China and the global governance of foreign direct investment: the emerging liberal bilateral investment treaty approach

Abstract

"The economic and political rise of China has led to considerable controversy regarding potential repercussions for the current global governance architecture. At least two opposing scenarios are conceivable: China's adaptation to the rules and norms system shaped by developed countries or the pursuit of a distinctive policy approach, a possibility that involves the danger of clashing regulatory policies. A recent and increasingly dynamic trend giving substance to the phenomenon of China's rising importance is the growth of outward foreign direct investments (OFDI) by Chinese enterprises. Against this background, the present paper investigates the evolution and change of Chinese international investment policy-making, with a particular focus on bilateral investment treaties (BITs) as the most important legal instrument for the governance of global foreign direct investment (FDI) flows. China has been a committed signatory of BITs since the early 1980s (120 treaties up to 2007). It is thus the second most active contracting party to BITs worldwide, surpassed only by Germany. The traditional Chinese BIT approach, however, has only cautiously supported the legal protection of FDI. As a mere capital-importer, China concluded BITs that contained serious reservations and safeguards intended to preserve policy spaces for the regulation of incoming investments. Starting at the end of the 1990s the Chinese government initiated a decisive policy shift towards a liberal BIT approach characterized by high levels of substantive and procedural investment protection. Upon examining a representative sample of Sino-foreign BITs, this study concludes that the policy shift was a pro-active decision of the Chinese government intended to introduce liberal treaty provisions first and foremost with developing countries which are the main destination of Chinese OFDI. A further explanation for this development may be found in the great importance attached to the promotion of OFDI through the 'Going Global' strategy announced by the Chinese government at the end of the 1990s. In sum, this paper concludes that China has adopted a complementary rather than a competitive approach in the field of global FDI governance. China has fully agreed to standards of the current international liberal regime for FDI protection and has become an important global player in this context. This policy shift will yield consequences for China itself by levelling the playing field for international investors. Furthermore, developing countries that have concluded BITs with China will face a further reduction of their legal and regulatory autonomy, which is already limited by treaties with developed countries. China's BIT policy, therefore, contradicts the widespread rhetoric of a mutual beneficial South-South cooperation. Lastly, the emerging complementarity of investment policies between China and developed countries at the bilateral level gives rise to the possibility of enhanced cooperation between both at higher levels, for instance as part of the Heiligendamm Process between G8 countries and emerging countries." (author's abstract)