrictions on transactions involving entities linked to alleged human rights violations in Xinjiang.

EU Sanctions

The European Union has also implemented sanctions against China, primarily in response to human rights concerns and geopolitical issues. These sanctions often mirror those of the US and include asset freezes, travel bans and restrictions on trade with certain Chinese entities.

Compliance Risks for International Businesses

i. Operational Challenges

International businesses must navigate a complex web of regulations to ensure compliance with both US and EU sanctions. This involves conducting thorough due diligence to avoid prohibited transactions and entities, which can be resource-intensive and legally complicated.

ii. Risk of Secondary Sanctions

One significant risk is the potential for secondary sanctions. These sanctions can be imposed on non-US entities that engage in certain transactions with sanctioned Chinese entities. This risk necessitates stringent compliance measures to avoid inadvertently violating US regulations.

Legal Uncertainty

Sanctions create a landscape of legal uncertainty, complicating arbitration and litigation processes involving sanctioned entities. Issues such as enforceability of arbitral awards, recognition of foreign judgments and the ability to engage legal counsel can be affected by sanctions regimes.

Asset Freezes and Restrictions

Sanctions can result in asset freezes and restrictions on financial transactions, making it difficult for sanctioned entities to pay arbitration fees and legal costs or satisfy judgments. This can hinder the arbitration process and affect the ability of parties to access justice.

Jurisdictional Challenges

Arbitration involving entities under sanctions can also involve jurisdictional challenges. Tribunals may need to consider the applicability of sanctions laws to the arbitration agreement and the enforcement of awards. For instance, US sanctions may prohibit the recognition of arbitral awards in favour of certain Chinese entities.

i. Robust Due Diligence

To mitigate compliance risks, businesses should implement robust due diligence processes. This includes regular screening of counterparties against sanctions lists, monitoring transactions for compliance and maintaining comprehensive records of compliance efforts.

ii. Legal Counsel and Advisory

Engaging experienced legal counsel is essential in navigating the complexities of sanctions compliance. Legal advisors can provide guidance on structuring transactions to avoid sanctions violations, managing legal risks in arbitration and litigation, and responding to enforcement actions.

iii. Proactive Risk Management

Proactive risk management strategies, such as diversifying supply chains and investment portfolios, can also help mitigate the impact of sanctions. Businesses should develop contingency plans to address potential disruptions caused by sanctions and ensure continued compliance with evolving regulations.

The legal and compliance risks associated with US and EU sanctions present significant challenges for international businesses operating in China. Navigating these risks requires a thorough understanding of sanctions regimes, proactive risk management, and robust compliance measures. As geopolitical dynamics continue to evolve, businesses must remain vigilant and adaptable to ensure compliance and minimise legal uncertainties in arbitration and litigation involving sanctioned entities.

By staying informed and implementing comprehensive compliance strategies, international businesses can better manage the complexities of operating within the intricate framework of global sanctions and maintain their competitive edge in the Chinese market.