Crossing the Ocean By Feeling For the BITs: Investor-State Arbitration in China’s Bilateral Investment Treaties

In the 1970s, China began to sign bilateral investment treaties (BITs), but refused to grant foreign investors the right to sue their host government in international arbitration tribunals. 

Few realize that China’s treaty negotiations have in fact abandoned this restriction in almost every Chinese BIT signed since 1998, including those with Latin America. Scholars have suggested that China reversed its policy in order to support Chinese overseas investors or to fit its general economic liberalization strategy. 

However, China’s BITs with Mexico, Peru and Colombia and its arbitration case with Peru contradict these theories. 

In a 2014 working paper, Amos Irwin argues China began signing BITs to test the risks of granting open access to European countries and the United States for whom open access is a key condition. 

Main findings: 

• China’s most recent BITs and the Tza Yap Shum arbitration case with Peru show that China still opposes giving all its BIT partners access to arbitration. 

• Thus, their actions cannot be explained by the “Going Abroad” strategy, pressure from the World Trade Organization (WTO) and developed countries, or China’s general economic liberalization. 

• The Chinese government has accepted open arbitration but continues to oppose universal access while it is experimenting. 

• China chose to test open arbitration on small developing countries to study the risks of renegotiating European BITs and signing new ones with the US and Canada. 

• Rather than avoiding universal access because of any one particular country, China is trying to reserve its right to deny open access in future BITs. 

• China seeks to prevent international arbitration tribunals from establishing a precedent that would allow all of its BIT partners open access.

• China has added new provisions to its latest treaties to restrict international arbitrators’ room for interpretation of the same protections used in US BITs and make a US-China BIT more likely.  
• China is attempting to maintain its “bilateral sovereignty,” or the right to share power with its partner countries without the interference of international tribunals.

Now, China faces better prospects of concluding a BIT with the US, but the US avoids BITs with capital-exporting countries to protect the sovereignty of its courts, and China is now a capital-exporter. The main obstacle to US-China BIT negotiations may no longer be the two nations’ differences, but rather their similarities.