Investor-State Dispute Settlement (“<span class="news-text_medium">ISDS</span>”) mechanisms have gained significance in the context of China’s expanding global economic footprint, particularly through its Belt and Road Initiative (“<span class="news-text_medium">BRI</span>”) and numerous Bilateral Investment Treaties (“<span class="news-text_medium">BITs</span>”). 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.
<span class="news-text_italic-underline">China's ISDS Cases: Notable Disputes</span>
China has been involved in several high-profile ISDS cases, as both respondent and claimant. One notable case is <span class="news-text_italic-underline">Ping An Life Insurance Company of China v Belgium (ICSID Case No. ARB/12/29)</span>. 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.
<span class="news-text_italic-underline">Modernizing BITs</span>
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 (“<span class="news-text_medium">CAI</span>”), 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.
<span class="news-text_italic-underline">Multilateral Efforts</span>
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.
