China’s Stance on Investor-State Dispute Settlement: Evolution, Challenges, and Reform Options

Abstract

China is one of the most active states in concluding bilateral investment treaties (BITs) globally. Its BITs can be categorized into three generations based on the homogeneity of the investor-state dispute settlement (ISDS) provisions within each generation. The China–EU Comprehensive Agreement on Investment and the China–US BIT under negotiation are expected to inaugurate a fourth generation, although China’s stance on ISDS in both treaties remains indeterminate. This article elaborates on the distinctive characteristics of ISDS provisions by mapping three generations of Chinese BITs, presenting the challenges that these ISDS provisions have brought to light in investor-state adjudication as well as in the context of the Belt and Road Initiative, and expounding on China’s policy options in ISDS reform. The on-going intense debate on ISDS reform presents China with an opportunity to shift from its traditional role of a rule-taker to a rule-maker in redesigning the ISDS mechanism. However, China’s current policy and practice do not demonstrate an ambition for such a transformation. Looking forward, it may well be in China’s long-term interest to endorse a Multilateral Investment Court as vigorously advocated by the EU.

Investment policy reform as a driver of foreign direct investment: Evidence from China

“…Without going into more detail here, our interpretation of these changes of BIT provisions meets those of other authors (e.g., Du, 2022; Li & Bian, 2020), namely that the BIT reform has increased the investor‐friendliness of China's BITs. Besides, the more detailed phrasing of many provisions reduces the information asymmetry between investors and the Chinese government.…”

“…Note, the China-Sweden BIT of 1982 is still in force, but it has been modified (seeLi & Bian, 2020). In case we move Sweden to the group of countries that renegotiated their BITs with China, the findings reported in Section 4 remain quantitatively very similar and substantively unchanged.…”

“…Information on partner countries to China of first-and third-generation BITs is taken from Li and Bian (2020). 7 The year of ratification is derived from UNCTAD's International Investment Agreements Navigator.…”

“…They record for several countries a value of 3 for the strength of dispute settlement procedures even for ‘first‐generation’ BITs. A value of 3 implies that a BIT allows ‘foreign investors to take any dispute directly to international arbitration following a 6‐month waiting period without any limitations […].’ (Zeng & Lu, 2016, p. 830) In the light of detailed analyses of scholars in international law (see, e.g., Du, 2022; Li & Bian, 2020; Section 2 below), such a classification of early BITs mismeasures the strength of dispute settlement procedures of China's early BITs.…”

“…Note,Li and Bian (2020) subsume first-and second-generation BITs (in our terminology) in the category 'first generation'. Their second generation of BITs is congruent with our third-generation BITs.…”