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From: Karl Sauvant <[log in to unmask]>
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Subject: The next generation of Chinese investment treaties:A balanced
paradigm in an era of change (Columbia FDI Perspective No 250)
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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 250 April 22, 2019
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Marion A. Creach ([log in to unmask])
*The next generation of Chinese investment treaties:*
*A balanced paradigm in an era of change*
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*** <#m_8200201200358293734__edn1>
by
Qianwen Zhang** <#m_8200201200358293734__edn2>
The fortieth anniversary of China’s reform and opening-up policy coincides
with substantial changes in China’s foreign investment legal regime. The
history of China’s investment treaties began in 1982, when the country
entered into its first bilateral investment treaty (BIT), and was marked by
two other key dates: the 1998 entry into force of the China-Barbados BIT,
in which China accepted full ICSID jurisdiction, and China’s 2013
acceptance of pre-establishment national treatment and a negative list
approach to exceptions. In this era of change, China’s new generation of
investment treaties features two new characteristics: they are based on a
balanced paradigm, and they are becoming more influential at the domestic
level.
China has become the world’s third-largest home country, and it remains the
second largest host country. Accordingly, China’s government seeks to
balance the protection of foreign investment with state sovereignty. China
can be expected to emphasize outward FDI protection more, especially in
implementing the Belt and Road initiative. Meanwhile, it is essential for
China to maintain its FDI regulatory space. Unlike most of China’s BITs
concluded in the 1990s, exceptions are clarified in the 2012
China-Japan-Korea investment agreement and the 2012 China-Canada BIT
regarding security, taxation and prudential measures. As a major capital
exporter, more categories of exceptions, such as cybersecurity, are likely
to be included in the next generation of Chinese investment treaties.
Beyond that, Chinese investment treaties are increasingly influencing
China’s domestic legislation. For example, following the 2013 agreement
with the US on pre-establishment national treatment and a negative list
approach, China’s new foreign investment law
<https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=63e35eb41e&e=dd153d6a25>,
which was drafted in 2015 and approved in 2019,[1]
<#m_8200201200358293734__edn3> reflects these changes. Also, a nationally
unified negative list system was implemented in 2018. Therefore, the
agreement reached with the US during the BIT negotiations with China has
resulted in a national reform aimed at ending the era of sole
post-establishment national treatment in China’s domestic foreign
investment laws. This change in national legislation entitles all foreign
investors to pre-establishment national treatment. Other domestic laws have
also been adapted, e.g., China’s 2015 national security law and its 2017
network security law, to clarify exceptions in Chinese BITs.
Furthermore, with the reform of China’s foreign investment law, some
BITs—especially those concluded in the 1980s and 1990s, such as the 1985
China-Kazakhstan BIT when China focused on expanding its opening-up
policy—are likely to be updated. And other BITs, such as the 1986
China-United Kingdom BIT, may be replaced by future FTAs.
The loose connection between BITs and domestic legislation, the
fragmentation of the latter and the adoption of a highly flexible
negotiation strategy to attract FDI as a not-so-typical capital-exporter,
all contributed to the inconsistency of Chinese BITs entered into before
2016.[2] <#m_8200201200358293734__edn4> The next generation of Chinese BITs
should reflect that China has become a net capital-exporting country. This
may promote greater coherence among Chinese BITs, operationalizing also the
balanced paradigm; but it may slow down Sino-foreign BIT negotiations,
especially with big powers that insist on their own models.
Remaining difficulties involve the definition of investors, the content of
exception clauses and the attitudes toward information technologies.
The issues raised by China’s state-owned enterprises (SOEs) in arbitration
reflect a defect of earlier Chinese BITs in defining investors. For
example, in the *Beijing Urban Construction Group v. Yemen *case, the
tribunal—in determining whether it has jurisdiction over the dispute under
the China-Yemen BIT—held that the wholly state-owned entity BUCG was a
commercial contractor rather than an agent of the Chinese government.[3]
<#m_8200201200358293734__edn5> In the absence of a common definition of
SOEs, future Chinese BITs should explicitly include SOEs in the definition
of investors, as in the recent China-Korea and China-Mexico BITs.
Also, different interpretations of exceptions in relation to host
countries’ foreign investment regulations (e.g., the definition of public
security) will pose crucial challenges in the China-US BIT and China-EU BIT
negotiations. The South-North conflict becomes more evident through the use
of exception clauses. For example, the US aims at enabling cross-border
data flows,[4] <#m_8200201200358293734__edn6> while China emphasizes
industrial security and customers’ data.
The new generation of Chinese investment treaties is embracing a balanced
paradigm to enhance investment protection and defend regulatory
sovereignty. The exact balance that will be found in each treaty will
depend on the specific circumstances and interests of the governments with
which China will be negotiating its investment treaties.
------------------------------
* <#m_8200201200358293734__ednref1> *The Columbia FDI Perspectives are a
forum for public debate. The views expressed by the author(s) do not
reflect the opinions of CCSI or Columbia University or our partners and
supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed
series.*
** <#m_8200201200358293734__ednref2> Qianwen Zhang ([log in to unmask]) is a
Lecturer at School of Public Administration and Law in China Southwest
Jiaotong University. The author is grateful to Huiping Chen, Michael Nolan
and Stephan Schill for their helpful peer reviews.
[1] <#m_8200201200358293734__ednref3> The National People’s Congress of the
People’s Republic of China, Official report on the 2018 legislation plan of
China’s Standing Committee of the National People’s Congress,
http://www.npc.gov.cn/npc/xinwen/2018-04/27/content_2053820.htm?from=timeline&isappinstalled=0
<https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=5bc7bb67af&e=dd153d6a25>
.
[2] <#m_8200201200358293734__ednref4> Axel Berger, “Hesitant embrace:
China’s recent approach to international investment rule-making,” *The
Journal of World Investment & Trade*, vol. 16 (2016), pp. 843-868.
[3] <#m_8200201200358293734__ednref5> Beijing Urban Construction Group Co.
Ltd. v. Republic of Yemen, ICSID Case No. ARB/14/30, *Decision on
jurisdiction* (May 31, 2017), pp. 10-13.
[4] <#m_8200201200358293734__ednref6> See, e.g., United States Trade
Representative, *The Digital 2 Dozen* (2016)
<https://ustr.gov/about-us/policy-offices/press-office/reports-and-publications/2016/digital-2-dozen>
.
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Qianwen Zhang, ‘The next generation of Chinese
investment treaties: A balanced paradigm in an era of change,’ Columbia FDI
Perspectives, No. 250, April 22, 2019. Reprinted with permission from the
Columbia Center on Sustainable Investment (**www.ccsi.columbia.edu*
<https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=61872f68a1&e=dd153d6a25>*).”
A copy should kindly be sent to the Columbia Center on Sustainable
Investment at **[log in to unmask]* <[log in to unmask]>*. *
For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Marion A. Creach, [log in to unmask]
*Most recent Columbia FDI Perspectives*
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- No. 249, Andrew Kerner, “How to analyze the impact of bilateral
investment treaties on FDI,” April 8, 2019
- No. 248, Stephan W. Schill and Geraldo Vidigal, “Investment dispute
settlement à la carte within a multilateral institution: A path forward for
the UNCITRAL process?,” March 25, 2019
- No. 247, Karl P. Sauvant, “The state of the international investment
law and policy regime,” March 11, 2019
*All previous FDI Perspectives are available at *
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*Other relevant CCSI news and announcements*
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Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
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Fax: (212) 854-7946
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