Skip to main content

Building China’s Belt and Road Initiative BIT by BIT

Authors: Zachary Haver, Washington DC and Wendy Leutert, Indiana University

China is actively promoting international investment, trade and infrastructure connectivity through Chinese leader Xi Jinping’s hallmark Belt and Road Initiative (BRI). Once wary of international investment law as a threat to domestic sovereignty, Beijing is embracing bilateral investment treaties (BITs) to protect investments associated with the BRI.

Containers are seen at the Yangshan Deep-Water Port, Shanghai, China 19 October 2020. (Photo: Reuters/Aly Song)

As of October 2020, 138 countries have signed agreements to participate in the BRI. These bilateral accords may identify specific areas of cooperation or simply express a shared intent to collaborate. According to the World Bank, the 71 economies along key BRI transport corridors, including China, account for 35 per cent of global foreign direct investment, 40 per cent of global merchandise exports and 60 per cent of the world’s population.

BITs provide the primary legal framework governing Chinese investments under the BRI. In these treaties, two states agree to grant certain protections to the investments of individuals and corporations of the other. One of the most important is investors’ access to international arbitration in the event of disputes with host states, such as disputes over the expropriation of a foreign investor’s assets. In the absence of a comprehensive multilateral regime, BITs are the most important source of law governing international investments and investor-state disputes,.

China has signed a total of 145 BITs with 130 countries as of October 2020, second only to Germany. In total, 100 countries have signed both a BIT and a BRI cooperation document with Beijing. These 100 countries constitute 77 per cent of total BIT treaty signatories and 72 per cent of all BRI countries. BITs therefore define the legal playing field for potential investor–state disputes in nearly three-quarters of the countries participating in the BRI.

Recent support from Chinese government bodies suggests that BITs will remain the most important legal instrument protecting overseas investments in the context of the BRI. For example, in 2015, the Supreme People’s Court issued guidance in which it endorsed international arbitration for the resolution of BRI-related disputes.

BITs protect Chinese firms that operate, own and invest in the infrastructure projects that constitute most BRI commercial activity. Through build-operate-transfer arrangements or concessions, Chinese companies construct and operate infrastructure projects for fixed periods, typically for 20–30 years or longer. One example is China Merchants Port Holdings’ terminal at Sri Lanka’s Port of Colombo. Under a 35-year agreement, China Merchants Port Holdings first built and now operates Colombo International Terminals as a joint venture with the Sri Lanka Port Authority.

BITs also apply to Chinese firms involved in other types of project arrangements. They cover build-own-operate projects, where companies build, own and operate infrastructure for an indefinite period. Shenzhen Energy’s Sunon Asogli Power Plant in Ghana is one example. BITs also apply to overseas projects in which a Chinese firm holds an equity share, including the Kribi Deep-Sea Port that China Harbour Engineering Company is developing in Cameroon.

BITs do not cover infrastructure projects that Chinese firms simply build as contractors. For these works, Chinese companies are typically only responsible for engineering, procurement and construction. But project types in which Chinese firms act as owners, operators and investors are increasingly common. This makes investor protections more important than ever for Chinese companies.

Specific BIT provisions — or lack thereof — also benefit Chinese companies at the expense of host states. For instance, the majority of China’s BITs lack security exceptions, which can waive a state’s duty to comply with part or all of its treaty obligations when its essential national security interests are at risk. Security exceptions allow states to balance their security and economic interests within the BIT legal framework. Without security exceptions, China’s treaty partners could struggle to legally justify actions taken against Chinese firms on the basis of national security.

Although China is embracing BITs to protect its BRI investments, important concerns remain. The definition of ‘investor’ in many BITs does not distinguish between state-owned and private entities, and the issue remains ambiguous due to a lack of related international arbitration. Two 2017 decisions involving Chinese state-owned enterprises (SOEs) as claimants in Yemen and Mongolia determined that Chinese SOEs qualified as investors protected under relevant BIT provisions, even though the host states argued otherwise. This issue is crucial for China because SOEs have accounted for the majority of outward direct investment and most international mergers and acquisitions in terms of value. Ensuring that SOEs count as investors protects their ability to pursue claims against host states should disputes arise.

It is possible that China may seek to explicitly protect its SOEs in new or renegotiated BITs in the future if there are unfavourable arbitration outcomes involving Chinese SOEs. Some Chinese experts raise concerns that existing mechanisms of international arbitration, most importantly the International Centre for Settlement of Investment Disputes (ICSID), are subject to Western countries’ soft power.

In a departure from past practice, the 2013 China–Tanzania BIT notes explicitly that the definition of ‘enterprises’ includes SOEs. Given that China renegotiated 15 of its early BITs in the 2000s to strengthen investor protections for Chinese firms operating abroad, further such revisions to China’s treaties are possible.

Despite some continuing concerns, China today is deeply committed to the BIT system. Rather than viewing international investment law as inherently threatening or constraining, China now sees it as a valuable instrument for protecting its investments and interests abroad. By relying primarily on BITs to protect its BRI investments, China is actively leveraging existing international rules and norms to advance its national interests.

Zachary Haver is a China analyst based in Washington DC.

Wendy Leutert is the GLP-Ming Z Mei Chair of Chinese Economics and Trade at the Hamilton Lugar School of Global and International Studies, Indiana University.


Popular posts from this blog

SSG Commando Muddassir Iqbal of Pakistan Army

“ Commando Muddassir Iqbal was part of the team who conducted Army Public School operation on 16 December 2014. In this video he reveals that he along with other commandos was ordered to kill the innocent children inside school, when asked why should they kill children after killing all the terrorist he was told that it would be a chance to defame Taliban and get nation on the side. He and all other commandos killed children and later Taliban was blamed. Muddassir Iqbal has deserted the military and now he is  with mujahedeen somewhere in AF PAK border area” For authenticity of  this tape journalists can easy reach to his home town to interview his family members or   ISPR as he reveals his army service number” Asalam o Alaikum: My name is Muddassir Iqbal. My father’s name is Naimat Ali. I belong to Sialkot divison (Punjab province), my village is Shamsher Poor and district, tehsil and post office  Narowal. Unfortunately I was working in Pakistan army. I feel embarrassed to tell yo

RWR Advisory: Belt and Road at a Glance

This edition covers developments from March 12 - March 26..  Belt and Road at a Glance   Subscribe to the Belt and Road Monitor Top Developments China National Machinery Industry Corporation, commonly known as Sinomach, has agreed to  build  a $845 million, 255-mile railway across  Iran , building upon a sustained period of growth for Chinese investment in Iran that accelerated after Xi Jinping’s state visit to the country in January 2016. The railway will link the cities of Tehran, Hamedan and Sanandaj. China Civil Engineering Construction, a subsidiary of CRCC, is currently also  building  a 263-km railway line from Kermanshah to Khosravi. According to Chinese entrepreneur Lin Zuoru, who  owns  factories in Iran, “Iran is at the center of everything.”On March 23, China’s Ministry of Commerce announced that foreign direct investment by Chinese companies in 50 Belt and Road countries fell by 30.9% year-on-year. While the Ministry stated that this number covers investment across al

CPEC Jobs in Pakistan, salary details

JOBS...نوکریاں چائنہ کمپنی میں Please help the deserving persons... Salary: Salary package in China–Pakistan Economic Corridor (CPEC) in these 300,000 jobs shall be on daily wages. The details of the daily wages are as follows; Welder: Rs. 1,700 daily Heavy Duty Driver: Rs. 1,700 daily Mason: Rs. 1,500 daily Helper: Rs. 850 daily Electrician: Rs. 1,700 daily Surveyor: Rs. 2,500 daily Security Guard: Rs. 1,600 daily Bulldozer operator: Rs. 2,200 daily Concrete mixer machine operator: Rs. 2,000 daily Roller operator: Rs. 2,000 daily Steel fixer: Rs. 2,200 daily Iron Shuttering fixer: Rs. 1,800 daily Account clerk: Rs. 2,200 daily Carpenter: Rs. 1,700 daily Light duty driver: Rs. 1,700 daily Labour: Rs. 900 daily Para Engine mechanic: Rs. 1,700 daily Pipe fitter: Rs. 1,700 daily Storekeeper: Rs. 1,700 daily Office boy: Rs. 1,200 daily Excavator operator: Rs. 2,200 daily Shovel operator: Rs. 2,200 daily Computer operator: Rs. 2,200 daily Security Supervisor: Rs.