Investment treaty practice

Model BIT

Does the state have a model BIT?

China has not developed a model bilateral investment treaty (BIT).

Preparatory materials

Does the state have a central repository of treaty preparatory materials? Are such materials publicly available?

There are no publicly available preparatory materials for investment treaties. On the website of the Ministry of Commerce, there is information set out regarding signed free trade agreements (FTAs) and FTAs under negotiation.

Scope and coverage

What is the typical scope of coverage of investment treaties?

Investment treaties signed before the 1998 China–Barbados BIT are considered as the first generation of China’s investment treaties. Some of the first generation of investment treaties do not set forth clear definitions of ‘investor’ or ‘investment’, (eg, the 1984 China–Norway BIT). Later investment treaties have remedied this deficiency.

Taking one of the more recent BITs as an example, the 2013 China–Tanzania BIT sets out what is regarded as an ‘investment’ – including movable and immovable property and other property rights, shares, debentures, stocks, equity participation, claims to money or other performance having economic value, intellectual property rights, business concessions, bonds and rights under contracts – and what should not be considered as an ‘investment’ – including claims to money that arise solely from commercial contracts for sale of goods or services, marriage or inheritance. The China–Tanzania BIT makes it clear that an investment must involve a commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. The BIT then provides a definition of ‘investor’, both regarding ‘natural person’ investors and ‘enterprise’ investors. China’s recent BITs have clear and detailed definitions of ‘investor’ and ‘investment’, and the definition of investments reflects some elements of the widely accepted Salini test.

Protections

What substantive protections are typically available?

Substantive protections available under China’s investment treaties would generally include the following.

 

Expropriation

Most of China’s investment treaties do not contain a detailed definition as to what constitutes expropriation. Instead, a typical expropriation clause (eg, the 2014 China–Japan–Korea Trilateral Investment Treaty (TIT)) would forbid direct or indirect measures depriving an investor of its investment unless such measures are:

  • for a public purpose;
  • on a non-discriminatory basis;
  • in accordance with its laws and international standard of due process of law; and
  • upon compensation.

 

Some investment treaties will further provide how to determine the compensation amount.

 

Fair and equitable treatment

There are several different versions of fair and equitable treatment (FET) clauses in China’s investment treaties, providing for different levels of protection to investors. These are:

  • no FET clause (eg, the China–Czech BIT);
  • an unqualified obligation to accord FET treatment (eg, the China–Netherlands BIT);
  • a FET obligation linked to international law (eg, the China–France BIT);
  • a FET obligation linked to the minimum standard of treatment of aliens under customary international law (eg, the China–Korea BIT); and
  • a FET obligation with additional substantive content such as denial of justice (eg, the China–Tanzania BIT).

 

Full protection and security

Around 30 investment treaties signed by China contain full protection and security clauses. Some of them specifically provide that full protection and security shall be given in accordance with customary international law (eg, the China–Korea FTA).

 

National treatment

The national treatment clauses in China’s investment treaties typically provide that the host state shall, in its territory, accord to investors of the other contracting party and to their investment treatment no less favourable than the treatment it accords in like circumstances to its own investors and their investments. However, it is worth noting that, in some of China’s investment treaties (eg, the 2013 China–Tanzania BIT) national treatment clauses allow the host state to grant incentives or preferences to its nationals for the purpose of developing and stimulating local entrepreneurship, provided that such measures shall not significantly affect the investments and activities of investors. National treatment in investment treaties is generally understood as referring to post-investment national treatments. The Foreign Investment Law may have extended the coverage of the national treatment obligation to the pre-investment stage (subject to restrictions of the Negative List).

 

Most-favoured nation treatment

In China’s investment treaties, there are mainly two types of most favoured nation clauses: one without restriction to its application (eg, the 1986 China–UK BIT), and one excluding application of a most favoured nation clause to import dispute resolution mechanisms (eg, the 2019 Upgraded China–Singapore FTA).

 

Umbrella clause

Most of China’s investment treaties before 1998 do not contain an umbrella clause. Since the 1998 China–Barbados BIT, some of China’s investment treaties do include umbrella clauses (eg, the 1998 China–Barbados BIT and the 2006 China–Russia BIT).

The contents of these umbrella clauses are different. For example, the 2001 China–Myanmar BIT provides that ‘each Contracting Party shall observe any commitments it may have entered into with the investors of the other Contracting Party as regards to their investment’ while the 2003 China–Germany BIT provides that ‘each Contracting Party shall observe any other obligation it has entered into with regard to investments in its territory by investors of the other Contracting Party’.

Dispute resolution

What are the most commonly used dispute resolution options for investment disputes between foreign investors and your state?

According to the public record, seven investment arbitration cases have been initiated against China. Among them, five are International Centre for Settlement of Investment Disputes (ICSID) cases and two are United Nations Commission on International Trade Law (UNCITRAL) cases.

The mechanisms for investor–state dispute resolution that are mainly included in China’s investment treaties are:

  • Submitting the dispute to an ad hoc tribunal and the tribunal shall determine its own procedures (eg, the 1993 China–Croatia BIT). Some BITs go further to provide that in the course of determination of procedure, the tribunal may take the ICSID Arbitration Rules as guidance.
  • Submitting the dispute to an ad hoc tribunal and applying the UNCITRAL Rules (eg, the 1999 China–Qatar BIT).
  • Submitting the dispute to an ad hoc tribunal and the Arbitration Institute of the Stockholm Chamber of Commerce shall act as the appointing authority (eg, the 1993 China–UAE BIT).
  • Submitting the dispute to ICSID for arbitration (eg, the 1988 China–New Zealand BIT).
  • Setting forth several options for dispute resolution. For example, in the 2013 China–Tanzania BIT, parties can choose among submitting the dispute to the competent court of the state where the investment has been made, to the ICSID, to an ad hoc arbitral tribunal to be established under the UNCITRAL Rules, or to any other arbitration institution or ad hoc arbitral tribunal agreed to by the disputing parties.
Confidentiality

Does the state have an established practice of requiring confidentiality in investment arbitration?

According to the public record, China has no established practice of requiring confidentiality in investment arbitration.

In Ansung Housing Co, Ltd v People’s Republic of China (ICSID Case No. ARB/14/25), the procedural details and the arbitral award is available on ICSID’s website.

In Hela Schwarz GmbH v People’s Republic of China (ICSID Case No. ARB/17/19), procedure orders 1 to 5 can also be found on ICSID’s website.

Ekran Berhad v People’s Republic of China (ICSID Case No. ARB/11/15) was concluded at an early stage. Other cases are recent, and it is not clear whether China has applied for non-disclosure of the relevant case information and materials in the other cases.

Some investment treaties signed by China contain clauses with regard to public access to hearings and documents. For example, in the 2012 China–Canada BIT, it is provided that the arbitral award shall be publicly available subject to redaction of confidential information, while in the 2007 China–Cuba BIT, it is provided that the arbitral award shall not be public unless the parties in dispute agree the contrary.

Insurance

Does the state have an investment insurance agency or programme?

China Export & Credit Insurance Corporation (Sinosure) is a fully state-funded and policy-oriented insurance company established and supported by the state to promote China’s foreign investment and trade. There is no publicly available information indicating that whether existence of an investment treaty between China and the host state (target of the investment) is a factor that may be considered by Sinosure in granting insurance coverage.