Towards China's development goals: an evaluation of the role played by China's foreign investment legal regime
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Date
31/07/2021Item status
Restricted AccessEmbargo end date
31/07/2022Author
Zheng, Yawen
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Abstract
This thesis evaluates the role played by China’s foreign investment legal
regime in leading its inward and outward investments towards the country’s
development goals. China has set five development goals that are particularly
related to its two-way investments: A) building technological capacity, B)
deepening integration into the global economy, C) promotion of green
development, D) protection of security, and E) participation in global economic
governance and rule-making. The fulfilment of these development goals
requires both the promotion and protection of desired foreign investment flows,
and effective supervision and management thereof. These requirements can
be achieved through proper design of the foreign investment legal regime,
which comprises China’s domestic laws governing inward and outward foreign
investments, and China’s international investment treaties. Moreover, the “Belt
and Road” initiative proposed by China in 2013 also has significant influence
on the foreign investments and their contribution to the development goals,
hence is also covered in the research.
China used to employ a dual-track system to govern its inward foreign
investments separately from their domestic counterparts. Accordingly, foreign
investments were subject to both strict control (inferior national treatment) and
granted preferential treatments (superior national treatment). Although the
approach has to some extent ensured their contribution to China’s
development, the restriction of enterprise autonomy and the wide discretion of
the authorities also discouraged investors from entering the market, while the
deficiencies in the rules have impeded the effectiveness of investment
supervision and management. To address the problems, an essential legal
reform was launched in 2020, which eases administrative control over inward
foreign investments, enhances investment promotion and protection, and
improves the investment management through more comprehensive and clear
rules. However, regulatory flaws, problematic implementation and a lack of
ambition can be identified, which can dilute the improvements made by the
reform.
China’s domestic laws governing its outward foreign investments have
suffered from similar problems regarding undue restriction of enterprise
autonomy and ineffective supervision of investments. Changes have been
made constantly to address the problems and enhance the coordination of the
laws with the requirements of the development goals, especially in the aspects
of investment supervision, promotion and protection. However, deficiencies
can still be found, like the still burdensome administrative procedures and
improper implementation of the rules. Moreover, the sophisticated array of
legal documents, especially with the lack of the status of “law”, contain various
conflicts and overlaps, which can trigger confusion to both investors and the
authorities, and thus impede the functioning of the legal regime. To further
support the expansion of China’s outward investments, the feasibility of
establishing an investment court in China’s domestic legal system is explored.
Although the possibility exists theoretically, the proposed court can face
various challenges, and thus it can be difficult to realize the plan.
As one important component of China’s foreign investment legal regime,
China’s international investment treaties have also played an essential role in
the governance of China’s two-way investments. However, the majority of
these treaties are outdated, which neither grant sufficient protection to foreign
investments due to the lack of important investment treatment clauses and
limited access to investor-State arbitration, nor leave enough regulatory space
for host States to adopt measures for policy objectives. Moreover, specific
rules that can incorporate the consideration of development goals in
investment arbitration and guarantee proper functioning of institutional
management of the treaty are also missing. Although these problems are
addressed to some extent in treaties that are recently signed, the failure to
distinguish between those with major recipients and sources of China’s foreign
investments make it difficult to serve different requirements of the development
goals for China’s inward and outward investments. The problems can be
addressed through updating the treaties by amendments or replacements.
However, the broad most favoured nation treatment clause included in many
China’s IIAs may impede the effort.
The “Belt and Road” initiative has successfully encouraged a significant
amount of China’s desired foreign investment flows, while other plans under
the initiative can also support their growth and contribute to the development
goals. However, the development of the initiative can encounter various
challenges exist both internationally and domestically. One approach to
mitigate the challenges can be the establishment of a multilateral investment
treaty covering the participating States. However, this proposal is ambitious,
and thus flexible arrangement is needed to enhance its feasibility.
The research finds that China’s foreign investment legal regime has gradually
changed towards the development goals, through enhancing investment
promotion and protection, as well as strengthening supervision and
management of China’s two-way investment flows. This trend can be expected
to continue in the future. However, various obstacles can slow the process or
even dilute the effort exerted by the changes, like problematic implementation
of domestic laws and outdated investment treaties that remain in force.
Accordingly, more systematic adjustments of both the legal regime and the
broader legal system is necessary to bring ongoing and future changes into
full fruition, and thus ensure their contribution to the development goals.