Investor-state arbitration: where does China stand?

• Author: Wang, Jie

1. BUSINESS ENVIRONMENT

   The past decade has witnessed a growing increase in both foreign direct investment into China and China's offshore investment. As of 2007, China was the largest importer of foreign capital in the world. According to the statistics provided by the Foreign Investment Administration of MOFCOM (the Ministry of Commerce), by the end of August 2008, altogether there were 651,083 foreign-invested enterprises granted in China and China's actual use of foreign direct investment reached a total of US$8,307.46 billion. (1)

   From January to August 2008, the actual use of enterprises from the United States that were newly established in China grew by 9.26% while the actual use of enterprises from Europe that were newly established in China grew by 29.09%. (2) At the end of 2007, China's direct investment overseas amounted to a total of US$92.05 billion. (3) Such investment is expected to continue to grow.

   The huge amount of foreign direct investment into the Chinese economy has taken many forms: Sino-foreign joint ventures, cooperative businesses, exclusively foreign-owned enterprises, joint exploitation or foreign-funded share-holding companies.

2. LEGAL ENVIRONMENT

   Though up to now there is not a unified foreign investment law in China, a legal framework has been set up which is composed of international and domestic laws. The international laws consist of bilateral investment treaties (BITs) and agreements between China and other countries, as well as international conventions entered into by China, such as the WTO agreements, the Washington Convention, the Seoul Convention and the New York Convention. Domestic laws include a set of special laws for the protection of foreign investment as well as general laws, such as Company Law, Contract Law and Insurance Law, etc. The dominant three special laws within the Chinese framework are the Law on Chinese-Foreign Equity Joint Ventures, Law on Chinese-Foreign Contractual Joint Ventures and Law on Foreign-Capital Enterprises. Finally, a more recent addition to that framework is China's Arbitration Law promulgated in 1994.

   While the relations between foreign investors and the Chinese government are regulated by relevant BITs, commercial disputes between the investors and their non-governmental Chinese counterparts may be referred to commercial arbitration under the above-mentioned special laws. Both the Law on Chinese-Foreign Equity Joint Ventures and the Law on Chinese-Foreign Contractual Joint Ventures stipulate that disputes between the parties may be referred to arbitration before a Chinese arbitration commission or other institutions agreed upon by the parties.

3. INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES AND CHINA

   As many know, it was not until February 9, 1990 that China signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Washington Convention). The convention was later ratified by China on February 6, 1993, twenty-seven years after the convention entered into force, with the limitation that China would only consider submitting disputes over compensation resulting from expropriation or nationalization to the jurisdiction of the International Centre for Settlement of Investment Disputes (ICSID). Perhaps, due to such reservation and limitation, there have been no publicly reported ICSID cases involving China as a party despite the size of the country, the volume of its in-bound investment, the scale of its operations, and the in-depth involvement of the state of economic activity within its borders. However, this does not mean that China has been inactive in international investment adjudication.

   For over fifty years, local arbitration for the resolution of international investment disputes for foreign investors has been going on in China, primarily through the China International Economic and Trade Arbitration Commission (CIETAC). Many investors in China today continue to arbitrate through CIETAC...