‘One Belt, One Road’ and Chinese Investment

Since the inception of the Open Door policy in 1978, foreign investment has been an integral part of China’s economic and development policy. The implementation of China’s policy objectives has been supported domestically by a comprehensive system of regulation inside China, covering both inbound and outbound investment, and internationally by both multilateral and bilateral agreements for the facilitation and promotion of investment.

The 2015 ‘Vision and Actions on Jointly Building Silk Road Belt and 21^st-Century Maritime Silk Road’ does not focus on investment. Nevertheless, it is clear that investment is a large part of the ‘One Belt, One Road’ (‘OBOR’) initiative.

The states along the OBOR are linked mainly by location and are a disparate group in terms of size, development, economic structure and government. My paper deals with Chinese strategies to protect Chinese investments along the OBOR.[1]

Since 1982, China has committed itself to the negotiation and execution of bilateral investment treaties (‘BITs’). It is now a party to 1 ratified BITs. China’s approach to the content of these treaties has changed over time to reflect the opening up of the Chinese economy to foreign investment and, more recently, China’s own status as a source of significant outbound investment pursuant to the ‘Go Global’ policy.  China has also begun to engage in the negotiation of bilateral and regional FTAs as a means of furthering China’s trade and development goals, particularly the liberalisation of investment access.

China has entered into BITs with most of the states along the OBOR.  However, the vast majority of these treaties were entered into during the 1980s or 1990s. They provide for very limited investment protection and allow very limited scope for investor-state dispute resolution (‘ISDS’). A small number of newer treaties provide for a higher degree of investment protection. China’s recent focus has been on less formal negotiations with states along the OBOR, including strategic partnerships, currency swap agreements and private financing agreements.

China has several options in relation to investment protection. First, current agreements could continue to exist side by side with new, less formal, commitments. Second, China might undertake a systematic process of renegotiating and replacing old BITs. Third, China could use less formal ways of providing a degree of investment protection and certainty.

First, there are significant questions about many of these countries as investment destinations. Many of them, particularly the Central Asian states, have been or are the subject of numerous investor-state arbitrations. Only 15 of the OBOR states have no reported ISDS arbitrations against them, and, of these, most are relatively small economies. Most of them also have low rankings on the World Bank’s Doing Business tables and the World Justice Project’s Rule of Law Index.

Second, negotiating new treaties that meet the ‘high quality’ standard set out in the 13^th Five-year Plan to replace the older treaties should be a priority for the Chinese government if Chinese investors are to avail themselves of ISDS (although they have not shown much interest in this to date).  However, the state along the OBOR may not be willing to renegotiate old agreements with China in favour of agreements which increase potential liabilities to investors. States such as Indonesia, India and Egypt are seriously re-examining their participation in the international investment system. These states may well be looking to limit their exposure rather than increase it.

Third, it is not clear how much Chinese policy-makers rely on China’s BITs with developing countries, given China’s emphasis on ‘win-win’ cooperation and the issues outlined above. The ongoing provision of funding by Chinese owned and backed institutions, and the active involvement of the Chinese government in regulation and the negotiation of projects suggests that the Chinese government will continue to be closely involved in both the operation and the settlement of disputes relating to investments, particularly in states with a weak legal regime and a poor record in terms of investment disputes. It is questionable whether China would see its long-term interests and aims under the OBOR vision as being well-served by an aggressive programme of negotiating more rigorous investment agreements and attempting to enforce the rights of investors through investor-state arbitration.

Vivienne Bath is Professor of Chinese and International Business Law at the University of Sydney.