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Overseas views on NPC & CPPCC: Protecting "Belt & Road" and Chinese overseas investments

Editor: Li Kun 丨CCTV.com

03-17-2016 14:55 BJT

Editor's note: The National People's Congress (NPC), China's top parliamentary body, and the Chinese People's Political Consultative Conference (CPPCC), China's top political advisory body, had concluded its annual sessions on March 14 and 16 respectively, which marks a pivotal year as the nation continues on to embark with its reforms and opening up policy, shifting towards a "New Normal" for economic growth rates, starting its 13th Five-Year Plan for social and economic development over the next five years and confronting challenges on the foreign policy front. What do foreign experts and Overseas Chinese say? The Panview Column of CNTV has invited some of them to express their views on major issues to be discussed at the two sessions.

By Zhongdong Niu, Lecturer in Law Edinburgh Napier University

The "Belt and Road" (B&R) initiative has been a major topic of discussion at this year's "two sessions." In a press briefing on March 8, Chinese Foreign Minister Wang Yi said substantial progress has been made since the Pan-Eastern Hemisphere plan was unveiled three years ago.

The institutional framework, financial vehicles and landmark projects are well under way across Eurasian and African continents.  The influx of a large volume of capital into foreign territories gives rise to concerns over protecting investments from China and other nations. International protection of investments has been an important issue for capital exporting countries.

Given the absence of multilateral agreements on investments at the multinational level and the failure of the Multinational Agreement of Investment in the OECD (Organization of Economic Cooperation and Development), due to a lack of consensus, exporting and importing countries have sought solutions to sign bilateral investment treaties (BIT) that would govern the conduct of investors, as well as of host countries.

According to the United Nations Conference on Trade and Development, there are 2,928 BITs signed between states whose safeguards have spurred international investment and economic globalization.

Among them, 192 BITs were between China and other nations, which explain the rapid growth of FDI (foreign direct investment) into China since the 1980s’. In 2015, China had replaced the US as the top destination for FDI.

Meanwhile, China has rapidly transformed into a major capital exporting country. Chinese outflow FDI to other nations has risen from US$7 billion in 2001 to US$ 116 billion in 2014 and it is estimated that from 2010 to 2020 China will accumulate over US $ 1-2 trillion outflow investment in global markets.

Despite success, inevitably there have been cases where disputes between Chinese investors and hosting countries have caused huge losses, such as the suspension of the China International Power Investment Company's Myitsone Dam Project in Burma and more recently Sri Lanka's suspension of the Chinese-invested Colombo Port City Project.

Due to aunting legal costs, hostile cultural attitudes to legal settlements, and the intrinsic flaws in an international investment protection regime, Chinese investors prefer economic and diplomatic channels instead of using legal mechanisms to resolve their claims.

Nevertheless, these solutions are uncertain, unpredictable and often unjust. A legal settlement is the best answer. The Belt & Road strategy must be guaranteed by a strong international investment protection regime.

The "rule of law" does not only apply to domestic issues, but can extend to international affairs. Major challenges facing international investors are expropriation of investments.

Hosting states can take various measures to seize assets of foreign investors and to damage their interests, such as direct expropriation, nationalization, revocation of operation licenses, disproportionate tax increases, arrest and expulsion of an investor or other persons who play key roles in the investment, replacement of the owner's management by government imposed managers, revocation of a free zone permit, and denial of a construction permit contrary to prior assurances.

All of these circumstances have been inflicted upon Chinese investors. Chinese companies have found their investments prone to seizures by hosting states, but there is no codified international treaty to provide guiding principles of expropriation and compensation.

This is largely left to international law, which does not have the full legal authority as international treaties do. BITs normally contain provisions on these issues they vary between countries to countries and there are no commonly accepted international standards.

Another major concern is a lack of authoritative international judiciary, which has compounded uncertainty in international investment law. The International Centre for Settlement of Investment Disputes (ICSID) under the World Bank has engaged in adjudicating disputes.

However its jurisdiction is subject to the recognition of Member States. The most controversial issue is whether private investors can make a claim against a sovereign State. Many countries do not accept the ICSID's jurisdiction over these claims.

Based on its traditional diplomatic principles, Beijing tends to shun international courts or tribunals for disputes with other countries and use domestic courts as a forum. The position is well-reflected in most BITs China has signed with foreign countries.

The changing role of China from a mere destination of FDI to a major exporter of FDI calls for a re-thinking of the approach on Chinese BITs with other countries. The traditional pro-state sovereignty position does not necessarily serve Chinese interests anymore.

Being a FDI importing country, this position in most cases leaves the disputes to be solved by the courts in China. With China investing more in foreign countries, sticking to pro-state sovereignty would a dispute fall in the hands of the hosting country's courts.

Over the years, ICSID has established its reputation as an effective and rule-based institution and solid part of international legal order. The very nature of B&R being a multinational endeavor serves as an international forum where ICSID would be a desirable choice for dispute settlements.

It might be the time to re-launch the Multinational Agreement on Investment. The problems with BITs lie in various standards for protection between countries.

This also leads to a lack of equality as BITs often reflect the reality of international economic politics, whereas BIT negotiations with smaller countries have little leverage. The on-going global economic crisis has resulted in a decline of world trade and so B&R's role in the global economy cannot be underestimated.

A multinational agreement and an enhanced role to be played by the ICSID would provide more legal certainty and justice to international investment law and safeguard a successful execution of  the B&R strategy.

 

( The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )

 

 

Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers an alternative angle on China and the rest of the world through the analyses and opinions of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

 

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