Tian Ye, Han Donglin and Chen Zhaoyuan: What Dispute Settlement Mechanism Does China Need for International Investment?

This issue of Special Report Series is What Dispute Settlement Mechanism Does China Need for International Investment?- A Quantitative Study Based on Bilateral Investment Agreements Executed by China in 1982-2013 by Tian Ye and Han Donglin, researchers at RUC NADS and Chen Zhaoyuan with the School of International Studies of RUC.

Against the backdrop of massive global capital flow, the need for international investment coordination mechanism is increasingly prominent. As a substitute to the failed multilateral mechanism, bilateral investment agreement becomes a main approach to adjust and regulate direct foreign investment and enjoys a pivotal status in international investment coordination. China has become one of the countries entering into the biggest number of bilateral investment agreements. As a procedural guarantee for the realization of commitments in the agreement, the choice on the forms of dispute settlement mechanism is deemed as a key topic in studies of bilateral investment agreements. This article conducts a quantitative study with its samples being the 134 bilateral investment agreements executed by China from 1982 to 2013, and takes a step further in introducing the different situations where China acts as the host country and the home country. The following correlations and potential internal mechanisms are discovered. Firstly, the more dependable the host country’s commitment is, as demonstrated by more advanced rule of law and longer regime duration, the lower its contracting cost, and the more likely the host country is to willingly accept authorization to international arbitration mechanism. Secondly, in good economic times, the government of the host country is usually highly independent and is more likely to seek internationally recognized ways of authorization to protect the overall national economic benefits and settle investment disputes. Thirdly, when under pressure from the home country, host countries with big market size have a larger negotiation leverage to reject the measures of the home country’s government in enhancing international authorization. Further, due to its huge domestic market, China, as a host country, is capable of mitigating some authorization pressure from the home country. As a home country, China is becoming increasingly aware to protect its foreign investment interests during the process of “going global”. However, China has not utilized its economic power to get other countries to accept more internationally authorized dispute settlement mechanisms. Quantitative analysis results are of certain significance to China’s future formulation of international investment policy. First, in the future, China should utilize its advantages and better seize opportunities to clarify its stance, protect its interests and maintain independent foreign economic policy when designing Sino-US, Sino-Europe and other bilateral investment agreements. Second, in negotiations on bilateral investment agreements, China should hold a more open attitude towards highly institutionalized investment dispute settlement mechanism from the angles of adapting to role transition, protecting overseas interests and promoting domestic reform. Third, bilateral investment agreement is just one of the many global investment governance forms. Multilateral and global international investment coordination mechanisms are a sure way to go. China should aim at building inclusive international investment relations, focus on regional investment system initiatives and depend on investment coordination among developing countries so as to gain the initiative in the new round of multilateral international investment system construction.