At a glance: investment treaty practice in China

Investment treaty practice

Does the state have a model BIT?

China has not officially published any versions of model BITs. However, some scholars may have opportunities to access the internal versions of current and previous model BITs through their sources in the Chinese Ministry of Commerce (MOFCOM). According to Norah Gallagher and Wenhua Shan’s book Chinese Investment Treaties: Policies and Practice published in 2009, MOFCOM has maintained and updated three model BITs up to 2008.

Gallagher and Shan also roughly divided the Chinese BITs signed between 1982 and 2008 into three generations based on the model BITs. Those that followed Models I and II were categorised as first generation and largely concluded between 1982 and1989. Most BITs concluded between 1990 and 1997 were labelled as second generation. BITs based on Model III were classified as third generation and covered nearly all BITs reached after 1998. This classification method has been endorsed and adopted by other scholars. In a recent book published on China’s contemporary BITs, Matthew Levine follows Gallagher and Shan’s approach by further classifying BITs concluded after 2008 as the fourth generation.

In 2011, Wen Xiantao, director of the Administrative Law Division of MOFCOM, published a series of articles illustrating every provision of a recently drafted model BIT prepared by MOFCOM in April 2010. BITs concluded after 2010 have closely followed this draft model BIT (the Model BIT 2010 or Model IV), in particular, China–Uzbekistan BIT (2011) and China–Tanzania BIT (2013).

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

A publicly accessible central repository of treaty preparatory materials does not currently exist. However, the Ministry of Commerce has made available a list of Free Trade Agreements (FTAs) that are either under negotiation or being considered. For each FTA, relevant news updates and studies are published, providing insights into the ongoing negotiations.

What is the typical scope of coverage of investment treaties?

Based on the Model BIT IV, the term ‘investment’ means ‘any kind of asset that has the characteristics of an investment, invested by an investor of one Contracting Party in accordance with the laws and regulations of the other Contracting Party in the territory of the latter.’ Specifically, the Model BIT IV explicates that a capable investment should have the following characteristics: the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. However, this is not common in the old Chinese BITs based on Model I to III.

What substantive protections are typically available?

Article 5 of the Model BIT IV provides fair and equitable treatment and full protection and security to foreign investments. Under article 5.1, ‘fair and equitable treatment’ means that investors of one contracting party shall not be denied fair judicial proceedings by the other contracting party or be treated with obvious discriminatory or arbitrary measures. Article 5.2 provides that ‘full protection and security’ requires that contracting parties take reasonable and necessary police measures when performing the duty of ensuring investment protection and security. Although wordings differ in each generation, these are commonly seen in all generations of Chinese model BITs.

Article 6 of the Model BIT IV regulates expropriation, where both direct and indirect expropriation is prohibited unless:

• it was in the public interest;
• it was in accordance with domestic legal procedure and relevant due process;
• it was non-discriminatory; and
• compensation was given.

These are also commonly seen in all generations of Chinese model BITs, save for exceptions and twists in different BITs.

Article 14.2 of the Model BIT IV provides the umbrella clause where ‘each contracting party shall observe any written commitments in the form of agreement or contract it may have entered into with the investors of the other contracting party with regard to their investments’. Although umbrella clauses are not as common as other substantive protections, it still appears in quite a large amount of Chinese BITs.

All of China’s international investment agreements include national treatment (NT) and/or most-favoured-nation (MFN) clauses. Traditionally, the NT clause provided under Chinese BITS should be ‘without prejudice to its applicable laws and regulations’, and not applicable to the establishment, acquisition and expansion of investment, compared with the MFN treatment. Furthermore, the MFN clause explicitly excludes dispute settlement provision under the Model BIT IV.

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

Article 13.1 of Model IV provides that an investment dispute between an investor and a host state shall, as far as possible, be settled amicably through negotiations between the parties to the dispute, including conciliation procedures. Compared with the corresponding provision in Model III, Model IV specifically adds the conciliation procedures in the compulsory negotiation stage, which is followed by the China–Uzbekistan BIT (2011) and the China–Tanzania BIT (2013). The minimum duration for the amicable negotiation before moving forward to any subsequent court proceedings or international arbitration under the BIT is six months from the date the negotiation is initiated per article 13.2 of Model IV.

The last section of article 13.2 of Model IV grants the host state the right to require the investor concerned to exhaust the domestic administrative review procedures specified by the laws and regulations of the host state before submitting to international arbitration.

After the mandatory cooling period for amicable settlement and the administrative review procedure, an investor who is unsatisfied with the results of previous proceedings may submit a claim to a competent court of the host state or an international arbitral tribunal per article 13.2 of Model IV. Article 13.2 provides investors with the following three options for international arbitration:

• the ICSID arbitration provides that both contracting states are parties to the ICSID Convention;
• an ad hoc arbitral tribunal to be established under the UNCITRAL Arbitration Rules; or
• any other arbitration institution or ad-hoc arbitral tribunal agreed to by the disputing parties.

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

No. In 2010, China provided comments on transparency in treaty-based investor-state arbitration to the United Nations Commission on International Trade Law (UNCITRAL) Working Group II. In the submission, China confirmed that there was no provision on transparency or publicity regarding treaty-based investment arbitration in bilateral or multi-lateral treaties entered into by China. Further, given the confidentiality of arbitration, China did not consider it appropriate to impose provisions of publicity and transparency on treaty-based settlement of investor-state investment disputes.

Subsequently, in the China–Australia FTA (2015), both China and Australia consented in the exchanges of letters that the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration would not apply to investment arbitration initiated under the FTA unless otherwise agreed by the parties.

In the most recent China-Tajikistan BIT (2024), both states agree on a specific condition on the publicity of award in footnote 21 that a respondent to the investor-State arbitration is not required 'to disclose protected information or to furnish or allow access to information that it may withhold in accordance with Article 19 [Disclosure of Information] or Article 20 [Essential Security].'

Does the state have an investment insurance agency or programme?

China Export and Credit Insurance Corporation (Sinosure) is a state-owned policy insurance company with an independent legal personality established with state funding to support China's foreign economic and trade development and cooperation. Sinosure provides insurance and other services for foreign trade and foreign investment cooperation. Overseas investment insurance products launched by Sinosure provide a risk management tool for enterprises making overseas investments. Under article 9 of the Chinese Model BIT IV, after the insurance agency has paid the claim, it will exercise its right of subrogation to seek compensation from the host government in accordance with the contractual agreement or the BIT.