What is the prevailing attitude towards foreign investment?
Thanks to its attitude in welcoming foreign direct investment (FDI), China has greatly benefited from it since its ‘Reform and Opening-up’ policy in the late 1970s. In October 2013, the Silk Road Economic Belt and the 21st Century Maritime Silk Road (the Belt and Road) were proposed by Chinese President Xi Jinping, deepening the reform and forming a new pattern of all-round opening up to FDI. With incentives (such as cheap land-use rights and lower enterprise income tax) and a strong commitment to protecting the legitimate rights and interests of foreign investors, China has enjoyed a significant increase in attracting FDI and become one of the most popular destinations of cross-border investment. According to the Department of the Ministry of Commerce (MOFCOM), the primary watchdog for FDI in China, the total amount of realised FDI reached over US$13.1 billion in 2017, an increase of 4 per cent from the previous year, taking the position of the second largest FDI recipient in the world (according to the United Nations Conference on Trade and Development (UNCTAD)).
Over a long period, China has regulated foreign investment by industry. At the present time, China sets and annually updates a control list of industries (Foreign Investment Industrial Guidance Catalogue) as either ‘encouraged’, ‘restricted’ or ‘prohibited’ for foreign investment. In 2013, China declared a ‘negative list’ approach (foreign capital will be allowed to be used unless it is explicitly restricted) to be implemented in Shanghai, Guangdong, Fujian and Tianjin pilot free trade zones (FTZs), which, it was announced, will be expanded to seven new FTZs in Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan and Shanxi. On 28 June 2017, the National Development and Reformation Commission (NDRC) and MOFCOM announced the Foreign Investment Industrial Guidance Catalogue was profoundly decreasing the industry numbers identified in the ‘negative list’ from 93 to 62. In addition, the implementation by Record-filing and Registration Regime of Foreign Investment Enterprises enormously improves the convenience of inflow of foreign investment. On 28 June 2018, NDRC and MOFCOM released the new national and free trade zone negative lists that outline prohibited and restricted industries for foreign investment. At the national level, the Special Administrative Measures on Access to Foreign Investment 2018 (the new negative list) will partly replace the previous Foreign Investment Industrial Guidance Catalogue. The new negative list took effect on 28 July 2018, reducing the number of restrictive measures from 63 to 48. Additionally, the Special Administrative Measures for Foreign Investment Access to Pilot Free Zones (the FTZ negative list), which applies within China’s free trade zones, reduces restrictive measures from 95 to 45. Some have complained that China has not been as investor-friendly since it abandoned the ‘two exemption and three half-reduction’ tax regime for foreign-invested companies by the new law, effective in 2008. Others argue that China has to pursue a level playing field approach among foreign investors, state-owned enterprises and Chinese private capital because they believe that foreign investors have enjoyed beneficial treatment under the ‘super-national’ privilege under the old regime. Nevertheless, China is still attractive to foreign investment given the results it has achieved so far. More importantly, China is a large country with great market potential, which makes many industrial and commercial investors come to, or stay in, the country so that they can enjoy the benefits stemming from the ‘new China era’. A survey conducted by UNCTAD indicates that China came first among multinational companies selecting a destination for cross-border investment.
What are the main sectors for foreign investment in the state?
Traditionally, FDIs were heavily weighted in the manufacturing sectors as being export-driven. With the rise of the middle class in China and the transition into consumer market orientation, more investment has been put into services such as financial services, scientific researching and synthetic technical services, followed by manufacturing in areas such as telecommunication, equipment, computers and chemicals.
In 2017, utilised foreign capital in the service sector grew up by 7.5 per cent to US$95.44 billion, making the service sector the biggest sector for foreign investment, in contrast to US$33.51 billion that was utilised in the manufacturing sector, which faces a decreasing rate of 5.6 per cent. The raft of measures came as the government looks to move the country away from low-end manufacturing to more value-added production.
Is there a net inflow or outflow of foreign direct investment?
With the implementation of the regulations restricting ‘irrational overseas investment’ by the Chinese government, the growth of outbound FDI was heavily set back and the volume of outbound FDI was surpassed by that of the inbound during 2017. Statistics to that effect can be sees in the following table:
China’s inbound and outbound FDI (US$100 million)*
January to May 2018
* Source: MOFCOM. FDI or overseas direct investment in the financial sector is excluded.
Investment agreement legislation
Describe domestic legislation governing investment agreements with the state or state-owned entities.
FDIs in China were categorised into different types (Sino-foreign equity joint ventures, Sino-foreign contractual joint ventures and wholly foreign-owned joint ventures), each regulated by a different law and each being amended in recent years:
- the Law on Sino-foreign Equity Joint Ventures (1979);
- the Law on Sino-foreign Contractual Joint Ventures (1988); and
- the Law on Foreign Capital Enterprises (1986).
China has recently passed a resolution whereby the establishment and change of foreign-invested companies are no longer subject to examination and approval, and cases not involving the negative list can undergo a simplified registration procedure. This change took effect from 1 October 2016. Additionally, FDIs are subject to other laws and regulations (such as the Company Law and Contract Law), and also control by the Catalogue for the Guidance of Foreign Investment Industries. There have been calls for a unified foreign investment law in China and a draft was circulated and public comments were invited. However, the law has not yet been approved by the National Congress.
China does not maintain a special mechanism governing investment agreement with the state or state-owned entities. However, China imposes reviews, restrictions and prohibitions of various types by the state-owned Assets Supervision and Administration Commission of the State Council (SASAC), as well as certain authorised bodies (some being state-owned group companies). For example, investment in or by state-owned enterprises will be additionally subject to review and approval by the SASAC. Without approval, any agreement with a state-owned entity would not be given permission by the registration agencies, and may be invalidated.
China does not have a foreign investment review system yet, despite wishing to do so, but Chinese investors are facing considerable pressure by other countries to abstain. In view of this, certain wording has been introduced into the draft Foreign Investment Law to allow a national security review on foreign investment to safeguard the national interest.
International legal obligations
Identify and give brief details of the bilateral or multilateral investment treaties to which the state is a party, also indicating whether they are in force.
China is not a member of the Energy Charter Treaty, but has been an observer since 2001. China has signed more than 130 bilateral investment treaties (BITs) with other countries and regions between 1982 and 2016. An inexhaustive list, maintained by MOFCOM, shows that China has signed BITs with 132 countries and regions up to December 2016, and has also concluded a bilateral agreement on the avoidance of double taxation with 99 countries and regions (see: http://tfs.mofcom.gov.cn/article/Nocategory/201111/20111107819474.shtml.
China views Free Trade Agreements (FTAs) as a new platform to expand trade, speed up domestic reforms and as an effective approach for closer integration with the global economy and stronger economic cooperation. Currently, China has signed 16 agreements with 24 countries and regions including, but not limited to the following:
- the Chinese Mainland and the Hong Kong Closer Economic and Partnership Agreement;
- the Chinese Mainland and the Macau Closer Economic and Partnership Agreement;
- the Asia-Pacific Trade Agreement;
- the China-Association of Southeast Asian Nations (ASEAN) FTA;
- the China-Pakistan FTA;
- the China-Chile FTA;
- the China-New Zealand FTA;
- the China-Singapore FTA;
- the China-Peru FTA;
- the China-Costa Rica FTA;
- the China-Iceland FTA;
- the China-Switzerland FTA;
- the China-Korea FTA; and
- the China-Australia FTA.
Note that the concluded FTAs cover areas beyond trade to include investment and services. For example, China and ASEAN signed a side agreement called the Agreement on the Investment of the Framework Agreement on Comprehensive Economic Cooperation, and the FTA between China and New Zealand also provides regulation and dispute settlement related to, or arising from, investment.
Since President Xi Jinping proposed the One Belt, One Road Initiative, successful attention has been given to fostering investment cooperation among regions and countries along the Belt and Road, and according to the Ministry of Commerce, China has signed bilateral investment treaties with 56 countries and FTAs with 11 countries along its route.
If applicable, indicate whether the bilateral or multilateral investment treaties to which the state is a party extend to overseas territories.
Article 10 of the Agreement Between the Government of the People’s Republic of China and the Government of the United Kingdom of Great Britain and Northern Ireland Concerning the Promotion and Reciprocal Protection of Investments states that: ‘At the time of signature of this Agreement, or at any time thereafter, the provisions of this Agreement may be extended to such territories for whose international relations the Government of the United Kingdom are responsible as may be agreed between the Contracting Parties in an Exchange of Notes’. Therefore, China intends to solve the issue of treaty territory extension by negotiating with the treaty’s parties.
Has the state amended or entered into additional protocols affecting bilateral or multilateral investment treaties to which it is a party?
China has not amended or entered into additional protocols affecting bilateral or multilateral investment treaties to which it is a party in recent years.
Has the state unilaterally terminated any bilateral or multilateral investment treaties to which it is a party?
China has not terminated any bilateral or multilateral investment treaties to which it is a party in recent years.
Has the state entered into multiple bilateral or multilateral investment treaties with overlapping membership?
To date, China has not entered into multiple bilateral or multilateral investment treaties with overlapping membership. However, China has entered into several FTAs with countries that have signed bilateral treaties with China, and in the FTAs some general provisions may apply to the investment promotion between the contracting parties.
Is the state party to the ICSID Convention?
China signed the International Centre for Settlement of Investment Disputes (ICSID) Convention 1965 on 9 February 1990, ratifying it on 7 January 1993. The ICSID Convention entered into force and became binding on China on 6 February 1993.
Is the state a party to the UN Convention on Transparency in Treaty-based Investor-State Arbitration (Mauritius Convention)?
To date, China has not signed the UN Convention on Transparency in Treaty-based Investor-State Arbitration.
Investment treaty programme
Does the state have an investment treaty programme?
China does not maintain an investment treaty programme. Traditionally, in order to attract foreign investment, China has politically and legally pledged to grant ‘super-national’ privilege to foreign investors and committed itself to protecting their rights and interests across the country. In recent years, China has realised that it should provide a balance between foreign investors and local capital, and also to curb aggressive Chinese capital in the foreign market.
China concluded its first BIT (with Sweden) on 25 August 1982, and has concluded more than 130 BITs since then. Remarkably, China is negotiating BITS with the United States and the European Union respectively, despite more balanced evaluation being urged from domestic voices. Taking the China-US Investment Treaty negotiation as an example; it was launched in 2008 and more than 30 rounds of negotiations have been conducted so far, however, successful progress has been impeded by the current trade dispute between both parties, putting back the 10-year delay in reaching a treaty agreement even further.
Regulation of inbound foreign investment
Government investment promotion programmes
Does the state have a foreign investment promotion programme?
Yes. Reforms on the foreign investment management system have been steadily promoted. The following are a few examples.
MOFCOM, in association with the State Commission Office of Public Sectors Reform, has carried out pilot FTZs in Shanghai and other economically developed areas to streamline foreign trade and investment regulation. The well-understood ‘negative list’ approach was a first step, and government agencies are working hard to loosen control and stimulate trade and investment.
MOFCOM advanced Guangdong province, the most developed province in China, to liberalise the trade in services with Hong Kong and Macao, China’s two devolved customs areas by implementing the following:
- adopting new approaches to exclude restrictive measures contained in the agreement;
- applying a filing system when service providers from Hong Kong and Macao make an investment in the province;
- setting up a company or making any change in the contract and articles of approval; and
- changing a paid-in system on registered capitals of foreign-funded enterprises into a subscribed capital system, together with legal and regulatory amendments at short notice.
China promotes the transformation, upgrading and innovative development of its national economic and technological development zones. On the 30th anniversary of the establishment of the national economic and technological development zones, the State Council issued a Directive, declaring the national economic and technological zones’ development orientation, putting the main tasks and policy measures in the new period.
Great efforts have been made to enhance international cooperation on energy conservation and environmental protection. China signed a memorandum of understanding with Finland, France and Italy respectively, to build five ecological parks under international auspices, which includes the China-France Shenyang Ecological Park, with more planned.
Reform in recent years has seen progress in promoting FDI in several respects, including:
- MOFCOM, in conjunction with the NDRC, revised the Catalogue of Industries for Guiding Foreign Investment, granting freedom to foreign capital, reducing restrictive areas and increasing transparency to a large extent;
- further welcoming of medical care, care of the elderly, e-commerce, education and commercial logistics; and
- following its success in Shanghai, China has built up 10 more FTZs in three economic centres, including Guangdong, Fujian, Tianjin, Zhejiang, Liaoning, Sichuan, Chongqing, Hubei, Henan and Shaanxi, which have paved the way to liberalising trade and investment throughout the country in the near future.
Applicable domestic laws
Identify the domestic laws that apply to foreign investors and foreign investment, including any requirements of admission or registration of investments.
In the past, China regulated FDIs through the Law on Sino-foreign Equity Joint Ventures, the Law on Sino-foreign Contractual Joint Ventures and the Law on Wholly Foreign-owned Joint Ventures (collectively, the three JV laws). These laws, and their implementing regulations, have set the general, and in some aspects, detailed, rules for foreign capital investment within China. For example, the composition of a board of directors and appointment of senior managers are laid down, which has given contractual parties less room for negotiation.
China regulates business operators by issuing and reviewing business licences according to the Company Law and several regulations. From October 2016, China has eased entry conditions for foreign investors. For the foreign-invested enterprise (FIE) engaging in most of the ‘encouraged’ sectors in the negative list, the founder may simply register itself to the MOFCOM, and will get a business licence shortly after registration. Nevertheless, for FIEs engaging in the negative list’s ‘restricted’ or ‘prohibited’ sectors, a review and pre-approval by MOFCOM over different levels is still required, without which a company will not be issued with a business licence obtaining a certificate of approval for enterprise with foreign investment (including those from Hong Kong, Macao and Taiwan).
MOFCOM reviews and approves foreign investment under the ‘negative list’ approach. An applicant has to check upon the complicated annually updated Catalogue for the Guidance of Foreign Investment Industries to make sure the investment is in an ‘encouraged’ industry or in the ‘restricted’ category if it is setting up a partially foreign-owned joint venture.
Additional conditions and procedures exist before foreign-invested companies can be established and operate in China. If the venture involves production activities, testing and approval by environment protection agencies (or any authorised organisation) will be required. As to investment in the financial sector, pre-approval by the regulatory bodies is also mandatory.
Relevant regulatory agency
Identify the state agency that regulates and promotes inbound foreign investment.
Administrative power in China is centralised in Beijing and allocated into functional departments and down to provincial, county and city level. The State Council has ultimate power in government administration, with several agencies being responsible for regulation and promotion of FDIs.
The NDRC is the most powerful government agency in China. Broadly, it sets macro-economic policies and undertakes the task of compiling five-year plans. In relation to FDIs, the NDRC has great influence in maintaining the Foreign Investment Industrial Guidance Catalogue, and coordinating, vetoing and approving large investment projects. Recently, the NDRC was recognised for its tough stand in antitrust investigations, which resulted in historically large fines against multinational companies in the software and car industries.
MOFCOM is a window to, and designed to promote and manage, international trade and FDIs, among other functions. It reviews and approves foreign investment on a case-by-case basis in coordination with other government agencies. Additionally, MOFCOM reviews mergers and acquisitions in light of Chinese antitrust law, and conducts investigations if they concern the concentration of market players.
State Administration for Industry and Commerce (SAIC)
Any business is not legally established, or allowed to operate, prior to the issuance of a business licence issued by the SAIC. Moreover, the SAIC is an administrative watchdog for intellectual property rights (trademarks), and may initiate antitrust investigations and make determinations if an activity concerns unfair competition.
Other government agencies
Similar to businesses of any other forms, several agencies such as the Tax Bureau, the Administration of Foreign Exchange, Customs and the Administration of Quality Supervision, Inspection and Quarantine, are involved in the routine management of FIEs. In addition, certain government agencies may be involved in an FDI programme if pre-approval is required. For example, if production activity is implemented, testing and approval by the Environment Protection Agency will be required. The State Food and Drug Administration is concerned with the production and distribution of food and pharmaceuticals.
Relevant dispute agency
Identify the state agency that must be served with process in a dispute with a foreign investor.
There is no law or regulation specifying who must be served with process in a dispute with a foreign investor. If a dispute is with the Chinese government, the relevant government agency shall be informed; MOFCOM and the Ministry of Foreign Affairs (MFPRC) may also be duly informed.
Litigation and arbitration are both recognised by Chinese law as options for dispute resolution, with or without the involvement of a foreign party. If a foreign party or a foreign element is concerned, the parties may choose resolution through arbitration by a foreign arbitration body, with the application of foreign law or international practice.
According to the Civil Procedure Law and Arbitration Law, provisions of the law apply to civil lawsuits between citizens, legal persons and other organisations, which are filed because of property and personal relationships, are handled by the people’s court. Contractual disputes between citizens of equal status, legal persons and other economic organisations, and disputes arising from properly rights may be arbitrated.
The people’s courts
The people’s courts consist of four levels:
- the local courts (at the district or county level);
- the intermediate people’s courts (municipal level);
- the high people’s courts (provincial level); and
- the Supreme People’s Court (national level).
The level of the competent court should be generally subject to the nature and size of the disputes. In most cases, disputes with a foreign connection may be initially logged in the intermediate people’s courts.
Chinese arbitration institutions
The China International Economic and Trade Arbitration Commission and the Beijing Arbitration Commission.
Investment treaty practice
Does the state have a model BIT?
MOFCOM has not released any official model BIT text, but issued a draft Model Agreement on the Reciprocal Promotion and Protection of Investments in 2010, most of which was adopted by the 2011 BIT between China and Uzbekistan.
We have not seen China insisting on a model text in negotiation of BITs, although there have been similarities in the concluded instruments with which China is a party.
Does the state have a central repository of treaty preparatory materials? Are such materials publicly available?
The MFPRC is generally in charge of foreign affairs, whereas MOFCOM negotiates and manages economic treaties and agreements, bilateral or multilateral. MOFCOM publishes information across several websites maintained by several departments, such as:
- the China FTA Network, which updates progress in FTA negotiations and provides online accessible agreements (in Chinese and English alike) (http://fta.mofcom.gov.cn);
- a list of BITs, showing the BITs concluded from 1982 to 2016 (http://tfs.mofcom.gov.cn/article/Nocategory/201111/20111107819474.shtml);
- International Trade and Economic Treaties and Practices, which provides an incomplete list of international trade and economic treaties and practices to which China is signatory (http://tfs.mofcom.gov.cn/article/date/j/); and
- an update of international treaties and agreements, which provides details of treaties and agreements China has occasionally signed (www.fmprc.gov.cn/mfa_chn/ziliao_611306/tytj_611312/tyfg_611314/).
Scope and coverage
What is the typical scope of coverage of investment treaties?
Most BITs entered into by China have a similar scope of coverage. For example, as prescribed in the Agreement of Investment of the Framework Agreement on Comprehensive Economic Cooperation between China and ASEAN, ‘investor’ means a natural person (any natural person possessing the nationality or citizenship of, or right of permanent residence in the party in accordance with its laws and regulations) of a party or a juridical person (any legal entity duly constituted or otherwise organised under the applicable law of a party, whether for profit or otherwise, and whether privately owned or government owned, and engaged in substantive business operations in the territory of that party, including any corporation, trust, partnership, joint venture, sole proprietorship or association) of a party that is making or has made an investment in the territories of the other parties. Further, ‘investment’ refers to every kind of asset invested by the investors of a party in accordance with the relevant laws, regulations and policies of another party in the territory of the latter including, but not limited to, the following:
- movable and immovable property and any other property rights such as mortgages, liens or pledges;
- shares, stocks and debentures of juridical persons or interests in the property of such juridical persons;
- intellectual property rights, including rights with respect to copyrights, patents and utility models, industrial designs, trademarks and service marks, geographical indications, layout designs of integrated circuits, trade names, trade secrets, technical processes, know-how and goodwill;
- business concessions conferred by law, or under contract, including concessions to search for, cultivate, extract, or exploit natural resources; and
- claims to money or to any performance having financial value.
Similarly, in the FTA between China and New Zealand, a ‘qualified investor’ refers to a natural person (a national or a permanent resident of a party under its laws) or enterprise of a party (an enterprise constituted or organised under the law of a party and a subsidiary located in the territory of a party and engaged in substantive business operations there) who seeks to make, is making, or has made an investment in the territory of the other party. ‘Investment’ means every kind of asset invested, directly or indirectly, by the investors of a party in the territory of the other party including, but not limited to:
- moveable and immoveable property and other property rights such as mortgages and pledges;
- shares, debentures, stock and any other kind of participation in companies;
- claims to money or to any other contractual performance having an economic value associated with an investment;
- intellectual property rights, in particular, copyrights, patents and industrial designs, trademarks, trade names, technical processes, trade and business secrets, know-how and goodwill;
- concessions conferred by law or under contract permitted by law, including concessions to search for, cultivate, extract or exploit natural resources;
- bonds, including government issued bonds, debentures, loans and other forms of debts, and rights derived therefrom; and
- any right conferred by law or under contract and any licences and permits pursuant to law.
However, under the FTA, the term ‘investments’ also includes investments of legal persons of a third country, which are owned or controlled by investors of one party and which have been made in the territory of the other party, and the relevant provisions of the agreement apply to such investments only when such third country has no right or abandons the right to claim compensation after the investments have been expropriated by the other party.
What substantive protections are typically available?
China’s BITs offer general protection for respective foreign investors. However, the scope of protection varies given the differences of the counterparty and the date of conclusion. Almost all China’s BITs cover national treatment, most favoured nation, free transfer, fair and equitable treatment and protection on expropriation and nationalisation (normally, indirect expropriation is also included). However, China’s earlier BITs usually do not cover full protection and security, and the umbrella clause. With the development of investment treaty practice and the need to improve investment conditions, China has tended to accept more internationalised versions of BITs, granting more comfort and protection to foreign investors.
What are the most commonly used dispute resolution options for investment disputes between foreign investors and your state?
To date, there have been only two investment treaty claims against China that are publicly available, one concluded without award and the other yet to be publicly disclosed. Normally, when negotiations are unsuccessful, investors can usually choose to submit the dispute to the ICSID or UNCITRAL or establish an ad-hoc arbitral panel according to the treaty that the specific claim is based on.
Does the state have an established practice of requiring confidentiality in investment arbitration?
Because there have been no published investment awards, it is hard to draw a conclusion on confidentiality requirements by the Chinese government.
Does the state have an investment insurance agency or programme?
China does not provide an investment insurance programme, but it established a state-owned company, China Export and Credit Insurance Corporation, to handle the insurance business arising from overseas investment. Introduction of overseas investment insurance from China Export and Credit Insurance Corporation can be found at: http://www.sinosure.com.cn/en/Insurance/oii/index.shtml. As stated in the introduction of the overseas investment insurance application conditions, the insurance referred to is not necessarily contingent on the existence of an investment treaty between China and the host state.
Additionally, China is a member of Convention Establishing the Multilateral Investment Guarantee Agency (MIGA). On condition that the investment was targeted to one of the MIGA members, the Chinese investor may apply for MIGA insurance for the overseas investment.
Investment arbitration history
Number of arbitrations
How many known investment treaty arbitrations has the state been involved in?
China has faced three investor claims to date. The first was filed by Ekran Berhad, a Malaysian arts and culture facility investor, concerning a land lease dispute in China’s Hainan province (ICSID Case No. ARB/11/15). The dispute was suspended because both parties reached a settlement. The second was brought by Ansung Housing Co, a Seoul-based developer, on 4 November 2014, arising from a property development project (ICSID Case No. ARB/14/25). The claim is based on the 2007 BIT between China and Korea, as opposed to the 2012 tripartite investment agreement between China, Japan and Korea, which allows for disputes to be resolved through ICSID arbitration. On 9 March 2017, ICSID dismissed the case for lack of temporal jurisdiction and ordered the Korean claimant to reimburse China for the costs of the proceeding plus 75 per cent of China’s legal fees and expenses. The third was brought by German food and spice manufacturer Hela Schwarz GmbH (Hela) on 21 June 2017, that registered its claims under the 2003 ‘second generation’ China-Germany BIT (ICSID Case No. ARB/17/19). This case is still ongoing and we remain keen to see how it develops in the near future.
Industries and sectors
Do the investment arbitrations involving the state usually concern specific industries or investment sectors?
Only three investment arbitration cases have been lodged at the ICSID against China so far (see question 24), arising from, or concerned with, real estate or infrastructure development in China.
Does the state have a history of using default mechanisms for appointment of arbitral tribunals or does the state have a history of appointing specific arbitrators?
Does the state typically defend itself against investment claims? Give details of the state’s internal counsel for investment disputes.
MOFCOM represents China in investment treaty cases (see question 24).
Enforcement of awards against the state
Is the state party to any international agreements regarding enforcement, such as the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
In 1986, China joined the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), and adopted both the reciprocal reservation and the commercial reservation. Convention membership enables China to choose to recognise and enforce arbitral awards from arbitrations with other signatory countries or their citizens, and the commercial reservation permits China to apply the Convention only to those disputes of a commercial nature according to its national law.
Does the state usually comply voluntarily with investment treaty awards rendered against it?
To date, no investment treaty awards have been rendered against China.
If not, does the state appeal to its domestic courts or the courts where the arbitration was seated against unfavourable awards?
To date, no investment treaty awards have been rendered against China.
Provisions hindering enforcement
Give details of any domestic legal provisions that may hinder the enforcement of awards against the state within its territory.
China is party to the New York Convention, and most international awards under this Convention will be confirmed when certain conditions are satisfactorily met. In addition, with the regulations provided in the domestic law of China, China has a positive attitude towards recognition and enforcement of foreign awards.
As provided in article 281 of the Civil Procedure Law of PRC (CPL), a party may apply directly to the intermediate people’s court for recognition and enforcement of an award by foreign court or arbitration body, in accordance with an international treaty accepted by China or under the principle of reciprocity. Under article 274 of the CPL, China may choose not to recognise any foreign award if one of the following conditions is met:
- no arbitration clause exists in the contract between two parties or the parties have not reached any written arbitration agreement after a dispute arose;
- the respondent is not notified to appoint an arbitrator, owing to the conduct of the arbitration procedure or the respondent fails to present its case, which is not attributable to the fault of the respondent;
- the composition of arbitration tribunal or the arbitration procedure does not conform with the arbitration rules; or
- the arbitrated matters are outside the scope of an arbitration agreement or the arbitral institution has no power of arbitration.
Where a people’s court holds that the enforcement of an arbitration award is contrary to the public interest, it shall issue a ruling not to enforce the award. Additionally, if a people’s court deems a judgment or ruling of a foreign court violates the basic principles of the laws of China and the sovereignty or security of China, it shall choose not to recognise and enforce such an award.
Regarding the recognition and enforcement of foreign arbitral awards, an increasingly complicated legal system has been constituted in China. However, China is party to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters 1965 (Hague Service Convention), in which China has designated the Bureau of International Judicial Assistance and Foreign Affairs under the MFPRC to undertake such services, with certain reservations. In practical terms, China is ready to accept international arbitration and verdicts.
Because China has received no investment arbitration awards, commenting on the enforcement of awards under the above conventions is not possible. So far, there is no public record of China having dishonoured any international arbitration.
Update and trends
Are there any emerging trends or hot topics in your jurisdiction?
The recent trade dispute between China and the United States has cast bilateral trade relations between the two protagonists in doubt. For the time being, it remains unclear how much influence the trade dispute will have on general foreign investment in China, although the period immediately before the trade dispute experienced a surprising increase in US investment into China compared with the same time in 2017. China has stated in its government duty report that it will broadly lower the market threshold and protect the legal rights of FIEs in China. The new negative list has established a clear schedule for certain sectors that remain restricted from foreign investment, such as automobile manufacture, service and financial sectors. All measures indicate the Chinese government’s continued positive attitude towards foreign investment.