DO CHINA'S BITS MATTER? ASSESSING THE EFFECT OF ...

DO CHINA’S BITS MATTER? ASSESSING THEEFFECT OF CHINA’S INVESTMENT AGREEMENTS

ON FOREIGN DIRECT INVESTMENT FLOWS,INVESTORS’ RIGHTS, AND THE RULE OF LAW

KATE HADLEY*

ABSTRACT

Countries around the world pursue international investment agreements asan important component of their foreign policies. Government spokespeople andinternational organizations assert that investment agreements increase foreigndirect investment (FDI) and support investors’ rights and the rule of law indeveloping countries. It is far from clear, however, whether investment treatiesactually affect FDI flows or developing countries’ legal systems. There have beenfew studies of the effects of investment agreements, and those that exist haveadvanced conflicting conclusions. This Note fills this gap in our understandingof investment agreements by analyzing the effects of the fastest-growing and mostimportant bilateral investment treaty (BIT) program in the world: China’s.

This Note argues that China’s BITs seem to have been effective at promotinginbound FDI in China. On the other hand, they do not seem to have increasedFDI flows into China’s developing country treaty partners; this applies both toaggregate FDI inflows and to FDI from China alone. This suggests that, whileBITs serve as a credible commitment by the Chinese government to propertyprotection and liberal investment policies, China’s BITs with other developingcountries may serve primarily political, rather than economic, purposes.

With respect to legal rights under the treaties, this Note argues that foreigninvestors’ rights under Chinese law have expanded and become more enforceabledue to changes in the language of China’s BITs, and that these changes maypromote rule of law development in China. The pro-investor and pro-rule of lawchanges to treaty language have occurred primarily through China’s BITs withdeveloped, liberal partner countries. This suggests that the BIT programsinstituted by developed countries and developed country groups, like the Organi-sation for Economic Cooperation and Development and the European Union,have been effective policy instruments for increasing investment flows and

* Kate Hadley received her JD from Yale Law School in 2013. She is currently working in theGeneral Counsel’s Office of the U.S. Trade Representative. She would like to thank ProfessorsPaul Gewirtz and Michael Reisman for their support and assistance on this project. Most of all, shethanks Margaret Roberts of the Harvard Government Department, who gave invaluable theoreti-cal and technical assistance on the econometric studies described in Part III of this Note. © 2013,Kate Hadley.

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strengthening investors’ rights and the rule of law. Overall, therefore, this Noteargues that, for China and the developed democracies, BITs seem to be achievingtheir declared goals of increasing inbound FDI into China and promotingproperty rights and the rule of law.

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256II. THE LEGAL REGIME GOVERNING FOREIGN DIRECT INVESTMENT . . 259

A. The Development and Spread of BITs. . . . . . . . . . . . . . . . . 259B. The Purposes of BITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260

III. THE EFFECT OF CHINA’S BITS ON FDI . . . . . . . . . . . . . . . . . . . 262A. Previous Studies of the Relationship between BITs and

Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262B. The Author’s Quantitative Analysis of the Effect of China’s

BITs on FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2651. Effect of BITs on Bilateral FDI Inflows to China . . 2662. Effect of a BIT with China on FDI Inflows to

Other Developing Countries . . . . . . . . . . . . . . . . . 2693. Eight-year Study on Impact of a China BIT on

Bilateral Chinese Outflows. . . . . . . . . . . . . . . . . . . 272IV. THE EFFECT OF BITS ON INVESTORS’ RIGHTS UNDER CHINESE

LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274A. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274B. The Evolution of Key Provisions of Chinese BITs . . . . . . . . . 275

1. The Scope of the Agreement . . . . . . . . . . . . . . . . . 2762. Substantive Treatment Provisions . . . . . . . . . . . . . 2813. Transfer of Investments . . . . . . . . . . . . . . . . . . . . . 2944. Expropriations and Compensation . . . . . . . . . . . . 2975. Access to International Arbitration . . . . . . . . . . . . 3036. Umbrella Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . 3077. Transparency Provisions . . . . . . . . . . . . . . . . . . . . 308

V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309

I. INTRODUCTION

The People’s Republic of China’s (PRC or China) emergence overthe past three decades as an active participant in international invest-ment agreements and a recipient and source of foreign direct invest-ment (FDI) has transformed the world economy and the legal architec-ture governing international investment. In 1978, when Premier DengXiaoping announced China’s new policy of “reform and opening up,”

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China was not a party to any investment agreements and was nei-ther a recipient nor a source of FDI.1 A decade later, China had con-cluded sixteen bilateral investment treaties (BITs),2 and today it isparty to 128 BITs and sixteen other agreements affecting investment.3

Since 1978, China also has become one of the leading destinations forFDI.4

These changes in China’s role in the FDI market and the interna-tional legal regime reflect a transformation in the Chinese govern-ment’s attitude toward foreign capital. Prior to 1978, China could becharacterized as an inward-looking country, wary of foreign investmentand jealous of any measure that could limit the government’s policychoices.5 China’s policies toward foreign investment began to evolve in1979, as the government pursued foreign capital to boost the country’s

1. See U.N. CONFERENCE ON TRADE & DEV. (UNCTAD), FULL LIST OF BILATERAL INVESTMENT

AGREEMENTS CONCLUDED, 1 JUNE 2013 (2012) [hereinafter UNCTAD CHINA BITS], available athttp://unctad.org/Sections/dite_pcbb/docs/bits_china.pdf; UNCTADStat, UNCTAD, http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx (last visited Oct. 27, 2013) [hereinafterUNCTAD Annual FDI Flows].

2. See UNCTAD CHINA BITS, supra note 1.3. See UNCTAD, WORLD INVESTMENT REPORT 2012: TOWARDS A NEW GENERATION OF INVEST-

MENT POLICIES 199 (2012) [hereinafter WORLD INVESTMENT REPORT 2012], available at http://www.unctad-docs.org/files/UNCTAD-WIR2012-Full-en.pdf. For a list of China’s BITs showingwhether a copy is publicly available, see infra Appendix 1.

4. When Deng announced the reform program, China received almost no FDI, but by 1990,it ranked twelfth in the world in inbound FDI stock. See UNCTAD Annual FDI Flows, supra note 1.It reached seventh in 2011, when its inward FDI stock totaled nearly $712 billion. See WORLD

INVESTMENT REPORT 2012, supra note 3, at 173-76. Since reform and opening up, China generallyhas been the second largest recipient of FDI, behind the United States, and it became the leadingrecipient in the first half of 2012. See UNCTAD, FDI Flows Retreated in the First Half of 2012: UNCTADRevises Down Its Full Year Forecast, 10 GLOBAL INVESTMENT MONITOR 1, 2 (2012), available athttp://unctad.org/en/PublicationsLibrary/webdiaeia2012d20_en.pdf. Outbound FDI from Chinagrew more slowly, increasing from almost nothing in 1978 to $913 million in 1991 and thenquadrupling to $4 billion in 1992. See Kevin G. Cai, Outward Foreign Direct Investment: A NovelDimension of China’s Integration into the Regional and Global Economy, 160 CHINA Q. 856, 859-60(1999); Leonard K. Cheng & Zihui Ma, China’s Outward FDI: Past and Future (Renmin Univ. Schoolof Econ., Working Paper No. 200706001E, 2007). In 2011, China ranked fifteenth in the worldin terms of outward FDI stock, which amounted to US$365 billion, and ninth in the world interms of FDI outflows. See Web Table 02: FDI Outflows, by Region and Economy, 1990–2011, WorldInvestment Report 2012: Annex Tables (2012), UNCTAD, http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx (last visited Oct. 27, 2013).

5. See Qiangjiang Kong, Bilateral Investment Treaties: The Chinese Approach and Practice,8 ASIAN Y.B. INT’L L. 105, 107-09 (1999); Stephan W. Schill, Tearing Down the Great Wall: The NewGeneration Investment Treaties of the People’s Republic of China, 15 CARDOZO J. INT’L & COMP. L. 73,77-78 (2007).

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economic and technological development.6 The number of BITs Chinahas concluded since 1982 reflects this changing attitude. The languageof China’s BITs has also evolved, concretizing and expanding the scopeof the protections offered investors and giving them greater rightsvis-a-vis the contracting parties.7 Despite China’s prominent role as asource and recipient of international investment, however, few scholarshave examined the effects of China’s BIT program on FDI flows andinternational investment law.

This Note fills this gap by analyzing whether China’s BIT programhas affected investment flows between China and its treaty partnersand whether, through evolution in the language of the treaties, BITshave strengthened investors’ rights and the rule of law within China.It argues that, while BITs have successfully promoted FDI into China,they have not been as effective at increasing FDI inflows to China’sdeveloping country treaty partners. Additionally, changes in the lan-guage of China’s BITs have expanded foreign investor’s rights un-der Chinese law and strengthened the mechanisms for enforcingthose rights, which may, in turn, promote rule of law development inthe PRC.8 These changes have occurred primarily through China’sBITs with developed, liberal partner countries, suggesting that the BITprograms instituted by developed countries and developed countrygroups, like the Organisation for Economic Cooperation and Develop-ment (OECD) and the European Union, have been effective policyinstruments for increasing investment flows and strengthening inves-tors’ rights and the rule of law in partner countries.

Part II of this Note describes the legal regime governing FDI andexplores the reasons countries conclude BITs and the purposes thesetreaties are meant to achieve. Next, Part III assesses the success ofChina’s BITs at promoting foreign investment. Finally, Part IV analyzeswhether entering BITs with China has advanced the secondary goal ofmany developed democracies in concluding investment agreements—promoting investors’ rights and the rule of law. This Note concludes byarguing that, for China and OECD countries, BITs seem to be effectiveinstruments for achieving economic and governance objectives.

6. Kong, supra note 5, at 110-11; Schill, supra note 5, at 78.7. See infra Part IV.8. In this Note, I borrow Susan Franck’s definition of the rule of law, meaning “the

transparency and availability of law; adherence to announced legal principles or principleddeviation from such principles; and the consistent, reliable, independent and impartial adjudica-tion of those laws.” Susan D. Franck, Foreign Direct Investment, Investment Treaty Arbitration, and theRule of Law, 19 GLOBAL BUS. & DEV. L.J. 337, 340-41 n.15 (2007).


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II. THE LEGAL REGIME GOVERNING FOREIGN DIRECT INVESTMENT

Before assessing whether China’s BITs have served the purposes forwhich the parties concluded them, it is important to identify thesepurposes and the role BITs play in the legal regime governing foreigninvestment. This section briefly describes the development of andpurposes underlying the modern BIT regime.

A. The Development and Spread of BITs

Liberalization of the international legal regime governing foreigninvestment has occurred primarily on a bilateral basis through BITs,formally designated Agreements for the Promotion and Protection ofInvestment. In such treaties, countries promise to accord favorabletreatment to investors and investments of the partner country withintheir territory. Countries began concluding BITs in the 1950s and1960s, in response to a wave of expropriation and nationalization bydeveloping countries of foreign investors’ assets.9 These expropriationsdemonstrated the dangers of investing in developing countries andundermined the customary international law Hull Rule, under whichexpropriating countries were required to pay investors whose invest-ments were expropriated “prompt, adequate, and effective” compensa-tion.10 With the failure of the Hull Rule, developed countries turned toBITs as a more stable and effective way of protecting their investors.11

Since Germany and Pakistan signed the first BIT in 1959,12 BITs havebecome one of the most widely used tools for structuring economicrelations. By the end of 2011, there were 2,833 BITs in force, and also331 other agreements governing investment, principally bilateral andregional trade agreements.13 Although in the early decades, BITs wereprimarily concluded between a developed, FDI exporting country anda developing country,14 today, countries of diverse levels of develop-ment and regime types conclude BITs. The rise in the last decade of

9. See Zachary Elkins, Andrew T. Guzman & Beth Simmons, Competing for Capital: The Diffusionof Bilateral Investment Treaties, 1962–2000, 2008 U. ILL. L. REV. 265, 267-68 (2008).

10. See Andrew T. Guzman, Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity ofBilateral Investment Treaties, 38 VA. J. INT’L L. 639, 644-51 (1998). For the original statement of theHull Rule, see Letter from Cordell Hull to the Mexican Government, in 3 GREEN HAYWOOD HACKWORTH,DIGEST OF INTERNATIONAL LAW § 288 (1942).

11. See Guzman, supra note 10, at 651-52.12. See UNCTAD, Bilateral Investment Treaties: 1959-1999, U.N. Doc. UNCTAD/ITE/IIT/

2006/5 (2000).13. WORLD INVESTMENT REPORT 2012, supra note 3, at xx.14. Elkins et al., supra note 9, at 272.


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BITs between two developing countries has been significant.15 China’srising importance as a BIT partner is partly responsible for thistrend, combined with BIT programs in Iran, India, and the formerYugoslavia.16

B. The Purposes of BITs

Economists and legal scholars believe that countries sign BITs topromote foreign investment with their treaty partners.17 They arguethat developing countries, primarily importers of FDI, need investmentbut often face reluctance from developed country investors due to theperception that the developing country lacks strong property protec-tions.18 For developing country governments, BITs are a way to reas-sure investors and thereby attract more investment by making a cred-ible commitment to protect property rights.19 Developed countries arethought to conclude BITs primarily to protect investments made bytheir nationals in foreign countries, particularly countries where therule of law is weak.20 Most developed countries have strong propertyrights protections, and consequently, BITs are not seen primarily asdevices to increase inbound investment.21 Rather, by guaranteeingminimum standards of treatment and empowering investors to resolvetheir own disputes through international arbitration, BITs enabledeveloped countries to protect their nationals’ investments without thecostly and politically charged process of espousing investors’ claims.22

The language of the nearly three thousand BITs in effect supports thisaccount of countries’ motives: most announce that their purpose is topromote economic cooperation and investments between the parties.23

15. See id. at 272-74.16. See id. at 299-300; see also Kong, supra note 5, at 113 (describing China beginning to take

an active role in signing BITs with developing countries in the late 1990s).17. See, e.g., Elkins et al., supra note 9, at 277-82; Guzman, supra note 10, at 652-54; Jeswald W.

Salacuse & Nicholas P. Sullivan, Do BITs Really Work?: An Evaluation of the Bilateral Investment Treatiesand Their Grand Bargain, 46 HARV. INT’L L.J. 67, 71-72 (2005).

18. See Guzman, supra note 10, at 660-61; Salacuse & Sullivan, supra note 17, at 76.19. See UNCTAD, THE ROLE OF INTERNATIONAL INVESTMENT AGREEMENTS IN ATTRACTING

FOREIGN DIRECT INVESTMENT TO DEVELOPING COUNTRIES 1-2 (2009).20. See Salacuse & Sullivan, supra note 17, at 76.21. See Elkins et al., supra note 9, at 282.22. See Franck, supra note 8, at 343-44; Tom Ginsburg, International Substitutes for Domestic

Institutions: Bilateral Investment Treaties and Governance, 25 INT’L REV. L. & ECON. 107, 109-10 (2005).23. See, e.g., Agreement Between the Government and the People’s Republic of China and

the Belgium-Luxembourg Economic Union on the Reciprocal Promotion and Protection ofInvestments, China-Belg., pmbl., June 4, 1984 [hereinafter China-Belgium BIT], available at


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Some developed countries also have objectives beyond increasingFDI. These countries, particularly the liberal, market-oriented democ-racies, view BITs as part of a strategy to promote market liberalizationaround the world. The goals of the U.S. BIT program, for example,include “encourag[ing] adoption in foreign countries of market-oriented domestic policies that treat private investment fairly.”24 TheOECD has also endorsed the “liberalisation of investment regimes” as agoal of investment treaties.25 Proponents of this view believe that BITsinduce developing countries to remove legal impediments to foreigninvestment, creating more favorable conditions for private enter-prise.26 Some countries also view BITs as part of a campaign to promotegood governance and the rule of law. Proponents of this view arguethat some developing countries sign BITs to remedy deficiencies intheir own legal systems and to promote law enforcement.27 The institu-tions of international investment arbitration substitute for domesticinstitutions, allowing countries to refrain from taking arbitrary actionstoward their own as well as foreign investors. Ultimately, the reformsinitiated by BITs may stimulate domestic legal reform along similarlines.28 The United States and other Western democracies have sup-ported this theory, as have some officials of developing countries.29

http://www.kluwerarbitration.com/BITS.aspx?country�China; Agreement Between the Govern-ment of the United Mexican States and the Government of the People’s Republic of China on thePromotion and Reciprocal Protection of Investments, China-Mex., pmbl., Feb. 12, 2009 [herein-after China-Mexico BIT], available at http://unctad.org/sections/dite/iia/docs/bits/mexico_china.pdf. Many BITs are available through the UNCTAD website at http://www.unctadxi.org/templates/DocSearch.aspx?id�779, the Kluwer Arbitration website or the Chinese Ministry ofCommerce. See infra Appendix 1 for a list of the relevant Chinese BITs and references to thefootnotes containing the full citation of each BIT.

24. Jeffrey Lang, Keynote Address, 31 CORNELL INT’L L.J. 455, 457 (1998); see S. TREATY DOC.NO. 104-14, at 1 (1994); Finance and Development, U.S. DEP’T OF STATE, http://www.state.gov/e/eb/ifd/ (last visited Sept. 21, 2013).

25. See ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD), A MULTI-LATERAL AGREEMENT ON INVESTMENT: REPORT BY THE COMMITTEE ON INTERNATIONAL INVESTMENT AND

MULTINATIONAL ENTERPRISES (CIME) AND THE COMMITTEE ON CAPITAL MOVEMENT AND INVISIBLE

TRANSACTIONS 5 (1995).26. See Salacuse & Sullivan, supra note 17, at 76.27. See JESWALD W. SALACUSE, THE LAW OF INVESTMENT TREATIES 113-14 (2009); Franck, supra

note 8.28. SALACUSE, supra note 27, at 113-14.29. See id. (stating that the Minister of Finance of Uruguay said to a journalist of the

Uruguay-United States BIT, “We are not signing this treaty for them, we are signing it for us.”);Press Release, U.S. Dep’t of State, Office of the Spokesperson, United States Concludes Review ofModel Bilateral Investment Treaty (Apr. 20, 2012), http://www.state.gov/r/pa/prs/ps/2012/04/188198.htm.


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III. THE EFFECT OF CHINA’S BITS ON FDI

This Part evaluates whether China’s BITs have achieved the mainpurposes of BITs by assessing the effect of China’s BITs on FDI flows.First, it summarizes the leading empirical studies of the connectionbetween BITs and investment. Next, it describes the methodology ofthe author’s original study of the relationship between China’s BITsand FDI flows, which demonstrates that BITs with China are correlatedwith increased inbound FDI to China but not with increased FDI todeveloping country partners. This correlation suggests that China’sBITs serve as a credible commitment by the Chinese government toinvestor protection and, therefore, attract inbound FDI, but that Chinamay sign BITs with developing countries for reasons other than promot-ing investment.

A. Previous Studies of the Relationship Between BITs and Investment

While economists and legal scholars generally agree that countriesconclude BITs primarily to increase FDI, they disagree about theireffectiveness. Many variables influence investors’ investment decisions,including various economic and political factors.30 This complexitymakes it difficult to distinguish the effect of a BIT from other factorsaffecting investment. Particularly, there is a cause and effect problem:capital exporting countries may sign BITs only with countries whosepolicies and laws produce favorable investment policies, so that BITsreflect rather than cause an attractive investment environment.31

Alternately, BITs may serve to encourage and stabilize pro-investmentpolicies.32 Several social scientists have employed econometric toolsto disaggregate the many determinants of FDI flows, but they havecome to conflicting conclusions concerning whether BITs affectinvestment.

The United Nations (U.N.) conducted the first studies of the effectof BITs on FDI, published in 1988, 1991, and 1998. The first studyfound “no apparent relationship” between the number of BITs acountry had signed and FDI inflows and concluded that only case

30. See Tim Buthe & Helen V. Milner, The Politics of Foreign Direct Investment into DevelopingCountries: Increasing FDI Through International Trade Agreements?, 52 AM. J POL. SCI. 741, 742-43(2008); Salacuse & Sullivan, supra note 17, at 96.

31. See Salacuse & Sullivan, supra note 17, at 96.32. Id.


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studies could evaluate whether a particular BIT had increased invest-ment.33 The second U.N. paper did not break new ground in assess-ing BITs’ effect on investment.34 The third paper, the first to employeconometric analysis, included a multi-year study of FDI inflows into133 countries and a study of bilateral FDI flows from fourteensource countries into seventy-two host countries.35 It found a weakrelationship between BITs and FDI and argued that BITs slightlyincrease FDI inflows to host countries, particularly less developedcountries.36 The study of bilateral FDI also found a weak positiveinfluence.37 All three of these studies, however, were conducted beforeFDI and BIT signings exploded in the 1990s,38 and the third study wasbased on data drawn from various sources, undermining the reliabilityof its results.39

In the past decade, scholars have used more sophisticated models toanalyze the relationship between BITs and investment, but their resultsstill have conflicted. In 2003, the World Bank published a paper thatused econometrics to study the effect of BITs on FDI flows from 1980 to2000 between 537 bilateral country pairs, drawn from thirty-one devel-oping countries and twenty OECD members.40 Overall, the study founda non-significant negative coefficient for total BITs a country hadconcluded, although a positive (extremely weak) association appearedbeginning five years after a BIT was signed.41 The authors concludedthere was “little evidence that BITs have stimulated additional invest-ment.”42 The study also found that BITs and institutional capacityexhibited either no correlation or a small positive one.43 From this, the

33. See U.N. Ctr. on Transnat’l Corps. (UNCTC) & Int’l Chamber of Comm., BilateralInvestment Treaties, 1959-1991, U.N. Doc. ST/CTC/65 (1988).

34. See UNCTC, Bilateral Investment Treaties, 1959-1991, U.N. Doc. ST/CTC/136 (1992).35. UNCTAD, Bilateral Investment Treaties in the Mid-1990s, U.N. Doc. UNCTAD/ITE/

IIA/7 (1998).36. See id. at 111-12.37. Id. at 122.38. See Elkins et al., supra note 9, at 271 fig. 1; Beth A. Simmons, The International Investment

Regime: Sovereignty, Investor Security, and Dispute Settlement Since the 1980s 10 fig. 2 (N.Y.U Straus Inst.for the Advanced Study of L. & Justice, Working Paper No. 04/10, 2011).

39. See UNCTAD, Bilateral Investment Treaties in the Mid-1990s, supra note 35, at 108.40. See Mary Hallward-Driemeier, Do Bilateral Investment Treaties Attract FDI? Only a Bit . . . and

They Could Bite 12, 31 (World Bank, Working Paper No. 3121, 2003).41. Id. at 18-19.42. Id. at 22.43. Id. at 20-22.


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author concluded that BITs do nothing to strengthen domestic institu-tions and, therefore, do not promote property rights or the rule oflaw.44

In 2005, Jennifer Tobin and Susan Rose-Ackerman, of the YalePolitical Science Department and the Law School respectively, per-formed an econometric study using data from 1984 to 2000 on in-bound FDI to 176 low- and middle-income countries, with similarresults.45 The authors analyzed the effect on investment of the totalnumber of BITs a country had signed and introduced political risk asan independent variable in order to assess whether BITs strengthendomestic institutions. The study found that BITs had a negative effecton aggregate FDI inflows at high levels of political risk and began tohave a small positive effect at high levels of stability.46 The authorsconcluded that BITs merely reflect whether countries already havestrong domestic institutions and have no independent effect on attract-ing investment.47 They also examined whether BITs at least increasedbilateral investment flows between treaty partners, analyzing bilateralflows between the United States and its developing country BIT part-ners. 48 They found that the presence of a U.S. BIT did not increaseFDI inflows from the United States, nor did it alleviate political riskfactors.49

Two other 2005 studies found the opposite results. Eric Neumayerand Laura Spess, of the London School of Economics, conducted astudy, using data from 119 countries from 1970 to 2001, on therelationship between the total number of BITs signed by a countryand inbound FDI.50 They found a consistent and significant positiverelationship between BITs and FDI inflows.51 Professor Jeswald Sala-cuse of the Fletcher School and economist Nicholas Sullivan alsoconducted an econometric study, testing whether the presence of a BITwith the United States exhibited a positive correlation with total FDI

44. Id. at 22-23.45. See Jennifer Tobin & Susan Rose-Ackerman, Foreign Direct Investment and the Business

Environment in Developing Countries: The Impact of Bilateral Investment Treaties 13-16 (Yale Law SchoolCtr. for Law, Econ. & Pub. Pol’y Research, Working Paper No. 293, 2005).

46. Id.47. Id. at 22-24.48. Id. at 24-26.49. Id. at 30.50. See Eric Neumayer & Laura Spess, Do Bilateral Investment Treaties Increase Foreign Direct

Investment to Developing Countries?, 33 WORLD DEV. 1567, 1573-74 (2005).51. Id. at 1575-80, 1582.


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inflows to developing country partners.52 They used data for over onehundred countries over the period 1998 through 2000, and for thirty-one countries over the period 1991 through 2000.53 The study foundthat a BIT with the United States had a “large, positive, and significant”association with a country’s inbound FDI inflows and is much morehighly correlated with increased FDI than BITs with other OECDcountries.54

In 2009, political economy professors Tim Buthe of Duke Universityand Helen Milner of Princeton conducted a study of total annual FDIinflows into 122 developing (non-OEDC) countries with a populationof over one million.55 They found that, other things being equal, ahigher number of BITs correlated with a greater amount of FDI, andthat the effects of BITs went “well beyond” year-to-year investor friendlypolicy choices.56 On the other hand, a 2008 study of FDI flows fromOECD countries to developing countries from 1959 through 200357

found no significant relationship between BITs and increased FDI.58

In particular, it found no support for the theory that BITs offeringstronger investor protections correlated with increased FDI.59

B. The Author’s Quantitative Analysis of the Effect of China’s BITs on FDI

The discussion above suggests that the question of whether, andunder what circumstances, BITs affect FDI remains unsettled. ThisNote relies on the methods used in previous studies to address thenarrower question of whether BITs with China have correlated withincreased FDI. The studies presented herein rely on the author’soriginal econometric analysis to measure three aspects of FDI relatingto China.60 The first regression measures the relationship between the

52. See Salacuse & Sullivan, supra note 17, at 104.53. See id. at 104-11.54. Id. at 105-06, 109-10.55. See Tim Buthe & Helen V. Milner, Bilateral Investment Treaties and Foreign Direct Investment:

A Political Analysis, in THE EFFECT OF TREATIES ON FOREIGN DIRECT INVESTMENT: BILATERAL INVEST-MENT TREATIES, DOUBLE TAXATION TREATIES, AND INVESTMENT FLOWS 171, 190 (Karl P. Sauvant &Lisa E. Sachs eds., 2009).

56. See id. at 196-200.57. See Jason Webb Yackee, Bilateral Investment Treaties, Credible Commitment, and the Rule of

(International) Law: Do BITs Promote Foreign Direct Investment?, 42 L. & SOC’Y REV. 805, 815-21 (2008).58. Id. at 818-19.59. See id. at 823-24.60. For an overview of the premises and methods of econometric analysis, see Salacuse &

Sullivan, supra note 17, at 97-99.


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presence of a BIT with China and FDI flows from other countries toChina (inbound FDI, from China’s perspective).61 It assesses whetherthe presence of a BIT between China and a partner country cor-relates with increased FDI flows from the partner country to China,shedding light on the effectiveness of BITs at increasing investment inthe PRC beyond what it would have been without a BIT. The secondregression measures the relationship between the presence of a BITwith China and total FDI inflows to developing countries, exploringwhether a BIT with China correlates with increased aggregate in-vestment in developing countries.62 The third regression measuresthe relationship between a BIT with China and FDI flows fromChina to developing countries, assessing whether a BIT correlates withincreased bilateral FDI flows from China to a developing countrypartner.63

1. Effect of BITs on Bilateral FDI Inflows to China

In the first part of the author’s original econometric analysis, whichmeasures the effect of BITs on bilateral FDI inflows to China, thedependent variable was FDI flows into China from the partner countryand the explanatory variable of interest was the presence of a BIT withChina.64 The regression also included other explanatory variablesknown to affect FDI. These were: (1) the GDP of the partner country inconstant year 2000 U.S. dollars; (2) the per capital GDP of the partnercountry in constant 2000 U.S. dollars; (3) the GDP growth rate of thepartner country; (4) trade as a percentage of the partner country’sGDP; (5) inflation in the partner country; (6) the real effectiveexchange rate of the partner country; and (7) a measure of politicalstability in the partner country.65 These variables are typical of theexplanatory variables included in studies of FDI flows.66 The GDP and

61. See infra Part III.B.1.62. See infra Part III.B.2.63. See infra Part III.B.3.64. For a fuller explanation of the dependent variable and the explanatory variable of

interest used and the sources for the data, see infra Appendix 2.2.65. As other studies have done, I used the Polity IV democracy rating as a proxy for political

risk. For most of the other variables, I relied on data from the World Bank’s World DevelopmentIndicators dataset. See infra Appendix 2.1 for a description of the explanatory variables used in allthree studies and the sources for the datasets used.

66. See Buthe & Milner, supra note 55, at 193-96; Neumayer & Spess, supra note 50, at 1573-74;Salacuse & Sullivan, supra note 17, at 104-05; Yackee, supra note 57, at 816-18.


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GDP per capita of the partner country reflect the country’s wealth anddevelopment level, both of which are important determinants of FDIoutflows. Annual GDP growth is important, since one would expectFDI outflows to increase with growth. Trade as a percentage of GDPcontrols for the trade openness of the partner country, since one mightexpect FDI outflows to increase as a country becomes more open totrade. The inflation rate reflects macroeconomic stability, and the realexchange rate shows the value of the currency, both of which couldaffect FDI. The dataset included entries for 149 countries for the years1985 (the first year for which dyad-level data is available for China) to2010.67

The econometric model measured FDI outflows to China as a per-centage of GDP. This is more useful than absolute FDI outflows since itallows for comparisons between small and large countries.68 Thedataset provided the opportunity to examine the relationship betweena BIT with China and the level of investment flows from the partnercountry, as well as the relationship between the total number of BITsChina had signed and bilateral inbound investment from both BIT andnon-BIT countries. Like other econometric studies, the regressionmerely identified relationships in the data; it does not prove causationbut may disclose interesting relationships that suggest causation toinformed observers.

As depicted in Table 1 below, the regression results indicate that thepresence of a BIT with China correlates with increased FDI flows fromthe partner country to China. Unsurprisingly, the study shows thatGDP, per capita GDP, and trade openness are positively and signifi-cantly correlated with increased investment in China. GDP growth isnegatively and significantly correlated. This is in contrast to what otherstudies found, but the difference is not surprising because, while otherstudies analyzed FDI inflows, this study analyzed outflows. Further-more, while fast-growing developing countries would be expected toattract the most FDI, slower growing developed countries supply themost FDI. As Table 1 shows, the presence of a BIT with China reflects apositive and significant (at the 0.05 level) correlation with higher FDIoutflows to China.69

67. The set of countries is comprised of those countries for which the Chinese Ministry ofCommerce has released data on inbound FDI. See infra Appendix 2.2 for a fuller explanation.

68. See Salacuse & Sullivan, supra note 17, at 105.69. In the table, the estimate figures in the second column reflect the sign (positive or

negative) and the magnitude of the correlation between each explanatory variable and bilateralinbound FDI flows. The figures in the third column show whether the correlation was significant.


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The magnitude of all the effects may appear numerically small, butthis is because FDI to China as a percentage of a country’s GDP is alwaysa tiny number. In reality, the effect is not insignificant. For example, asshown in column two row two of the table, the results indicate that thepresence of a BIT with China is linked to an increase in FDI outflows toChina of 0.02891% of a country’s GDP. In 2010, the GDP of the UnitedStates, in constant year 2000 U.S. dollars, was $11.5479 trillion.71 Theregression results suggest that, if there had been a BIT between theUnited States and China in 2010, U.S. FDI flows to China would havebeen $3.338 billion higher.72 This is a minute fraction of U.S. GDP, butit is significant in terms of FDI: It is approximately equal to the FDIoutflows of Denmark in 2010,73 and it is 3.2% of the total FDI inflowsChina received that year.74 Conversely, the results indicate that if Japanhad not had a signed BIT with China in 2010, FDI from Japan to China

Smaller p-values reflect greater significance, so that values greater than 0.05 are not significantand values smaller than 0.001 are the most significant. See infra Table 1.

70. See infra Appendices 2.1-2.2 for a fuller description of these variables and the sources forthe data used in this regression.

71. See World Development Indicators December 2012, WORLD BANK, http://data.worldbank.org/data-catalog/world-development-indicators (last visited Oct. 27, 2013).

72. The calculation is $11,547,900,000,000 � 0.0002891 � $3,338,497,890.73. Web Table 02: FDI Outflows, supra note 4.74. Id.

TABLE 1.70

Estimate Significance

China BIT 2.891e�4 0.01439*

GDP (constant 2000 U.S. dollars) 1.163e�16 0.01543*

GDP per capita (constant 2000 U.S. dollars) 7.147e�08 2e�16***

GDP growth �3.099e�5 0.00404**

Trade Openness 2.813e�5 2e�16***

Inflation (annual change in consumer priceindex) 2.489e�9 0.97309

Real Effective Exchange Rate (2005 � 100) 2.846e�6 0.02490*

Polity �2.661e�5 0.00590**

China’s Cumulative BITs 1.638e�5 0.08540

* p � 0.05; ** p � 0.01; *** p � 0.001


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would have been $1.473 billion lower.75 This is a small percentage ofJapan’s GDP, but its represents about a third of Japan’s FDI to Chinathat year.76

Since the econometric model does not prove causation, the re-gression results do not definitively demonstrate that the BITs them-selves cause increases in FDI to China. The results do suggest, how-ever, that a significant connection exists between a BIT and increasedFDI flows. These findings suggest that, holding other variables con-stant, the presence of a BIT with China means that investors from aparticular foreign country are likely to invest more in China thaninvestors from countries without a BIT. For China and the coun-tries that invest in it, therefore, BITs seem to function as their gov-ernments intend—increasing bilateral investment from the partnercountries.

2. Effect of a BIT with China on FDI Inflows to OtherDeveloping Countries

To test the effect of a BIT with China on inflows of FDI intodeveloping countries, this regression analyzed aggregate annual in-bound FDI into developing (non-OECD) countries with a populationof more than one million.77 The dependent variable, FDI inflows, wascalculated as a percentage of GDP to facilitate cross-country compari-sons. The explanatory variable was the presence of a BIT with China.The model generally included the same explanatory variables as thefirst study, except that it included the total number of BITs eachdeveloping country had signed and did not include China’s total BITs.It also included the population of the host country, since one mightexpect the size of the country’s market to affect inbound FDI. Thedataset was limited to developing host countries because the theorythat BITs represent credible commitments to liberal economic policiesapplies primarily to developing countries,78 and because previous

75. The calculation for this example is $5,094,420,000,000 (Japan’s 2010 GDP in constantyear 2000 dollars) � 0.0002891 � $1,472,796,822. See WORLD BANK, supra note 71.

76. FDI flows from Japan to China in 2010 were $4,083,720,000. See Web Table 02: FDI Outflows,supra note 4.

77. See infra Appendices 2.1 and 2.3 for a more complete explanation of the variables used inthis regression and their sources.

78. See Buthe & Milner, supra note 55, at 190-91.


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studies have shown that including both “wealthy and poor” countriesin analyses of FDI may yield misleading results.79 The analysis wasrestricted to country years during which the host country was inde-pendent and had a population of more than one million, becausestudies suggest that FDI in very small countries exhibits a differentdynamic.80 Furthermore, several of the smallest countries that seem toreceive the most FDI are tax shelters, where the expropriation dynamicis unlike that in other developing countries.81 Altogether, the datasetincludes entries for 126 developing countries for the years 1985 through2010.82

The regression results, as presented in Table 2 below, show that thepresence of a signed BIT with China exhibits a negative and significantcorrelation with total FDI inflows, while the presence of an in-force BITwith China does not show any significant relationship (positive ornegative) to inbound FDI flows. As Table 2 shows, GDP growth andtrade openness exhibit strong and significant positive correlations withFDI inflows in both regressions. This suggests that, all else being equal,faster-growing developing countries and countries more open to tradeattract more FDI. The presence of a signed BIT with China has anegative and significant relationship with total inbound FDI flows,meaning that, all else being equal, developing countries that were partyto a BIT with China in a given year attracted less aggregate FDI thancountries that were not. Although there has been almost no scholar-ship on BITs between developing countries (South-South BITs) thisresult is consistent with Salacuse and Sullivan’s finding that non-OECDBITs and total FDI inflows exhibited a significant negative relation-ship.83

It is not surprising that a BIT with China would have no significanteffect on total inbound FDI flows. Until recently, China exported littleFDI, and it is still an insignificant source in the context of total FDI

79. See id. at 191; Bruce Blonigen & Miao Wang, Inappropriate Pooling of Wealth and PoorCountries in Empirical FDI Studies, in DOES FOREIGN DIRECT INVESTMENT PROMOTE DEVELOPMENT? 221(Theodore H. Moran, Edward M. Graham & Magnus Blomstrom eds., 2005).

80. See Buthe & Milner, supra note 55, at 191.81. See id. at 180; Cheng & Ma, supra note 4, at 8-11; Tobin & Rose-Ackerman, supra note 45,

at 2.82. As mentioned above, this set of countries was comprised of developing (non-OECD)

countries with a population exceeding one million for which World Bank data on FDI inflows wasavailable. See infra Appendices 2.1 and 2.3 for further explanation of the variables and datasources.

83. See Salacuse & Sullivan, supra note 17, at 120-23.


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flows.85 The fact that a signed BIT with China exhibited a significantnegative relationship with FDI inflows to developing countries, how-ever, merits analysis. One explanation is that China concludes at leastsome BITs with developing countries for purposes other than pro-moting investment. For example, China has BITs with certain develop-ing countries—the Democratic Republic of Congo, Cuba, Iran, NorthKorea, Myanmar, Pakistan, Syria, Yemen, and Zimbabwe—that attractlittle aggregate FDI.86 Since these regimes tend to be politically andeconomically isolated, with China often as a primary political sup-porter, it seems likely that the primary purpose of these BITs is politicalrather than economic. Under this theory, the significant negativerelationship between a BIT with China and total FDI inflows does notexist because a Chinese BIT causes a reduction in FDI inflows, butrather because China, to show political support, has concluded BITswith some isolated regimes that attract little investment anyway. Fur-ther, these unstable or isolated regimes often take longer than the

84. See infra Appendices 2.1 and 2.3 for a fuller description of these variables and the sourcesfor the data used in this regression.

85. In 2011, for example, although China was the ninth largest source of FDI flows, itprovided only 3.8% of total FDI compared with 23.4% provided by the United States and 33.1%provided by the EU. See Web Table 02: FDI Outflows, supra note 4.

86. See WORLD BANK, supra note 71.

TABLE 2.84

Estimate: Signed BIT Estimate: BIT in Force

China BIT �9.629e�1 (.0310*) �6.487e�1 (.1592)

Population �4.691e�9 �5.688e�9

GDP (constant 2000 U.S. dollars) �2.287e�12 �1.744e�12

GDP per capita (constant 2000 U.S.dollars) �7.999e�5 �9.534e�5

GDP growth 3.052e�1 (�2e�16***) 3.041e�1 (�2e�16***)

Trade Openness 4.324e�2 (�2e�16***) 4.402e�2 (�2e�16***)

Inflation (annual change in consumerprice index) 1.075e�4 1.050e�4

Real Effective Exchange Rate (2005 � 100) �2.263e�3 1.931e�4

Polity 2.394e�2 2.641e�2

Cumulative BITs �2.450e�3 �4.112e�3

Date 2.457e1 2.377e1

* p � 0.05; ** p � 0.01; *** p � 0.001


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norm to ratify BITs and have them come into effect, which could ex-plain why the negative relationship is stronger for countries withsigned BITs than those with ratified BITs.87 At a minimum, the resultssuggest that South-South BITs merit further study, since they may servea different purpose than traditional developed-developing countryBITs.

3. Eight-Year Study on Impact of a China BIT on BilateralChinese Outflows

This time-series study used a dataset of China’s outflows to eachnon-OECD country with a population over one million over an eight-year period, from 2003-2010.88 Of the 126 countries included in thestudy, thirty-one were not party to a BIT with China during the rele-vant period, twenty-three signed or ratified a BIT during the relevantperiod, and ninety-five had either signed or ratified a BIT prior to 2003.Necessity drove the selection of this time period, since China’s Ministryof Commerce did not begin publishing data on China’s outboundinvestment flows until 2003. The time series model pools the resultsfrom each of the country years and calculates a coefficient depictingthe correlation between a BIT with China and Chinese FDI in thedeveloping host country. The regression reveals whether, holdingother things constant, China’s FDI flows into a partner country changeafter a BIT is signed or ratified.89 The dependent variable in thisstudy was China’s FDI inflows to the host country as a percentage ofGDP. The study included explanatory variables for GDP, GDP growth,trade openness, GDP per capita, population, the real exchange rate,the total number of the developing country’s BITs, and politicalinstability.

As Table 3 shows, the regression results showed no significantrelationship between the presence of a BIT with China and FDI flowsfrom China to a developing country. The explanatory variables thatexhibited a strongly significant correlation with FDI flows from China

87. As shown in row one of Table 2 above, the presence of a signed BIT with China exhibiteda significant negative relationship with aggregate FDI inflows, whereas the presence of a ratifiedBIT exhibited no significant effect.

88. See infra Appendices 2.1 and 2.4 for a complete account of the variables used in thisregression and their sources.

89. For a description of the “fixed-effects” technique, which may be used when studying aseries of bilateral relationship, see Salacuse & Sullivan, supra note 17, at 108. Briefly, the modelassumes that many explanatory variables that might affect FDI, such as infrastructure or laborforce skill-level, are constant, and consequently does not include them. Id.


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to a developing country were GDP and openness to trade; bothrelationships were positive. The real effective exchange rate exhibited aless significant negative correlation, suggesting that countries withcurrencies that are inexpensive compared to other currencies attractedmore investment from China, all other things being equal.

Like the results of the second regression, these findings suggest thatChina may conclude BITs with developing countries for purposesbeyond increasing FDI. While it is possible that these BITs are intendedto increase FDI but are simply unsuccessful, the fact that China hasconcluded BITs with a majority of developing countries but is still arelatively small exporter of FDI suggests that the government’s largeBIT program may be motivated, at least in part, by political consider-ations. For example, China may conclude BITs as part of its policy tocultivate good relations with governments around the world for politi-cal objectives like persuading states not to recognize Taiwan andlong-term considerations like resource access and durable politicalties.91 Certainly, China is creating an extensive network of international

90. See infra Appendices 2.1 and 2.4 for a full description of these variables and the sourcesfor the data used in this regression.

91. For a description of China’s policy priorities, including its policy of using internationaldiplomacy to isolate Taiwan and its fear of future resource competition, see Andrew J. Nathan &Andrew Scobel, How China Sees America: The Sum of Beijing’s Fears, FOREIGN AFF., Sept.-Oct. 2003. For

TABLE 390

Estimate: Signed BIT Estimate: BIT in Force

China BIT 1.706e�7 (.638610) 1.092e�7 (.740548)

Population 5.23e�1 5.573e�1

GDP (constant 2000 U.S. dollars) 1.069e�3 (.000220***) 1.057e�3 (.000234***)

GDP per capita (constant 2000 U.S.dollars) 2.552e2 5.494e2

GDP growth �1.266e6 �1.248e6

Trade Openness 1.032e6 (.000896***) 1.010e6 (.001170**)

Inflation (annual change in consumerprice index) 2.951e6 2.837e6

Real Effective Exchange Rate (2005 � 100) �2.716e6 (.034544*) �2.714e6 (.034779*)

Polity 2.084e6 1.935e6

Cumulative BITs �5.549e5 �5.443e5

Date 4.539e9 4.728e9

* p � 0.05; ** p � 0.01; *** p � 0.001


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agreements that, in the future, may affect investors’ rights, investmentlaw, and even the parties’ legal systems.

IV. THE EFFECT OF BITS ON INVESTORS’ RIGHTS UNDER CHINESE LAW

This Part assesses whether BITs with China have fulfilled theirsecondary purpose of promoting property rights and the rule of law. Tomeasure progress toward property protection, this Part analyzes theexpansion of investors’ rights over time under China’s BITs. To mea-sure whether developed countries have been successful in promotingproperty rights and the rule of law, this Part analyzes how changes inthe language of China’s BITs have occurred—whether BITs withdeveloped democracies have been particularly important in expandinginvestors’ rights or increasing transparency.92 It argues that BITs havehad success on both axes: investors’ rights in China are more expansivenow than when China concluded its first BITs, and the private rightsprotected have expanded most significantly through agreements withdeveloped democracies. Further, several of the reforms pioneered byOECD BITs may improve the consistency and transparency of China’slegal regime governing investment and, perhaps, China’s legal systemmore broadly.

A. Methodology

There are several provisions that are regarded as essential to pro-tecting and promoting investment, and most BITs contain some ver-sion of these.93 The language of the provisions varies across agree-ments, however, so that different BITs accord investors different levelsof protection. Drawing on comprehensive studies of BITs—particularlythe 1995 book, Bilateral Investment Treaties, by Rudolf Dolzer and

arguments that China concludes trade agreements to further these political objectives, seeGuoyou Song & Wen Jin Yuan, China’s Free Trade Agreement Strategies, 35 WASH. Q. 107, 112-13(2012); Henry Gao, China’s Strategy for Free Trade Agreements: Political Battle in the Name of Trade 8-9(Paper presented at the Asian Reg’l Conf. on Free Trade Agreements, Dec. 2009), available athttp://www.networkideas.org/ideasact/dec09/pdf/Henry_Gao.pdf.

92. I use membership in the OECD as a proxy for countries seeking to expand private rightsand strengthen the rule of law because OECD members are developed democratic states, many ofwhich have particularly expressed this objective, and because the OECD itself has endorsed this asa goal of BITs. See, e.g., OECD, PROMOTING PRIVATE INVESTMENT FOR DEVELOPMENT: THE ROLE OF

ODA 15 (2006).93. See RUDOLF DOLZER & MARGRETE STEVENS, BILATERAL INVESTMENT TREATIES (1995) (de-

scribing the variations of the clauses governing the admission and treatment of investment,expropriation, and the settlement of disputes in BITs from 1954 through 1995).


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Margrete Stevens, prepared under the auspices of the InternationalCentre for Settlement of Investment Disputes (ICSID)94—and recentscholarship on China’s BITs,95 this Part identifies changes in criticalprovisions of China’s BITs and analyzes the implications of thosechanges for investors’ rights and the rule of law. This analysis is basedon close readings of the key provisions in all of China’s BITs for whichan official version is publicly available.96 Having identified changes thataffect investors’ rights or the rule of law, this Part analyzes how thesechanges were introduced and incorporated into China’s BITs—whether through agreements with developed democracies (OECDmembers), developing democracies, developing non-democracies, orindiscriminately across regime types.97 Based on this data, this Partanalyzes whether BITs have proven to be effective instruments atstrengthening property rights and legal reform.

B. The Evolution of Key Provisions of Chinese BITs

This Section examines developments in key provisions of China’sBITs to determine whether, and to what extent, they have strengthenedinvestor protections and the rule of law. It argues that, over time,China’s BITs have become more protective of investors and more

94. Id.95. See Guiguo Wang, China’s Practice in International Investment Law: From Participation to

Leadership in the World Economy, in LOOKING TO THE FUTURE: ESSAYS IN HONOUR OF W. MICHAEL

REISMAN 845 (Mahnoush H. Arsanjani et al. eds., 2011); Schill, supra note 5; Axel Berger, China’sNew Bilateral Investment Treaty Programme: Substance, Rationale and Implications for InternationalInvestment Law Making (paper prepared for the Am. Soc’y Int’l Law Int’l Econ. Law Interest Grp.Conference, Washington, D.C., Nov. 14-15, 2008).

96. See infra Appendix 1 for a chronological list of China’s BITs depicting which ones arepublicly available.

97. To quantify regime type, I used the Polity IV dataset. See Monty G. Marshall & KeithJaggers, Polity IV Project: Political Regime Characteristics and Transitions, 1800-2010, INTEGRATED

NETWORK FOR SOCIETAL CONFLICT RESEARCH, http://www.systemicpeace.org/polity/polity4.htm(last visited Oct. 27, 2013) [hereinafter Polity IV data]. Specifically, I relied on the Polity 2 score.Because I wanted to ascertain whether institutionalized democracies—governments that incorpo-rate the rule of law, checks and balances, and transparency—were more likely than other types ofgovernments to conclude BITs that strengthened private rights and the rule of law even if thecountry was a developing country, I divided countries into those with a Polity 2 score above 6 andthose with a score below 6. A score of 6 reflected stronger than “mixed” institutions andcorresponded with increased regime stability and autocracy scores of zero. See MONTY G. MAR-SHALL, POLITY IV PROJECT: DATASET USERS MANUAL 13-17 (2011), available at http://www.systemic-peace.org/inscr/inscr.htm; Polity IV data, supra. Other studies have also relied on the Polity IVdataset to measure regime type or political risk. See, e.g., Yackee, supra note 57, at 816-18 (using ascontrol variables the Polity IV democracy rating as a standard proxy for political risk).


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supportive of the rule of law. The analysis below shows that nearly everycritical provision has undergone changes of this kind. It also shows thatthese changes have generally been introduced through BITs withdeveloped democracies, and that subsequent agreements with OECDmembers are more likely than other BITs to contain the more protec-tive provisions. Over time, many liberalizing changes have been incor-porated into China’s BITs with developing countries. Among develop-ing countries, reforms that protect investors’ rights and strengthen therule of law are often more likely to appear in BITs with stable democra-cies than those with autocracies or weakly democratic states. Thissuggests that developed democracies (and to a lesser extent developingdemocracies) may have been successful at using BITs to strengtheninvestors’ rights in China and to strengthen the rule of law.98

1. The Scope of the Agreement

The first critical provisions that all BITs contain are the definitionsthat determine the scope of the assets and persons protected by theagreement, particularly the definitions of covered “investments” and“investors.”99 Early BITs defined “investment” in a brief and generalway, but recent BITs have established a more complex formula.100 Mostmodern definition clauses define “investment” as “every kind of asset”and also elaborate specific property rights.101 In their study of BITlanguage, Dolzer and Stevens cited as an example of a “standard”definition that contained in the BIT between Germany and Guyana,defining “investments” as:

[E]very kind of asset, in particular:(a) movable and immovable property as well as other rights

in rem such as mortgages, liens and pledges;(b) shares of companies and other kinds of interest in

companies;(c) claims to money which has been used to create an

economic value or claims to any performance having an eco-nomic value;

98. This Note examines only the legal rights, both substantive and procedural, that particularBITs bestow on foreign investors. Although certainly important, the on-the-ground effect of theseexpanded legal protections is outside the scope of this study of the de jure rights and enforcementmechanisms that BITs create.

99. See DOLZER & STEVENS, supra note 93, at 26-31.100. Id. at 26.101. Id.


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(d) copyrights, industrial property rights, technical pro-cesses, trade-marks, trade-names, know-how, and good-will;

(e) business concessions under public law, including conces-sions to search for, extract and exploit natural resources . . . .102

Building on this formula, some developed countries have added lan-guage specifying that “investments” include assets “directly or indi-rectly” owned or controlled by investors of the contracting parties.103

This language is considered important because many investment dis-putes involve investments effected through subsidiaries and not di-rectly held by the national of the BIT party.104 Other treaties employ“more stringent” language, requiring that “investments” be specificallyapproved by the host state or effected “in accordance with [the hoststate’s] laws,” and emphasizing the host state’s discretion over thescope of the BIT’s application.105

The definition of investments contained in China’s BITs is generallyexpansive and has been fairly consistent over time. China’s first BIT,with Sweden in 1982, stated that investment “shall comprise every kindof asset invested by investors of one Contracting State in the territory ofthe other . . . in accordance with [its] laws and regulations.”106 Thedefinition included a non-exclusive list of five types of investments—the same as those that Dolzer and Stevens identified as typical.107 All123 of China’s BITs for which an official version is publicly availablecontain essentially the same list.108 The definition of “investor” is also in

102. Id. at 27 (citing Germany-Guyana BIT, infra note 162, art 1(1)).103. See U.S. DEP’T OF STATE & OFFICE OF THE U.S. TRADE REP., 2012 U.S. MODEL BILATERAL

INVESTMENT TREATY art. 1 (2012), available at http://www.state.gov/documents/organization/188371.pdf [hereinafter U.S. MODEL BIT]; U.S. DEP’T OF STATE & OFFICE OF THE U.S. TRADE

REP., U.S. MODEL BILATERAL INVESTMENT TREATY art. 1 (2004), available at http://www.state.gov/documents/organization/117601.pdf.

104. See Schill, supra note 5, at 85.105. DOLZER & STEVENS, supra note 93, at 30-31.106. Agreement Between the Government of the People’s Republic of China and the

Government of the Kingdom of Sweden on the Mutual Protection of Investments, China-Swed.,art. 1(1), Mar. 29, 1982 [hereinafter China-Sweden BIT], available at tfs.mofcom.gov.cn/aarticle/h/au/201001/20100106724195.html.

107. See id.108. For representative “investment” provisions, see Agreement Between the Government of

the People’s Republic of China and the Government of the Socialist Republic of VietnamConcerning the Encouragement and Reciprocal Protection of Investments, China-Viet., art. 1(1),Dec. 2 1992 [hereinafter China-Vietnam BIT], available at tfs.mofcom.gov.cn/aarticle/h/at/201002/20100206778724.html; Agreement Between the Government of the People’s Republic ofChina and the Government of Barbados Concerning the Encouragement and Reciprocal Protec-


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accordance with international norms and has been consistent overtime.109

Although the definition of investment in China’s BITs has notbeen transformed since 1982, some treaties contain definitions that,arguably, are more protective of investors than others. As Dolzer andStevens observed, countries concerned with investor protection areparticularly interested in protecting investments effected through sub-sidiaries.110 To ensure that these investments are protected, some BITsexplicitly cover indirect investments.111 Although most ICSID tribunalshave held that indirect investments are protected even absent such aclause, others have held the opposite.112 Consequently, BITs that referto indirect investments are potentially more protective of investorsthan those that do not.113 The first of China’s BITs to allude to indirectinvestments was the 1988 agreement with Australia, which referred toassets “owned or controlled” by investors of a contracting party.114 The1988 Japan BIT covered companies in which an investor had a “substan-tial interest,” meaning “the exercise of control or decisive influ-ence.”115 China’s BITs with Argentina, Estonia, Saudi Arabia, Germany,Spain, Portugal, New Zealand, Mexico, and Canada also mentioned

tion of Investments, Barb.-China, art. 1(1), July 20, 1998 [hereinafter China-Barbados BIT],available at tfs.mofcom.gov.cn/aarticle/h/bk/201002/20100206785127.html; Agreement Be-tween the People’s Republic of China and the Federal Republic of Germany on the Encourage-ment and Reciprocal Protection of Investments, China-Ger., art. 1(1), Dec. 1, 2003 [hereinafterChina-Germany BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_germany.pdf. See infra Appendix 1.

109. See, e.g., China-Vietnam BIT, supra note 108, art. 1(1) (defining “investor” as (a) naturalpersons who have the nationality of one of the contracting parties or (b) any “legal person” or“entity” established “in accordance with the laws” of the parties and, in the case of Vietnam“having its seat in the territory”).

110. DOLZER & STEVENS, supra note 93, at 30-31.111. Id.; see 2012 U.S. MODEL BIT, supra note 103, art. 1 (defining “investment” to mean

“every asset that an investor owns or controls, directly or indirectly”).112. See Siemens A.G. v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction,

¶ 137 (Aug. 3, 2004); CMS Gas Transmission Co. v. Argentina, ICSID Case No. ARB/01/8,Decision on Jurisdiction, ¶ 48 (June 17, 2003).

113. See Schill, supra note 5, at 85-86.114. Agreement on Reciprocal Encouragement and Protection of Investments, China-Austl.,

art. 1(1)(a), July 11, 1988 [hereinafter China-Australia BIT], available at http://tfs.mofcom.gov.cn/aarticle/h/av/201002/20100206778946.html.

115. Agreement Concerning the Encouragement and Reciprocal Protection of Invest-ment, China-Japan, art. 12, protocol 9, Aug. 27, 1988 [hereinafter China-Japan BIT], available athttp://unctad.org/sections/dite/iia/docs/bits/china_japan.pdf.


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“direct or indirect” ownership or “ownership or control.”116

Additionally, unlike all previous Chinese BITs, the 2001 NetherlandsBIT and the 2003 Germany BIT do not specify that an “investment”must be made “in accordance with [the host state’s] laws and regula-tions.”117 In an additional protocol, the Netherlands BIT specifies thatthe agreement applies only to investments made in accordance withthe parties’ domestic laws,118 but the Germany BIT does not. Conse-quently, Chinese scholar Guiguo Wang has argued that the GermanyBIT restricts the PRC’s discretion concerning what investments areprotected by the agreement more than other Chinese BITs, whichprovides greater protection to investors.119

Examining the types of countries with which China has signed themore protective BITs sheds light on how the language of China’s BITs

116. See Agreement Between the Government of the People’s Republic of China and theGovernment of the Argentine Republic on the Promotion and Reciprocal Protection of Invest-ments, China-Arg., art. 1(2), Nov. 5, 1992, 1862 U.N.T.S. 3 [hereinafter China-Argentina BIT];Agreement Between the People’s Republic of China and the Government of the Republic ofEstonia on the Promotion and Reciprocal Protection of Investments, China-Est., art. 1(3), Sept. 2,1993, 1849 U.N.T.S. 29 [hereinafter China-Estonia BIT]; Agreement Between the Government ofthe People’s Republic of China and the Kingdom of Saudi Arabia on the Reciprocal Promotionand Protection of Investments, China-Saudi Arabia, art. 1(1), Feb. 29, 1996 [hereinafter China-Saudi Arabia BIT], available at http://www.kluwerarbitrattion.com/BITs.aspx?country�China;Agreement Between the People’s Republic of China and the Federal Republic of Germany on theEncouragement and Reciprocal Protection of Investments, China-Ger., art. 1, Oct. 7, 1983[hereinafter China-Germany 1983 BIT], available at http://tfs.mofcom.gov.cn/article/Nocategory/201002/20100206787159.shtml; Agreement Between the People’s Republic of China and theKingdom of Spain on the Promotion and Reciprocal Protection of Investments, China-Spain,art. 1(1), Nov. 14, 2005 [hereinafter China-Spain BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; Agreement Between the People’s Republicof China and the Portuguese Republic on the Encouragement and Reciprocal Protection ofInvestments, China-Port., art. 1(1), Dec. 9, 2005 [hereinafter China-Portugal BIT], available athttp://tfs.mofcom.gov.cn/aarticle/h/au/201002/20100206775363.html; Free Trade AgreementBetween the Government of New Zealand and the Government of the People’s Republic of China,N.Z.-China, art. 135, Apr. 7, 2008, 2590 U.N.T.S. 101 [hereinafter New Zealand FTA]; China-Mexico BIT, supra note 23, art 1(1); Agreement Between the Government of Canada and theGovernment of the People’s Republic of China for the Promotion and Reciprocal Protection ofInvestments, China-Can., art. 1(3), Sep. 9, 2012 [hereinafter China-Canada BIT], available athttp://unctad.org/sections/dite/iia/docs/bits/canada_china.pdf.

117. See Agreement on Encouragement and Reciprocal Protection of Investments Betweenthe Government of the People’s Republic of China and the Government of the Kingdom of theNetherlands, China-Neth., art. 1(1), Nov. 26, 2001 [hereinafter China-Netherlands BIT], availableat http://unctad.org/sections/dite/iia/docs/bits/china_netherlands.pdf; China-Germany BIT,supra note 108, art. 1(1).

118. See China-Netherlands BIT, supra note 117, protocol ad art. 1.119. See Wang, supra note 95, at 858, 861-62.


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has evolved. As noted above, the first BIT that contained an indirectinvestment provision was the agreement with Australia, an OECDmember. Of the eleven BITs containing such provisions, eight (seventy-three percent) were with OECD members,120 two were with non-OECDdemocracies (Argentina and Estonia, which became an OECD memberin 2010), and one was with a non-democratic country (Saudi Ara-bia).121 Following the Australia agreement, of the twenty BITs Chinaconcluded with OECD democracies for which the text is available,forty percent contained the more liberal provision.122 Of the fifty-one

120. These were the BITs with Australia, Japan, Germany, Spain (2005), Portugal, Mexico,and Canada, and the New Zealand FTA. For data on OECD membership, see List of OECD MemberCountries, OECD, http://www.oecd.org/general/listofoecdmembercountries-ratificationoftheconventionontheoecd.htm (last visited Oct. 27, 2013).

121. For a list of the agreements canvassed for this study and the sources of each agreement,see infra Appendix 1. In this section and subsequent sections, these figures include only theagreements for which an official version is publicly available. See id.

122. The agreements with Australia, Japan, Argentina, Germany, Spain (2005), Portugal,Mexico, and Canada explicitly protected indirect investments. See supra notes 114-16. Theagreements with New Zealand, Turkey, Hungary, Portugal, Spain (1992), Greece, South Korea,Poland, Netherlands, Finland, France, Switzerland (2009) did not. See infra Appendix 1 and theagreements listed therein; see, e.g., Agreement Between the Government of the Republic ofFinland and the Government of the People’s Republic of China on the Encouragement andReciprocal Protections of Investments, China-Fin., Sept. 4, 1984 [hereinafter China-Finland BIT],available at http://unctad.org/sections/dite/iia/docs/bits/china_finland.pdf; Agreement Be-tween the Swiss Federal Council and the Government of the People’s Republic of China,China-Switz., Jan. 27, 2009 [hereinafter China-Switzerland BIT], available at http://unctad.org/sections/dite/iia/docs/bits/Switzerland_China_new.pdf; Agreement Between the People’s Re-public of China and the Republic of Turkey Concerning the Reciprocal Promotion and Protec-tion of Investments, China-Turk., art. 3, Nov. 13, 1990 [hereinafter China-Turkey BIT], availableat http://unctad.org/sections/dite/iia/docs/bits/china_turkey.pdf; Agreement Between theGovernment of the People’s Republic of China and the Government of the Hellenic Republic forthe Encouragement and Reciprocal Protection of Investments, China-Greece, June 25, 1992[hereinafter China-Greece BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_greece.pdf; Agreement Between the Government of the People’s Republic of China andthe Government of the Polish People’s Republic on the Reciprocal Encouragement and Protec-tion of Investments, China-Pol., June 7, 1998 [hereinafter China-Poland BIT], available athttp://unctad.org/sections/dite/iia/docs/bits/china_poland.pdf; Agreement Between the Re-public of Hungary and the People’s Republic of China Concerning the Encouragement andReciprocal Protection of Investments, China-Hung., May 29, 1991 [hereinafter China-HungaryBIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_hungary.pdf; Agree-ment Between the Government of the People’s Republic of China and the Government of theRepublic of France on the Reciprocal Promotion and Protection of Investments, China-Fr.,May 30, 1984 [hereinafter China-France BIT], available at http://tfs.mofcom.gov.cn/aarticle/h/au/201001/20100106725132.html; Agreement Between the People’s Republic of China and theKingdom of Spain Concerning the Reciprocal Promotion and Protection of Investments, China-Spain, Feb. 6, 1992, available at http://www.kluwerarbitration.com/BITs.aspx?country�China.


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BITs that China concluded with all democracies after the Australiaagreement, twenty percent contained the more liberal provision.123

Among non-democracies (none of which are OECD members), onlyone out of forty-nine publicly available BITs (two percent) addressedindirect investments.124 However, the other more liberal “investment”provision contained in the Germany-China BIT has not yet beenadopted in another agreement. Thus, it appears overall that BITs withdeveloped democracies were more likely to contain the more protec-tive “investment” provision; among developing countries, democracieswere more likely than non-democracies to conclude BITs containingthe more liberal provisions.

2. Substantive Treatment Provisions

This Section examines developments in substantive treatment provi-sions in China’s BITs to identify whether there have been any changesin language that afford investors greater protection. Besides the defini-tion of “investment,” other essential provisions establish the minimumstandard of treatment the parties are required to accord coveredinvestments in their territories. These provisions include affirmativepromises (for example, “fair treatment”), prohibited types of measures(such as “arbitrary” actions), and either most favored nation (MFN) ornational treatment obligations.

a. Fair and Equitable Treatment Provisions

Nearly all BITs contain a promise of “fair and equitable treatment”(FET) for the other party’s investors and investments.125 The contentof this promise—whether it refers to the minimum standard requiredby international law or imposes a higher standard—is not estab-lished.126 Recently, international tribunals have interpreted it to in-

123. These agreements were those with the eight OECD democracies listed in supra note 122and the BITs with Argentina and Estonia. See China-Argentina BIT, supra note 116, art. 1(2);China-Estonia BIT, supra note 116, art 1(3).

124. See China-Saudi Arabia BIT, supra note 116, art. 1(1). For a list of the other agree-ments with non-democracies signed since the Australia BIT and sources for these agreements, seeinfra Appendix 1.

125. DOLZER & STEVENS, supra note 93, at 58.126. STEPHAN W. SCHILL, THE MULTILATERALIZATION OF INTERNATIONAL INVESTMENT LAW 263

(2009). F. A. Mann, for example, argued that “fair and equitable treatment” (FET) clauses“envisage conduct which goes far beyond the minimum standard and afford protection to agreater extent and according to a much more objective standard than any previously employedform of words.” F. A. Mann, British Treaties for the Promotion and Protection of Investments, 52 BRIT.


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clude elements that echo the rule of law concepts endorsed by liberaldemocracies, such as predictability of the legal framework, proceduraldue process, transparency, and protection against discrimination andarbitrariness.127 Some BITs between developing countries do not con-tain a fair treatment provision, and other BITs explicitly incorporatethe minimum standard of customary international law.128 Many BITsjoin FET provisions to the promise of “full protection and security” forinvestments by investors of the other contracting party.129 The precisecontent of this promise is unclear, and it has been a less importantsource of protection than FET clauses.130

All of China’s publicly available BITs contain provisions promisingfair and equitable treatment and protection and security for invest-ments.131 The language of these provisions varies little across agree-ments and has not substantially evolved since the 1982 Sweden BIT.The 2008 Free Trade Agreement (FTA) with New Zealand pioneeredone change, however, specifying that “fair and equitable treatment”included “the obligation to ensure that, having regard to generalprinciples of law, investors are not denied justice or treated unfairly orinequitably in any legal or administrative proceeding.”132 This provi-sion essentially codified the outcome in the Saipem v. Bangladesharbitration that a breach of international due process standards bydomestic courts is a BIT violation over which an ICSID tribunal has

Y.B. INT’L L. 241, 244 (1981); see also UNCTAD, FAIR AND EQUITABLE TREATMENT 10-13 (2012),available at http://unctad.org/en/Docs/unctaddiaeia2011d5_en.pdf (explaining that FET hasbeen interpreted to extend beyond the minimum international standard); but see CatherineYannaca-Small, Fair and Equitable Treatment Standard in International Investment Law 8-10 (OECD,Working Paper No. 2004/3, 2004), available at http://www.oecd.org/daf/inv/internationalinvestmentagreements/33776498.pdf (describing the traditional understanding that FET re-ferred to “the international standard of justice” and the continued adherence to that interpreta-tion by some actors).

127. Schill, supra note 5, at 104-05; see CMS Gas Transmission Co. v. The Arg. Republic,ICSID Case No. ARB/01/8, Award, ¶ 277 (May 12, 2005); Tecnicas Medioambientales TecmedS.A. v. The United Mex. States, ICSID Case No. ARB(AF)/00/2, Award, ¶ 152 (May 29, 2003);Metalclad Corp. v. The United Mex. States, ICSID Case No. ARB(AF)/97/1, Award, ¶ 74 (Aug. 30,2000) (finding the refusal to grant a construction permit for a waste landfill was a breach ofFET).

128. DOLZER & STEVENS, supra note 93, at 60. Treaties concluded by the United States,Belgium-Luxembourg, France, and Switzerland commonly refer to the international law standard.Id.

129. Id.130. See id. at 60-61.131. See infra Appendix 1 and the agreements cited therein.132. See New Zealand FTA, supra note 116, art. 143.


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jurisdiction.133 Since the impact of the Saipem decision and the scope ofICSID tribunals’ supervisory jurisdiction over the performance ofnational courts is not yet well-defined, this provision arguably ex-panded investors’ rights and supported the development in China’scourts of procedures that meet international standards. Two subse-quent agreements, the 2008 BIT with Columbia and the 2009 FTA withPeru, contained similar provisions.134

Thus the pro-investor change to the FET provision—specifying thatFET included protection against denial of justice—was introduced by aBIT with a developed democracy. Following the New Zealand FTA, itwas more likely that a subsequent BIT with a democracy would containthe investor-favoring provision than a BIT with a non-democracy. Since2008, two-thirds of BITs or FTAs with democracies contained the denialof justice clause, while no agreements with non-democracies did.135

b. Refraining from Arbitrary or Discriminatory Measures

Some BITs also contain a promise to refrain from discrimination andarbitrary measures that affect the investments of investors of the otherparty.136 The United Kingdom-Malaysia BIT provides a typical exampleof such a provision, providing that neither party shall “[i]n any wayimpair by unreasonable or discriminatory measures the management,

133. See Saipem S.p.A. v. The People’s Republic of Bangl., ICSID Case No. ARB/05/7, Award(June 30, 2009).

134. See Bilateral Agreement for the Promotion and Protection of Investments, China-Colom., art. 2(4), Nov. 22, 2008 [hereinafter China-Colombia BIT], available at http://www.unctadxi.org/templates/DocSearch.aspx?id�779 (stating that “‘fair and equitable treatment’includes the prohibition against denial of justice in criminal, civil, or administrative proceed-ings”); Free Trade Agreement, China-Peru, art. 132, Apr. 28, 2009, available at http://fta.mofcom.gov.cn/topic/enperu.shtml (containing the same language).

135. Among democracies, the New Zealand, Colombia, and Peru agreements contained theprovision, while the Mexico, Switzerland, Canada, and Malta agreements did not. Amongnon-democracies, neither the Singapore nor the ASEAN FTAs contained the provision. See, e.g.,Agreement Between the Government of the People’s Republic of China and the Governmentof the Republic of Singapore on the Promotion and Protection of Investments, China-Sing.,Nov. 21, 1985 [hereinafter China-Singapore BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_singapor.pdf; Agreement Between the Government of the People’s Re-public of China and the Government of Malta on the Promotion and Protection of Investments,China-Malta, Feb. 22, 2009 [hereinafter China-Malta BIT]; Agreement on Investment of theFramework Agreement on Comprehensive Economic Cooperation Between the People’s Re-public of China and the Associations of Southeast Asian Nations, China-ASEAN, Aug. 15,2009 [hereinafter China-ASEAN BIT], available at http://fta.mofcom.gov.cn/inforimages/200908/20090817113007764.pdf.

136. DOLZER & STEVENS, supra note 93, at 61-62.


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maintenance, use, enjoyment or disposal of investments in its territoryof nationals of the other Contracting Party.”137 These provisions areintended to make concrete, and therefore enforceable, the vaguepromise of “fair and equitable treatment.” Accordingly, many non-discrimination provisions are joined to FET provisions.138

For China, the 1983 Germany BIT was the first to prohibit “discrimi-natory measures,” and it applied only to China’s joint venture law.139

The next anti-discrimination provision appeared in the 1985 DenmarkBIT, which provided that each party “guarantees that, without preju-dice to its laws and regulations, it shall not adopt any discriminatorymeasures” against an investment or joint venture of investors of theother party, including obstructing the “management, maintenance,use, enjoyment, or disposal of such investments.”140 Over the nextseveral years, the Kuwait, United Kingdom, Switzerland, and AustraliaBITs contained similar provisions prohibiting unreasonable or discrimi-natory measures.141 In the 1990s, about one-third of China’s BITscontained an anti-discrimination provision.142 Following the China-Botswana BIT of 2000, nearly every Chinese BIT contained such aprovision.143 The 2001 Cyprus BIT was the first to remove the qualifica-

137. See id. at 62 (quoting United Kingdom-Malaysia BIT, infra note 228, art. 2(2)).138. Id. at 61-62.139. China-Germany 1983 BIT, supra note 116, art. 3.140. Agreement Concerning the Encouragement and Reciprocal Protection of Investments,

China-Den., art. 3(4), Apr. 29, 1985, 1443 U.N.T.S. 69 [hereinafter China-Denmark BIT].141. See Agreement Between the Government of the People’s Republic of China and the

Government on the State of Kuwait for the Promotion and Protection of Investments, China-Kuwait, art. 2(2), Nov. 23, 1985 [hereinafter China-Kuwait BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; Agreement Between theGovernment of the United Kingdom of Great Britain and Northern Ireland and the Governmentof the People’s Republic of China, China-U.K., art. 2(2), May 15, 1986 [hereinafter China-U.K.BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html;Agreement Between the Government of the People’s Republic of China and the Government ofthe Confederation of Switzerland, China-Switz., art. 4(2), Nov. 12, 1986, available at http://tfs.mofcom.gov.cn/aarticle/h/au/201002/20100206774475.html; China-Australia BIT, supranote 114, art. 3.

142. Of the 58 BITs signed after the Australia BIT and before the Botswana BIT, fourteen(twenty-four percent) contained an “unreasonable or discriminatory measures” provision.

143. After the Botswana BIT, only eight out of thirty-nine BITs (twenty-one percent) did notcontain such a provision. Cf. Agreement Between the Government of the Republic of Botswanaand the Government of the People’s Republic of China, Bots.-China, June 12, 2000 [herein-after China-Botswana BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_botswana.pdf.


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tion relating to the parties’ existing laws and regulations,144 and sevensubsequent agreements also contained unqualified provisions.145

As with the FET provision, the pro-investor prohibition on arbitrarymeasures was pioneered in a BIT with an OECD country. Beginningwith the Denmark BIT, sixty-one percent of BITs with OECD coun-tries146 and forty-eight percent of BITs with developing democraciescontained a similar provision,147 compared to only forty-two percent of

144. See Agreement Between the People’s Republic of China and the Government of theRepublic of Cyprus for the Reciprocal Promotion and Protection of Investments, China-Cyprus,art. 3(2), Jan. 17, 2001 [hereinafter China-Cyprus BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html.

145. The agreements containing unqualified “unreasonable or discriminatory measures”provisions are those with Germany, Finland, Spain (2005), Portugal, South Korea (2007), NewZealand, and Switzerland (2009). See, e.g., Agreement Between the Government of the People’sRepublic of China and the Government of the Republic of Korea on the Promotion andProtection of Investments, China-S. Kor., art. 3, Sept. 7, 2007 [hereinafter China-S. Korea BIT],available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html.

146. The agreements with Denmark (art. 3), United Kingdom (art. 2), Switzerland (1986)(art. 4), Australia (art. 3), New Zealand (1988) (art. 3), Spain (1992) (art. 3), the Netherlands(art. 3), Germany (art. 2), Finland (art. 2), Spain (2005) (art. 2), Portugal (2005) (art. 2), SouthKorea (2007) (art. 5), New Zealand (2008 FTA) (art. 143), and Switzerland (2009) (art. 4)contained the provision. The agreements with Japan, Turkey, Portugal, Greece, Poland, the CzechRepublic, France, Mexico, and Canada did not. See infra Appendix 1 and the agreements listedtherein; see, e.g., Agreement Between the Government of New Zealand and the Government ofthe People’s Republic of China on the Promotion and Protection of Investments, China-N.Z.,Nov. 22, 1988 [hereinafter China-New Zealand BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_newzealand.pdf.

147. BITs with the following developing democracies, concluded after the Denmark BIT,contained the provision: Argentina (art. 3), Israel (art. 2), Macedonia (art. 2), South Africa(art. 3), Belize (art. 3), Botswana (art. 2), Cyprus (art. 3), Trinidad (art. 3), Guyana (art. 2), Benin(art. 2), Latvia (art. 2), India (art. 14), Colombia (art. 2), Malta (art. 2), and Peru (art. 133). Theother sixteen agreements with developing democracies concluded after the Denmark BIT did notcontain the prohibition on arbitrary measures. See infra Appendix 1 and the agreements listedtherein; see, e.g., Agreement Between the Government of the People’s Republic of China and theGovernment of the Republic of Macedonia Concerning the Encouragement and ReciprocalPromotion of Investments, China-Maced., June 9, 1997 [hereinafter China-Macedonia BIT],available at http://tfs.mofcom.gov.cn/aarticle/h/au/201002/20100206778517.html; AgreementBetween the Government of the People’s Republic of China and the Government of the Republicof South Africa Concerning the Reciprocal Promotion and Protection of Investments, China-S. Afr., Dec. 30, 1997 [hereinafter China-South Africa BIT], available at http://tfs.mofcom.gov.cn/article/h/aw/201002/20100206778967.shtml; Agreement Between the Government of the Repub-lic of Trinidad and Tobago and the Government of the People’s Republic of China on ReciprocalPromotion and Protection of Investments, China-Trin. & Tobago, July 22, 2002 [hereinafterChina-Trinidad & Tobago BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_trinidad.pdf; Agreement Between the Government of the Republic of India and theGovernment of the People’s Republic of China for the Promotion and Protection of Investments,


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BITs with non-democracies.148 This discrepancy was even more pro-

India-China, Nov. 21, 2006 [hereinafter China-India BIT], available at http://unctad.org/sections/dite/iia/docs/bits/India_China.pdf; Agreement Between the Government of the People’s Re-public of China and the Government of the Republic of Latvia on the Promotion and Protectionof Investments, China-Lat., Apr. 4, 2004 [hereinafter China-Latvia BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; The Government of thePeople’s Republic of China and the Government of the Republic of Benin, China-Benin, Feb. 18,2004 [hereinafter China-Benin BIT], available at http://unctad.org/sections/dite/iia/docs/bits/China_Benin.pdf; Agreement on Promotion and Reciprocal Protection of Investments, China-Israel, April 10, 1995 [hereinafter China-Israel BIT], available at http://tfs.mofcom.gov.cn/aarticle/h/at/201002/20100206778904.html; Agreement Between the Government of the People’sRepublic of China and the Government of the Republic of Guyana on the Promotion andProtection of Investments, China-Guy., Mar. 27, 2003 [hereinafter China-Guyana BIT], available athttp://tfs.mofcom.gov.cn/aarticle/h/bk/201002/20100206785133.html.

148. Agreements with Kuwait (art. 2), the U.A.E. (art. 2), Egypt (art. 2), Oman (art. 2), SaudiArabia (art. 2), Lebanon (art. 2), Cameroon (art. 4), Cape Verde (art. 2), Brunei (art. 3), SierraLeone (art. 2), Nigeria (art. 2), Jordan (art. 3), Myanmar (art. 2), Bosnia (art. 2), Cote d’Ivoire(art. 2), Djibouti (art. 2), Uganda (art. 2), Tunisia (art. 2), North Korea (art. 2), Russia (art. 3),and Pakistan (art. 47) contained the provision. The other twenty-nine agreements with non-democracies did not. See infra Appendix 1 and the agreements listed therein; see, e.g., AgreementBetween the People’s Republic of China and Bosnia and Herzegovina on the Promotion andProtection of Investments, China-Bosn. & Herz., June 26, 2002 [hereinafter China-Bosnia &Herzegovina BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_bosnia.pdf;Agreement Between the Government of the Union of Myanmar and the Government of thePeople’s Republic of China Concerning Encouragement and Reciprocal Protection of Invest-ments, China-Myan., Dec. 12, 2001 [hereinafter China-Myanmar BIT], available at http://www.kluwerarbitration.com/BITs.aspx?country�China; Agreement Between the Government of thePeople’s Republic of China and the Government of the Federal Republic of Nigeria for theReciprocal Promotion and Protection of Investments, China-Nigeria, Aug. 27, 2001 [here-inafter China-Nigeria BIT], available at http://tfs.mofcom.gov.cn/article/h/aw/201002/20100206795412.shtml; Agreement Between the Government of the Hashemite Kingdom ofJordan and the Government of the People’s Republic of China on the Reciprocal Promotion andProtection of Investments, China-Jordan, Nov. 1, 2001 [hereinafter China-Jordan BIT], available athttp://unctad.org/sections/dite/iia/docs/bits/china_jordan.pdf; Agreement Between the Gov-ernment of the People’s Republic of China and the Government of the Republic of Cote d’Ivoireon the Promotion and Protection of Investments, China-Cote d’Ivoire, Sept. 23, 2002 [hereinafterChina-Cote d’Ivoire BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_cote-divoire.pdf; Agreement Between the Government of the People’s Republic of China and theGovernment of the Republic of Djibouti on the Promotion and Protection of Investments,China-Djib., Aug. 18, 2003 [hereinafter China-Djibouti BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_djibouti.pdf; Agreement Between the Government of thePeople’s Republic of China and the Government of the United Arab Emirates for the Promotionand Protection of Investments, China-U.A.E., Jul. 1, 1993 [hereinafter China-UAE BIT], availableat http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; AgreementBetween the Government of the People’s Republic of China and the Government of the Sultanateof Oman for the Promotion and Protection Investments, China-Oman, Mar. 18, 1995 [herein-after China-Oman BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/


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nounced before the provision became the norm in 2000.149 After theCyprus BIT introduced the more stringent version of the provision,fifty-eight percent of China’s BITs with OECD countries contained thestronger provision, compared to ten percent of BITs with non-OECDdemocracies and zero out of fourteen BITs with non-democracies.Thus, BITs with OECD countries were significantly more likely to

20111107819474.html; Agreement Between the Government of the Lebanese Republic and theGovernment of the People’s Republic of China Concerning the Encouragement and ReciprocalProtection of Investments, China-Leb., Jun. 13, 1996 [hereinafter China-Lebanon BIT], availableat http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; AgreementBetween the Government of the Republic of Cameroon and the Government of the People’sRepublic of China for the Reciprocal Promotion and Protection of Investments, China-Cameroon, May 10, 1997 [hereinafter China-Cameroon BIT]; Agreement Between the Govern-ment of the Arab Republic of Egypt and the Government of the People’s Republic of ChinaConcerning the Encouragement and Reciprocal Protection of Investments, China-Egypt, Apr. 21,1994 [hereinafter China-Egypt BIT], available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; Agreement Between the Government of the People’s Republicof China and the Government of the Republic of Cape Verde Concerning the Encouragementand Reciprocal Protection of Investments, Apr. 21, 1998 [hereinafter China-Cape Verde BIT],available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html; Agree-ment Between the Government of the People’s Republic of China and the Government of HisMajesty the Sultan and Yang Di-Pertuan of Brunei Darussalam Concerning the Encouragementand Reciprocal Protection of Investment, China-Brunei, Nov. 17, 2000 [hereinafter China-BruneiBIT], available at http://www.unctadxi.org/templates/DocSearch.aspx?id�779; Agreement Be-tween the Government of the People’s Republic of China and the Government of the Republic ofUganda on the Reciprocal Promotion and Protection of Investments, China-Uganda, May 27,2004 [hereinafter China-Uganda BIT], available at http://www.unctad.org/sections/dite/iia/docs/bits/Uganda_China.pdf; Agreement Between the People’s Republic of China and the Republic ofTunisia Concerning the Reciprocal Encouragement and Protection of Investments, China-Tunis.,Jun. 21 2004 [hereinafter China-Tunisia BIT], available at tfs.mofcom.gov.cn/aarticle/h/aw/201002/20100206778975.html; Agreement Between the Government of the People’s Republicof China and the Government of the Democratic People’s Republic of Korea on the Promotionand Protection of Investments, China-N. Kor., Mar. 22, 2005 [hereinafter China-N. Korea BIT],available at tfs.mofcom.gov.cn/aarticle/h/at/201002/20100206778942.html; Agreement Be-tween the Government of the Russian Federation and the Government of the People’s Republicof China on the Promotion and Reciprocal Protection of Investments, China-Russ., Nov. 9,2006 [hereinafter China-Russia BIT], available at tfs.mofcom.gov.cn/aarticle/h/au/201002/20100206774767.html; Free Trade Agreement Between the Government of the People’s Republicof China and the Government of the Islamic Republic of Pakistan, China-Pak., Feb. 21, 2009,available at http://fta.mofcom.gov.cn/pakistan/xieyi/fta_xieyi_en.pdf; Agreement Between theGovernment of the People’s Republic of China and the Government of the Republic of SierraLeone on the Promotion and Protection of Investments, China-Sierra Leone, May 16, 2001[hereinafter China-Sierra Leone BIT].

149. Through 2000, fifty-five percent of BITs with OECD countries and twenty-seven percentof BITs with non-OECD democracies contained such a provision (making thirty-eight percent ofBITs with democracies overall), compared with twenty-five percent of BITs with non-democracies.


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contain the investor- and transparency-favoring provisions than BITswith developing countries.

c. MFN Provisions

Nearly all modern BITs include MFN provisions promising thatinvestors of the contracting parties will receive treatment no lessfavorable than that which the other party accords investors of any othercountry.150 Under MFN provisions, investors from any country that hasa BIT with the host country may invoke substantive benefits that thehost extended, under another BIT, to investors from a third state.151

The scope of MFN clauses has been hotly contested because, while it isclear that they apply to substantive provisions, ICSID tribunals havecome to different conclusions concerning whether they extend toprocedural rights. The ICSID tribunals that decided Wintershall Aktien-gesellschaft v. Argentina, Plama v. Republic of Bulgaria, and Salini Construt-tori S.p.A. v. Jordan, held that MFN clauses do not apply to proceduralprovisions, meaning investors could not rely on the MFN clause con-tained in the BIT between their country and China to benefit frommore pro-investor procedural provisions contained in subsequent Chi-nese BITs.152 The tribunals in Impregilo S.p.A. v. Argentina and Maffeziniv. Spain, however, reached the opposite conclusion, holding that MFNclauses applied to procedural rights.153 Procedural rights associatedwith access to international arbitration are arguably the most important

150. DOLZER & STEVENS, supra note 93, at 65. The China-Australia BIT contains a standardMFN clause, in which the parties promise to “treat investments and activities associated withinvestments in its own territory . . . on a basis no less favourable than that accorded to investmentsand activities associated with investments of nationals of any third country.” China-Australia BIT,supra note 114, art. 3(c). Generally, MFN clauses are subject to exceptions for preferencesstemming from the parties’ membership in customs unions or regional organizations. See, e.g., id.

151. See Schill, supra note 5, at 100.152. See Wintershall Aktiengesellschaft v. Argentina, ICSID Case No. ARB/04/14, Award

(Dec. 8, 2008); Plama Consortium Ltd. v. Republic of Bulg., ICSID Case No. ARB/03/24, Decisionon Jurisdiction, ¶ 227 (Feb. 8, 2005) (stating that the MFN clause of the BIT at issue “cannot beinterpreted as providing consent to submit a dispute . . . to ICSID arbitration and that theClaimant cannot rely on dispute settlement provisions in other BITs to which Bulgaria is aContracting Party in the present case”); Salini Costruttori S.p.A v. Jordan, ICSID Case No.ARB/02/13, Decision on Jurisdiction, ¶ 112 (Nov. 9, 2004) (stating that the MFN clause may beused to secure “the application of substantive provisions” but not “the application of the disputesettlement clause”).

153. See Impregilo S.p.A. v. Argentina, ICSID Case No. ARB/07/17, Award, (June 21, 2011)(deciding that the ICSID tribunal had jurisdiction to hear a claim brought by an Italian investoron the basis of the MFN clause in the Argentina-Italy BIT); Maffezini v. Spain, ICSID Case No.ARB/97/7, Decision on Objections to Jurisdiction (Jan. 25, 2000) (approving the application of


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rights BITs confer because they allow for the enforcement of all otherrights under the agreement.154 Consequently, extending MFN clausesto procedural rights would strengthen the protections afforded bymany BITs and lessen the importance of differences among agree-ments.

The MFN guarantee in China’s BITs has changed little over time.All BITs for which the text is publicly available contained an MFNclause employing standard language and including the usual excep-tions for membership in regional organizations and customs unions.155

Some provisions stood alone,156 and some in later BITs were com-bined with national treatment promises, with the investor to receivethe more favorable of the two.157 One change has occurred in tworecent agreements, however: the 2008 New Zealand FTA and the 2012Canada BIT each specify that the MFN obligation does not extend to“dispute resolution procedures” from other agreements.158 These pro-visions resolve against the investor the question that the ICSID tribu-nals mentioned above considered and decided oppositely.

Only two agreements include the changed MFN provision—theNew Zealand FTA and the Canada BIT. This means that, beginningwith the New Zealand agreement, half of the agreements with OECDcountries included the provision,159 compared to none of the agree-ments with developing democracies or with non-democracies.160 While

the MFN clause in the Spain-Argentina BIT to the waiting period required before an investorcould bring an ICSID case).

154. See Schill, supra note 5, at 102-03.155. See, e.g., China-Kuwait BIT, supra note 141, art. 3; China-S. Korea BIT, supra note 145,

art. 3.156. See, e.g., Agreement Between the Government of the People’s Republic of China and the

Government of the Kingdom of Norway on the Mutual Protection of Investments, China-Nor.,art. 3, Nov. 21, 1984 [hereinafter China-Norway BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_norway.pdf.

157. See, e.g., Agreement Between the Government of the People’s Republic of China and theGovernment of the Republic of Madagascar for the Reciprocal Promotion and Protection ofInvestments, China-Madag., art. 4(1), Nov. 21, 2005 [hereinafter China-Madagascar BIT], avail-able at http://unctad.org/sections/dite/iia/docs/bits/madagascar_china_fr.pdf (stating that in“accordance with its laws and regulations, each [party] shall accord . . . to investors of theother . . . treatment no less favorable than that accorded to its own investors or the treatmentaccorded to investors of the most favored nation, if it is more advantageous”).

158. New Zealand FTA, supra note 116, art. 139; China-Canada BIT, supra note 116, art. 5.159. The BITs with Mexico and Switzerland did not include the provision.160. The BITs with Columbia, Peru, and Malta (democracies) did not include the provision,

and nor did the FTAs with Singapore or ASEAN (non-democracies). I grouped ASEAN with thenon-democratic countries because six of its members—Laos, Cambodia, Brunei, Burma, Vietnam,


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it could be argued that, in this instance, BITs with OECD countrieshave become less protective of investors than other agreements, thetrue effect of the provision on investors’ rights and the Chinese legalregime governing FDI is unclear. The provision eliminated the possibil-ity that an arbitral tribunal might apply an MFN provision to proce-dural rights, and, therefore, arguably it diminished investors’ rights.On the other hand, it is not settled that MFN provisions normallyapply to procedural protections, so the provision may not have dimin-ished investors’ rights. Further, by establishing a clear rule, the provi-sion arguably promotes the consistent application of the BITs andprovides clarity concerning investors’ procedural rights, strengtheningthe rule of law.

d. National Treatment Clauses

Many BITs contain national treatment clauses requiring the hoststate to accord to investors and investments of the other party treat-ment no less favorable than that it accords its own.161 Some BITscombine the national treatment and MFN obligations,162 while othersseparate them.163 Among BITs that separate them, some promiseunrestricted MFN treatment but limit the national treatment prom-ise.164 Other BITs contain exceptions to national treatment for lawsand regulations essential to the host country’s security or economy,which gives the parties freedom to maintain or introduce discrimina-tory measures.165

One of the most important changes in China’s BITs has been theaddition and evolution of national treatment provisions. Generally,China’s early BITs did not contain national treatment provisions, andthe two that did qualified the obligation.166 The U.K. BIT promised

Singapore—were considered non-democracies during the period of ASEAN’s existence, com-pared to two—Indonesia and the Philippines—that are consistently ranked democratic andtwo—Thailand and Malaysia—that have fluctuated. See Polity IV data, supra note 97.

161. DOLZER & STEVENS, supra note 93, at 63.162. See, e.g., Treaty Concerning the Encouragement and Reciprocal Protection of Invest-

ments, Ger.-Guy., art. 3, Dec. 6, 1989, 1909 U.N.T.S. 3 [hereinafter Germany-Guyana BIT].163. See, e.g., 2012 U.S. MODEL BIT, supra note 103, arts. 3-4.164. E.g., China-U.K. BIT, supra note 141, art. 3(3); see DOLZER & STEVENS, supra note 93,

at 64-65.165. Schill, supra note 5, at 96; see, e.g., China-Japan BIT, supra note 115, protocol ad art. 3.166. Prior to the 1986 U.K. BIT, no Chinese BITs contained a national treatment promise.

Between the U.K. BIT and the 1991 Czech Republic BIT, only one of the twelve Chinese BITs, theagreement with Japan, contained a national treatment provision. See infra Appendix 1 for the listof Chinese BITs and sources for those canvassed.


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national treatment “to the extent possible,”167 and the Japan BITrequired national treatment but provided that “discriminatory treat-ment, in accordance with [a party’s] laws and regulations” was notprohibited if it was “necessary for the reason of public order, nationalsecurity, or the sound development of national economy.”168 In 1991,the Czech and Slovak Republic BIT pioneered a provision promisingtreatment “not less favorable than that accorded to [the host country’s]own investors” but providing that the promise does not apply to(a) “any existing non-conforming measures,” (b) “the continuation ofany such non-conforming measure,” or (c) “any amendment of anysuch non-conforming measure to the extent that the amendment doesnot increase the non-conformity of [the] measure.”169 The followingyear, the Spain BIT promised national treatment “in accordance withthe stipulations of [the host’s] laws and regulations.”170 Both of theseprovisions are more protective of investors than the U.K. and JapanBITs, although the Spain phrasing seems to preserve considerablediscretion for the host state, and the Czech language only guarantees astandstill in discrimination.

In the 1990s, a few other BITs contained provisions that essentiallyrepeated the language of the Japan, Czech, or Spain BITs,171 althoughthe majority still contained only an MFN provision.172 That changedbeginning with the Botswana BIT in 2000, after which every Chinese

167. China-U.K. BIT, supra note 141, art. 3(3).168. China-Japan BIT, supra note 115, protocol 3.169. See Agreement Between the Government of the Czech and Slovak Federal Republic and

the Government of the People’s Republic of China for the Promotion and Reciprocal Protectionof Investments, China-Czech-Slovk. Rep., art. 3(2), protocol ad art. 1, Dec. 4, 1991, available athttp://unctad.org/sections/dite/iia/docs/bits/slovakia_china.pdf.

170. China-Spain BIT, supra note 116, art. 3(4).171. See Agreement on the Encouragement and Reciprocal Protection of Investments

Between the Government of the Republic of Korea and the Government of the People’s Republicof China, China-S. Kor., art. 2, protocol ad art. 2, Sept. 30, 1992, available at http://unctad.org/sections/dite/iia/docs/bits/korea_china.pdf; Agreement Between the Government of the Peo-ple’s Republic of China and the Government of the Republic of Slovenia Concerning theEncouragement and Reciprocal Protection of Investments, China-Slovn., art. 3(3), Sep. 13, 1993[hereinafter China-Slovenia BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_slovenia.pdf; China-Macedonia BIT, supra note 147, art. 3(3); China-S. Africa BIT, supranote 147, art. 3(2).

172. BITs with the following countries, concluded in the 1990s, contained a NationalTreatment provision: the Czech and Slovak Republic (art. 3), Spain (1992) (art. 3), South Korea(1992) (art. 4), Slovenia (art. 3), Macedonia (art. 3), and South Africa (art. 3). The otherforty-seven BITs did not. See infra Appendix 1 for the list of Chinese BITs and sources for thosecanvassed.


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BIT except two (Tunisia and Brunei) contained a national treatmentprovision.173 Nearly all, however, contained only a qualified nationaltreatment promise, since the agreements employed language similar tothe Spain BIT, promising national treatment “without prejudice to [thehost country’s] laws and regulations.”174

Another change began with the 2001 Netherlands BIT, which con-tained an unqualified national treatment promise, followed by a pro-tocol containing an exemption for non-conforming measures and apromise that the parties would “progressively remove the non-conforming measures.”175 This language seems the most investor-friendly of all of the national treatment provisions thus far, as itrequires a standstill in anti-foreign discrimination and commits theparties to phasing out discriminatory regulations. It also seems themost likely to support development of the rule of law in China bypromoting consistent rules that apply equally to all persons in China’seconomy. Twelve subsequent agreements have employed this phras-ing.176

As with all of the other pro-investor changes discussed thus far,changes to the national treatment clause were introduced in BITs withOECD countries, namely the United Kingdom and the Netherlands.177

Furthermore, during the period when the national treatment provisionwas becoming incorporated into China’s BITs—between the U.K. BITand the 2000 Botswana BIT, after which it become nearly universal—three out of ten BITs with OECD countries, or thirty percent, con-tained national treatment provisions of some kind.178 Twenty-fourpercent of the twenty-one BITs with non-OECD democracies contained

173. Forty-one of the forty-three publicly available Chinese BITs concluded since theBotswana BIT contain a national treatment provision. See id.

174. See, e.g., China-Botswana BIT, supra note 143, art. 3(2); China-Djibouti BIT, supranote 148, art. 3(2); China-Russia BIT, supra note 148, art. 3(2).

175. China-Netherlands BIT, supra note 117, ad art. 3.176. These are the BITs with Germany, Finland, Spain (2005), Slovakia, the Czech Republic,

Portugal, Korea (2007), New Zealand, the 2009 agreement with Switzerland, Peru, ASEAN, andCanada. See, e.g., Agreement Between the Czech Republic and the People’s Republic of China onthe Promotion and Protection of Investments, China-Czech, Dec. 8, 2005 [hereinafter China-Czech Republic BIT], available at http://unctad.org/sections/dite/iia/docs/bits/China_czechrep.PDF.

177. See China-U.K. BIT, supra note 141, art. 3(3); China-Netherlands BIT, supra note 117,art. 3(3).

178. The agreements with the United Kingdom, Japan, Portugal, and Spain containedqualified national treatment provisions. The agreements with Switzerland, Australia, New Zea-land, Turkey, Greece, and Poland contained no national treatment provisions, only MFNprovisions. See infra Appendix 1.


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national treatment provisions,179 and none of the thirty BITs withnon-democracies did.180 Since the Botswana BIT, agreements withOECD countries were more likely to contain the more stringent pro-vision first introduced in the Netherlands BIT: eighty-two percent ofOECD BITs contained the stronger provision,181 compared to seven-teen percent of BITs with developing democracies,182 and only the FTA

179. The agreements with the Czech and Slovak Republics, South Korea, Slovenia, Macedo-nia, and South Africa contained qualified national treatment provisions. The agreements withPakistan, Hungary, Bolivia, the Philippines, Argentina, Estonia, Lithuania, Uruguay, Ecuador,Chile, Jamaica, Israel, Mauritius, Bangladesh, Barbados, and Belize did not. See infra Appendix 1for the list of Chinese BITs and sources for those canvassed; see, e.g., Agreement between theGovernment of the People’s Republic of China and the Government of the Republic of Mauritiusfor the Reciprocal Promotion and Protection of Investments, China-Mauritius, May 4, 1996[hereinafter China-Mauritius BIT], available at http://www.kluwerarbitration.com/BITs.aspx?country�China; Agreement Between the Government of the People’s Republic of Chinaand the Government of the Republic of Bolivia Concerning the Encouragement and ReciprocalProtection of Investments, China-Bol., May 8, 1992 [hereinafter China-Bolivia BIT], available athttp://unctad.org/sections/dite/iia/docs/bits/china_bolivia.pdf; Agreement Between the Gov-ernment of the People’s Republic of China and the Government of the Republic of thePhilippines Concerning the Encouragement and Reciprocal Protection of Investments, China-Phil., July 20, 1992 [hereinafter China-Philippines BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_philippines.pdf; Agreement Between the Government of the People’sRepublic of China and the Government of the Oriental Republic of Uruguay Concerning theEncouragement and Reciprocal Protection of Investments, China-Uru., Dec. 2, 1993 [hereinafterChina-Uruguay BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_uruguay.pdf; Agreement Between the Government of the Republic of Ecuador and the Government of thePeople’s Republic of China on the Reciprocal Promotion and Protection of Investments,China-Ecuador, Mar. 21, 1994 [hereinafter China-Ecuador BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_ecuador_sp.pdf; Agreement Between the Government of thePeople’s Republic of China and the Government of Jamaica Concerning the Encouragement andReciprocal Protection of Investments, China-Jam., Oct. 26, 1994 [hereinafter China-Jamaica BIT],available at http://unctad.org/sections/dite/iia/docs/bits/china_jamaica.pdf; Agreement Be-tween the Government of the Republic of Chile and the Government of the People’s Republic ofChina Concerning the Encouragement and the Reciprocal Protection of Investment, China-Chile, Mar. 23, 1994, available at http://unctad.org/sections/dite/iia/docs/bits/chile_china.pdf[hereinafter China-Chile BIT]; Agreement Between the Government of the People’s Republic ofChina and the Government of the People’s Republic of Bangladesh Concerning Encouragementand Reciprocal Protection of Investments, China-Bangl., Sept. 12, 1996 [hereinafter China-Bangladesh BIT].

180. See infra Appendix 1 and the agreements cited therein.181. The Netherlands, Germany, Finland, Spain, Portugal, South Korea (2007), New Zea-

land, the 2009 agreement with Switzerland, and Canada BITs contained the more favorableprovision. Only the France and Mexico BITs did not. See id.

182. The Czech Republic, Guyana, and Peru agreements contained the Netherlands provi-sion, and the Cyprus, Trinidad & Tobago, Benin, Latvia, Madagascar, Slovakia, India, Colombia,and Malta agreements did not. See id.


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with ASEAN among sixteen BITs with non-democratic countries.183

Thus, BITs with developed democracies were the most likely to effectchanges that strengthened investor protections and promoted legalreform, and BITs with developing democracies were more likely thanBITs with developing non-democracies to do so.

3. Transfer of Investments

Capital transfer provisions are among the most important protec-tions in BITs because they ensure that a host state does not restrict aninvestor’s ability to repatriate the profits of an investment.184 Capitalexporting countries generally favor provisions that promise the imme-diate, unrestricted transfer of all types of investments in a freelyconvertible currency at the market exchange rate.185 Accordingly,some BITs contain provisions along these lines.186 For other countries,allowing free capital transfer conflicts with foreign exchange andmonetary policies.187 Consequently, some capital transfer provisionscontain qualifying phrases, such as “subject to [a party’s] laws andregulations,”188 or explicitly preserve the contracting parties’ right topursue foreign exchange control policies.189 Additionally, while manyBITs specify that transfers must be made “without undue delay,” theterm is often undefined.190 Other BITs specify that the transfers mustbe completed within a specified period or in accordance with inter-

183. See id.184. See DOLZER & STEVENS, supra note 93, at 85-96.185. The U.S. Model BIT, for example proposes the following language: “(1) Each Party shall

permit all transfers relating to a covered investment to be made freely and without delay into andout of its territory.” 2012 U.S. MODEL BIT, supra note 103, art. 7(1). It further provides thattransfers be “made in a freely usable currency at the market rate of exchange prevailing at the timeof transfer.” Id. art. 7(2).

186. See, e.g., Germany-Guyana BIT, supra note 162, arts. 5, 7.187. See Schill, supra note 5, at 111.188. E.g., China-Philippines BIT, supra note 179.189. See, e.g., Agreement Between the Government of the Kingdom of Thailand and the

Government of the People’s Republic of China for the Promotion and Protection of Investments,Thai.-China, protocol 1, Mar. 12, 1985 [hereinafter China-Thailand BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_thailand.pdf (stating that the “free transfer shallbe effected in accordance with . . . foreign exchange control laws and regulations”).

190. See, e.g., China-Brunei BIT, supra note 148, art. 6; Agreement on Reciprocal Promotionand Protection of Investment Between the Government of the People’s Republic of China and theGovernment of the Islamic Republic of Iran, China-Iran, art. 8(1), July 22, 2000 [hereinafterChina-Iran BIT], available at http://unctad.org/sections/dite/iia/docs/bits/China_Iran.pdf.


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national standards.191

All of China’s publicly available BITs include a capital transferprovision securing investors’ ability to repatriate the profits of theirinvestments.192 Capital transfer provisions usually include a non-exclusive list of the types of “funds related to investment” that theparties promised to allow investors to repatriate, and the lists in China’sagreements are typical of such provisions.193 China’s BITs generallypromise that the transfer should be made in freely convertible currencyand at the “normal,” “official,” or “market” rate of exchange.194 Thedifference in these two phrasings points to a critical tension in China’scapital transfer provisions, namely that free transfer of assets conflictswith the government’s foreign exchange and currency control poli-cies.195 To address this, most of China’s BITs provide that each partywill allow capital transfer “subject to its laws and regulations.”196

The 2003 Netherlands BIT broke from this model, however, contain-ing an unqualified transfer provision combined with an additionalprotocol stating that, with respect to the transfer provision, partiesshould “comply with relevant formalities stipulated by the present Chineselaws and regulations relating to exchange control” (emphasis added).197

The protocol then stated that the formalities “shall not be used as a

191. See, e.g., Treaty Between the Federal Republic of Germ. and the Kingdom of Swaz.Concerning the Promotion and Reciprocal Protection of Investments, ad art. 7, June 30, 1993(stating that transfers “shall be deemed to have been made ‘without delay’ within the meaning ofArticle 7(1) if effected within such period as is normally required for the completion of transferformalities”); Germany-Guyana BIT, supra note 162, ad art. 7 (stating that the period required toeffect a transfer “may on no account exceed two months”).

192. See infra Appendix 1 and the agreements listed therein.193. See, e.g., China-Botswana BIT, supra note 143, art. 6 (enumerating (a) profits, dividend,

interests and other legitimate income; (b) proceeds obtained from the total or partial sale ofliquidation of investments; (c) payments pursuant to a loan agreement in connection withinvestments; (d) royalties in relation to [intellectual property rights]; (e) payments of technicalassistance or technical service fees, [and] management fees; (f) payments in connection withcontractual projects; [and] (g) earnings of nationals of the other Contracting Party who work inconnection with an investment in its territory). For examples of typical capital transfer lists, seeDOLZER & STEVENS, supra note 93, at 86-90.

194. See, e.g., China-Philippines BIT, supra note 179, art. 6 (referring to the “official exchangerate”); China-Argentina BIT, supra note 116, art. 5(2) (referring to the “normal applicable rate ofexchange”); China-Germany BIT, supra note 108, art. 6 (guaranteeing transfer at the “prevailingmarket rate of exchange”).

195. See Schill, supra note 5, at 111.196. See, e.g., China-Sweden BIT, supra note 106, art. 4; China-Vietnam BIT, supra note 108,

art. 5; China-Trinidad & Tobago BIT, supra note 147, art 7(1); China-India BIT, supra note 147,art. 7(1).

197. China-Netherlands BIT, supra note 117, art. 7, protocol ad art. 7.


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means of avoiding [China’s] commitments or obligations” under theBIT.198 The first additional protocol provision purports to freezeChina’s foreign exchange control restrictions by not allowing new lawsand regulations that restrict transfers. Since the second promise wasvague, it is unclear whether the provision limits China’s discretion.

The 2003 Germany BIT more clearly expanded investors’ rightsagainst the government. It contains an unlimited capital transferprovision and the same clause preserving existing exchange controls asthe Netherlands BIT.199 The additional protocol also provides, how-ever, that, “[t]o the extent that the formalities mentioned above are nolonger required according to the relevant provisions of Chinese law,[the transfer provision] shall apply without restrictions.”200 Thus, theBIT explicitly puts in place a “standstill” in China’s foreign exchangesystem by prohibiting the imposition of new measures restrictingcapital transfers. Since the Netherlands and Germany BITs, eight otheragreements have contained similar provisions.201

The original Germany BIT was also one of the relatively few BITs tospecify a time limit during which a transfer should be made. Most ofChina’s BITs specified that the transfer should be made “without delay”or “without undue delay,”202 but the 1983 Germany BIT was the first tospecify a time limit (three months) for the transfer.203 Subsequently,the Italy BIT specified that “without delay” meant the “time normallynecessary” for such a transfer and could not exceed six months.204 The1986 Switzerland BIT set a limit of ninety days, and four other agree-ments imposed limits ranging from two to six months.205

The pattern of which BITs contain transfer provisions that ex-

198. Id. protocol ad art. 7(3).199. China-Germany BIT, supra note 108, protocol ad art. 6(a).200. Id. protocol ad art. 6.201. See China-Finland BIT, supra note 122, ad art. 6; China-Spain BIT, supra note 116, art. 6;

China-Czech Republic BIT, supra note 176, art. 6; China-Portugal BIT, supra note 116, art. 6,ad art. 6; China-S. Korea BIT, supra note 145, art. 6; New Zealand FTA, supra note 116, art. 142;China-Mexico BIT, supra note 23, art. 8; China-Switzerland 2009 BIT, supra note 122, art. 5,ad art. 5.

202. See, e.g., China-Sweden BIT, supra note 106, art. 4; China-Belgium BIT, supra note 23,art. 5; China-Kuwait BIT, supra note 141, art. 6(1).

203. China-Germany BIT, supra note 108, art. 5.204. Agreement Between the Government of the People’s Republic of China and the

Government of Italy Concerning the Encouragement and Reciprocal Protection of Investment,China-It., art. 8, Jan. 28, 1985 [hereinafter China-Italy BIT], available at http://mofcom.gov.cn/aarticle/h/au/201001/2010016725272.html.

205. See China-Switzerland BIT, supra note 122, art. 6; China-Spain BIT, supra note 116,ad art. 6 (allowing six months); China-Finland BIT, supra note 122, art. 6 (allowing two months);


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pand investors’ rights and promote the liberalization and transparencyof China’s laws and regulations fits with the patterns identified inthe preceding subsections, namely that BITs with developed de-mocracies are more likely than BITs with other types of countries tocontain the more pro-investor provision. All ten of the countriesthat concluded BITs freezing China’s foreign exchange regulationswere OECD members. Beginning with the Netherlands BIT, tenout of the twelve BITs with OECD countries (eighty-three percent)contained standstill provisions.206 All of the nine subsequent agree-ments with developing democracies and the eleven agreements withnon-democracies contained the traditional provision protectingtransfers “in accordance with [China’s] laws and regulations.”207 Simi-larly, all seven of the agreements containing a time limit definingthe period in which transfers must be carried out were with OECDcountries.208

4. Expropriations and Compensation

All BITs contain provisions protecting against the expropriationor nationalization of investments and requiring compensation in theevent of expropriation.209 Expropriation clauses generally prohibitexpropriation except those undertaken: (1) for a public purpose,(2) in a non-discriminatory manner, (3) in accordance with law, and(4) against compensation.210 These criteria are almost universal, butother provisions vary across BITs. Nearly all BITs mention “expropria-tion,” “nationalization,” and either “similar measures” or “measureshaving equivalent effect.”211 The last phrase is meant to captureindirect or creeping expropriations, which have become increasinglythe focus of expropriation disputes as outright expropriations have

China-S. Korea BIT, supra note 145, art. 8 (preferring one month and allowing two at most);China-Switzerland 1986 BIT, ad art. 5 (same).

206. The BITs with the Netherlands, Germany, Finland, Spain (1992), the Czech Republic,Portugal, Korea (2007), New Zealand, Mexico, and the 2009 agreement with Switzerlandcontained such provisions. See supra notes 197-201. The BITs with France and Canada did not. SeeChina-France BIT, supra note 122; China-Canada BIT, supra note 116.

207. See infra Appendix 1 and the agreements listed therein.208. As mentioned above, these agreements were the BITs with Germany, Italy, Switzerland

(1986), Spain (1992), Finland, Korea (2007), and Switzerland (2009). See infra notes 217-19.209. DOLZER & STEVENS, supra note 93, at 104.210. Id. at 104-07.211. Id. at 98-100.


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become uncommon.212 Some BITs are even more specific, referring to“any direct or indirect measure.”213

BITs also contain different language regarding the compensationowed following an expropriation. Many BITs adopt the language ofthe Hull Rule, requiring “prompt, adequate, and effective” compensa-tion.214 Some specify that compensation should equal the fair marketvalue of the investment before the expropriation occurred or “[be-came] publicly known.”215 Most BITs specify how compensation shouldbe paid, often requiring that payment be “without delay,” with interest,in freely transferable currency, and at the prevailing exchange rate.216

Some BITs define “without delay” as within a specific period.217 Addi-tionally, some provide that investors may obtain review by nationalcourts of the legality of an expropriation or the amount of compensa-tion, while others do not.218

All of China’s investment agreements prohibit expropriation ornationalization except in accordance with the four standard condi-tions.219 Nearly all of China’s BITs attempt to capture measures beyondde jure expropriation: the most common phrasing prohibits expropria-tion, nationalization, or “similar measures.”220 The 1988 Mauritius BIT

212. See Michael S. Minor, The Demise of Expropriation as an Instrument of LDC Policy, 1980-1992,25 J. INT’L BUS. STUD. 177, 180 (1994).

213. See, e.g., Agreement between the Government of the Kingdom of Sweden and theGovernment of the Republic of Argentina on the Promotion and Reciprocal Protection ofInvestments, Swed.-Arg., art. 4(1), Nov. 22, 1991 [hereinafter Sweden-Argentina BIT].

214. DOLZER & STEVENS, supra note 93, at 108.215. Id. at 108-09; see, e.g., Germany-Guyana BIT, supra note 162, art. 4(2) (stating that

“compensation shall be equivalent to the value of the expropriated investment immediatelybefore the date on which the actual or proposed nationalization, expropriation or comparablemeasure has become publicly known”).

216. DOLZER & STEVENS, supra note 93, at 112; see, e.g., Germany-Guyana BIT, supra note 162,art. 7; Sweden-Argentina BIT, supra note 213, art. 4.

217. See DOLZER & STEVENS, supra note 93, at 112-13.218. Id. at 106-07 (quoting as typical Denmark-Hungary BIT, art. (5)(3), May 2, 1988

(providing that “the investor shall have a right under the law of the Contracting Party making theexpropriation, to prompt review, by a judicial or other independent authority of that Party, of hisor its case and of the valuation of his or its investment”)).

219. See, e.g., China-Sweden BIT, supra note 106, art. 3(1); China-Vietnam BIT, supra note108, art. 4; China-Germany BIT, supra note 108, art. 4(2).

220. See, e.g., China-Vietnam BIT, supra note 108, art. 4(1); Agreement between the Govern-ment of the People’s Republic of China and the Government of the Republic of Zimbabwe on theEncouragement and Reciprocal Protection of Investments, China-Zim., art. 4(1), May 21, 1996[hereinafter China-Zimbabwe BIT], available at http://www.kluwerarbitration.com/BITs.aspx?country�China; China-Barbados BIT, supra note 108, art. 4; China-Benin BIT, supra note 147,art. 4(1); China-ASEAN BIT, supra note 135, art. 8.


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was the first to explicitly prohibit “direct or indirect” expropriation,221

which Dolzer and Stevens identified as the most straightforward, inves-tor-protective expropriation provision.222 Several subsequent BITs con-tained similar provisions, and the Germany and Colombia BITs wereeven more explicit in covering indirect measures having the effect ofexpropriation.223

China’s early BITs often lacked specificity concerning the amount ofcompensation an expropriating state should pay. None adopted theHull Rule formula of “prompt, adequate, and effective compensa-tion.”224 Instead, the standard formulation stated that a party must paycompensation “equivalent to the value of the expropriated investment”and that it must be freely transferable, in convertible currency, andpaid without “unreasonable delay.”225 Beginning with the 1988 Austra-lia BIT, several agreements were more specific. The Australia agree-ment stated that the compensation must amount to the “market valueof the investment,” which should be ascertained “in accordance withgenerally recognized principles of valuation.”226 The 1992 South KoreaBIT specified that the value calculation should “tak[e] into account,inter alia, the capital investment depreciation, capital already repatri-ated, and other relevant factors.”227 Sixteen subsequent BITs con-tained language similar to the Australia or Korea agreements.228 Amongthese, some of the later BITs, such as the Guyana and Finland agree-

221. China-Mauritius BIT, supra note 179, art. 6.222. See DOLZER & STEVENS, supra note 93, at 99-101.223. The 2003 Germany BIT provides that investments “shall not be directly or indirectly

expropriated, nationalized, or subjected to any other measure the effects of which would betantamount to expropriation or nationalization.” China-Germany BIT, supra note 108, art. 4(2).The 2008 Colombia BIT prohibits “direct or indirect” expropriation and specifies that “indirectexpropriation results from a measure or a series of measures . . . having an equivalent effect todirect expropriation without formal transfer of title or outright seizure.” China-Colombia BIT,supra note 134, art. 4.

224. See Schill, supra note 5, at 108225. See, e.g., China-Vietnam BIT, supra note 108, art. 4.226. China-Australia BIT, supra note 114, art. 8.227. China-S. Korea BIT, supra note 145, art. 5(2).228. These are the BITs with Malaysia (art. 5), Turkey (art. 3), the United Arab Emirates

(art. 6), Slovenia (art. 4), Oman (art. 4), Macedonia (art. 4), the Netherlands (art. 5), Trinidad(art. 6(2)), Guyana (art. 4); Finland (art. 4(2)), Spain (art. 4); Portugal (art. 4); Russia (art. 4),and Malta (art. 4) as well as the Pakistan (art. 49) and New Zealand (art. 145) FTAs. See, e.g.,Agreement between the Government of the People’s Republic of China and the GovernmentMalaysia Concerning the Reciprocal Encouragement and Protection of Investments, China-Malay,Nov. 21, 1988 [hereinafter China-Malaysia BIT], available at http://www.kluwerarbitration.com/BITs.aspx?country�China.


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ments, were even more detailed concerning the fair market valuecalculation.229

Another potentially important change in the expropriation provi-sions of China’s BITs was that an increasing number of agreementsprovided for access to national courts to review the legality of anexpropriation and the amount of compensation. Although some schol-ars have argued that customary international law requires the availabil-ity of judicial review of an expropriation, the area is sufficientlyunsettled that many BITs include an independent requirement.230 The1984 Norway BIT was the first time China concluded an agreementpromising access to national courts following an expropriation.231 Asubstantial minority of agreements contained a similar provision follow-ing the Norway agreement, and the provision became common follow-ing the Poland and Barbados BITs of 1998.232 The provision bothprotects investors’ right to judicial review and connects the hostcountry’s national court system to the international investment disputearbitration system.

The way in which these changes—explicit protection of indirectinvestments, a more rigorous standard for calculating compensation,and national court review of expropriation—entered China’s BITssupports the argument that pro-investor and pro-rule of law changesare initiated first through BITs with OECD countries and, secondarily,through agreements with developing democracies. All three changesdefined and expanded investors’ private property rights, and thesecond two arguably support the rule of law by ensuring predictable,transparent calculations of compensation and exposing national courts

229. See China-Guyana BIT, supra note 147, art. 4(2) (stating that value “shall be deter-mined in accordance with the generally recognized principles of valuation as if the investmentswere sold as an ongoing concern on the open market” and shall “include interest at the averagecommercial rate from the date of expropriation until the date of payment”); China-Finland BIT,supra note 122, art. 4(2) (“The value shall be determined in accordance with generally recognizedprinciples of valuation.”).

230. DOLZER & STEVENS, supra note 93, at 106.231. See China-Norway BIT, supra note 156, protocol 2(a) (stating that “if an expropriated

national or company of one contracting party considers the expropriation to be in contraventionof the laws of the contracting party taking the expropriatory measure, the competent legislative orjudiciary authorities of the contracting party taking the expropriatory measure may, at the requestof the said national or company, review the case of the expropriation”).

232. See, e.g., China-Belize BIT, art. 5(1); China-Brunei BIT, supra note 148, art. 4(2); China-Bosnia Herzegovina BIT, supra note 148, art. 4(3).


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to competition with or review by international arbitral tribunals.233 Thesecond two changes were first introduced in BITs with OECD countries(Australia and Norway), and the prohibition on indirect expropriationappeared first in the BIT with Mauritius, a developing democracy.234

Once the changes were introduced, the new provisions were morelikely to appear in OECD BITs than non-OECD BITs and more likely toappear in agreements with developing democracies than agreementswith non-democracies. After the Mauritius agreement, forty-two per-cent of OECD BITs mentioned indirect expropriation,235 compared totwenty-two percent of BITs with developing democracies236 and elevenpercent of BITs with non-democracies.237 After the Australia agree-

233. See Franck, supra note 8, at 365-73 (arguing that BITs strengthen the rule of law indeveloping countries by introducing arbitration as a supplement to national courts and spreadinginternational norms of justice and procedural fairness).

234. See Polity IV data, supra note 97.235. The agreements with Germany (art. 4); Korea (art. 4); France (art. 5); Mexico (art. 7);

and the 2009 agreement with Switzerland (art. 6) referred to indirect expropriations, whereasagreements with Poland (art. 4); Netherlands (art. 5); Finland (art. 4); Spain (art. 4); Portugal(art. 4); New Zealand (art. 145); and Canada (art. 10) did not. See infra Appendix 1 and theagreements and sources contained therein.

236. Among BITs with developing democracies, the Mauritius (art. 6); Belize (art. 5);Colombia (art. 4); and Peru (art. 133) agreements contained such a reference. The Bangladesh(art. 4); Macedonia (art. 4); South Africa (art. 4); Barbados (art. 4); Botswana (art. 4); Cyprus(art. 4); Trinidad & Tobago (art. 6); Guyana (art. 4); Benin (art. 4); Latvia (art. 4); Madagascar(art. 4); Czech Republic (art. 4); India (art. 5); and Malta (art. 4) BITs did not. See id.

237. The agreements with Brunei (art. 4); Jordan (art. 5); and Uganda (art. 4) mentionedindirect expropriation. The agreements with Zimbabwe (art. 4); Lebanon (art. 4); Zambia (art. 4);Cambodia (art. 4); Algeria (art. 4); Syria (art. 4); Cameroon (art. 5); Sudan (art. 4); Cape Verde(art. 4); Ethiopia (art. 4); Qatar (art. 4); Bahrain (art. 4); Iran (art. 6); Sierra Leone (art. 4);Nigeria (art. 4); Myanmar (art. 4); Bosnia (art. 4); Cote d’Ivoire (art. 4); Djibouti (art. 4); Tunisia(art. 4); DPRK (art. 4); Russia (art. 4); Pakistan (art. 49); Cuba (art. 4); and ASEAN (art. 8) didnot. See id.; see, e.g., Agreement Between the Government of the People’s Republic of China andthe Government of the Republic of Zambia Concerning the Encouragement and ReciprocalProtection of Investments, China-Zam., June 21, 1996 [hereinafter China-Zambia BIT], availableat www.kluwerarbitration.com/print.aspx?ids�KLI-KA-1042053-n; Agreement Between the Gov-ernment of the Kingdom of Cambodia and the Government of the People’s Republic of Chinafor the Promotion and Protection of Investment, China-Cambodia, July 19, 1996 [here-inafter China-Cambodia BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_cambodia.pdf; Agreement Between the Government of the People’s Republic of China and theGovernment of the Democratic and Popular Republic of Algeria concerning Encouragement andReciprocal Protection of Investments, China-Alg., Oct. 17, 1996 [hereinafter China-Algeria BIT],available at http://www.kluwerarbitration.com/print.aspx?ids�KLI-KA-1042053-n; Agreement Be-tween the Government of the People’s Republic of China and the Government of the Syrian ArabRepublic concerning the Reciprocal Promotion and Protection of Investments, China-Syria,Dec. 9, 1996 [hereinafter China-Syria BIT], available at http://unctad.org/sections/dite/iia/docs/


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ment, thirty-three percent of OECD BITs,238 nineteen percent ofdeveloping democracy BITs,239 and eleven percent of non-democracyBITs provided specifics concerning the value of compensation forexpropriation.240 The results are even more pronounced for provisions

bits/Syria_China%20BIT.pdf; Agreement Between the Government of the Federal DemocraticRepublic of Ethiopia and the Government of the People’s Republic of China Concerning theEncouragement and Reciprocal Protection of Investments, China-Eth., July 20, 1998 [hereinafterChina-Ethiopia BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_ethiopia.pdf; Agreement Between the Government of the People’s Republic of China and the Governmentof the State of Qatar Concerning the Encouragement and Reciprocal Protection of Investments,China-Qatar, Mar. 20, 2000 [hereinafter China-Qatar BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_qatar.pdf; Agreement Between the Government of the People’s Repub-lic of China the Government of the State of Bahrain Concerning the Encouragement andReciprocal Protection of Investment, China-Bahr., June 12, 2000 [hereinafter China-BahrainBIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_bahrain.pdf; AgreementBetween the Government of the Republic of Sudan and the Government of the People’s Republicof China Concerning the Encouragement and Reciprocal Protection of Investments, China-Sudan, May 30, 1997 [hereinafter China-Sudan BIT], available at tfs.mofcom.gov.cn/aarticle/h/aw/201002/20100206778964.html; Agreement Between the People’s Republic of China and theGovernment of the Republic of Cuba Concerning the Encouragement and Reciprocal Protectionof Investments, China-Cuba, April 20, 2007 [hereinafter China-Cuba BIT], available at http://www.kluwerarbitration.com/BITs.aspx?country�China.

238. The following agreements contained specifics: Australia (art. 8); Turkey (art. 3); Mexico(art. 7); Korea (2007) (art. 5); the Netherlands (art. 5), Finland (art. 4(2)), Spain (2005) (art. 4);Portugal (2005) (art. 4); and the New Zealand FTA (art. 145). The following did not: Japan(art. 5); New Zealand (art. 6); Portugal (1992) (art. 4); Spain (1992) (art. 4); Greece (art 4); Israel(art. 5); Poland (art. 4); Germany (art. 4), Czech Republic (2005) (art. 4), and France (art. 7),Switzerland (2009) (art. 6), and Canada (art. 10). See infra Appendix 1; see, e.g., AgreementBetween the People’s Republic of China and the Portuguese Republic on the Encouragement andReciprocal Protection of Investments, China-Port., Feb. 3, 1992, available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html.

239. The following agreements with developing democracies contained such provisions:Korea (art. 5); Slovenia (art. 4); Macedonia (art. 4); Trinidad (art. 6), Guyana (art. 4); and Malta(art. 4). The following did not: Pakistan (art. 4); Hungary (art. 4); the Czech and Slovak Republics(art. 4); Bolivia (art. 4); the Philippines (art. 4); Argentina (art. 4); Estonia (art. 4); Lithuania(art. 4); Uruguay (art. 4); Ecuador (art. 4); Chile (art. 4); Jamaica (art. 4); Mauritius (art. 6);Bangladesh (art. 4); South Africa (art. 4); Barbados (art. 4); Belize (art. 5); Botswana (art. 4);Cyprus (art. 4); Benin (art. 4) Latvia (art. 4); Madagascar (art. 4); India (art. 5); Colombia (art. 4);and the Peru FTA (art. 133), See infra Appendix 1; see, e.g., Agreement Between the Government ofthe Republic of Lithuania and the Government of the People’s Republic of China Concerning theEncouragement and Reciprocal Protection of Investments, China-Lith., Nov. 8, 1993 [herein-after China-Lithuania BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_lithuania.pdf.

240. Only the agreements with Malaysia (art. 5), the United Arab Emirates (art. 6), Oman(art. 4), and Russia (art. 4) and the Pakistan (art. 49) FTA contained such specifics. See infraAppendix 1.


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guaranteeing access to courts. Since the Norway agreement, seventy-one percent of OECD agreements,241 forty-one percent of agreementswith developing democracies,242 and nineteen percent of agreementswith non-democracies promised review of an expropriation by nationalcourts.243

5. Access to International Arbitration

Nearly all BITs contain provisions providing for a binding interna-tional arbitration to settle differences between the contracting partiesconcerning the interpretation of the treaty.244 Most also contain aprovision permitting private investors to initiate arbitration proceed-ings before an international tribunal to settle investment disputes.245

Differences in these provisions determine whether, and under whatcircumstances, a BIT allows investors to initiate arbitration, and whenthey must obtain consent to arbitrate or pursue their claim in nationalcourts. Some (mostly older) BITs do not contain investor-state disputeresolution provisions of any kind.246 Others contain a weak form of the

241. The following agreements promised access to courts: Norway (art. 5), Denmark (art. 4),United Kingdom (art. 5), Japan (art. 5), New Zealand (art. 6), Turkey (art. 3), Greece (art. 4),Poland (art. 4), Germany (art. 4), Finland (art. 4), the 2005 Spain agreement (art. 4), CzechRepublic (art. 4), the 2005 Portugal agreement (art. 4), Korea (2007) (art. 4), Mexico (art. 7),Switzerland (2009) (art. 6), and Canada (art. 10). The following did not: Italy (art. 4), the 1986agreement with Switzerland (1986) (art. 7), Australia (art. 8), the 1992 Portugal agreement(art. 4), the 1992 Spain agreement (art. 4), the Netherlands (art. 5), and France (art. 5). See id.

242. The following agreements promised access to courts: Pakistan (art. 4), Czech & SlovakRepublics (art. 4); the Philippines (art. 4), Korea (1992) (art. 5), Chile (art. 4), Israel (art. 5),South Africa (art. 4), Barbados (art. 4), Belize (art. 5), Trinidad (art. 6), Guyana (art. 4), India(art. 5), Colombia (art. 4). The other nineteen agreements with developing democracies did not.See id.

243. The agreements with Singapore (art. 6), Sri Lanka (art. 6), Bulgaria (art. 4), the U.A.E.(art. 6), Lebanon (art. 4), Brunei (art. 4), Jordan (art. 5), Bosnia (art. 4), Tunisia (art. 4)contained an access to courts promise. The other forty-one agreements did not. See id.; see, e.g.,Agreement Between the Government of the Democratic Socialist Republic of Sri Lanka and theGovernment of the People’s Republic of China on the Reciprocal Promotion and Protection ofInvestments, China-Sri Lanka, Mar. 13, 1986 [hereinafter China-Sri Lanka BIT], available athttp://unctad.org/sections/dite/iia/docs/bits/china_srilanka.pdf; Agreement Between the Gov-ernment of the People’s Republic of Bulgaria and the Government of the People’s Republic ofChina Concerning the Reciprocal Encouragement and Protection of Investments, Bulg.-China,June 27, 1989 [hereinafter China-Bulgaria BIT], available at http://unctad.org/sections/dite/iia/docs/bits/china_bulgaria.pdf.

244. DOLZER & STEVENS, supra note 93, at 119.245. Id.246. See, e.g., China-Sweden BIT, supra note 106.


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provision that does not comprise the parties’ consent to arbitration ofany disputes but merely acknowledges the possibility that the investorand a state party may agree to submit a dispute to ICSID arbitration.247

Since its early agreements, China’s practice concerning access tointernational arbitration of investment disputes has transformed andcome into line with international standards. China’s early BITsdid not provide for the international arbitration of all investmentdisputes. The first BIT with Sweden lacked any investor-state disputesettlement provision at all.248 Thereafter, agreements contained re-stricted dispute settlement provisions providing that investors couldsubmit to arbitration a dispute concerning the “amount of com-pensation for an expropriation, nationalization or other similar mea-sures” that had not been settled within a certain waiting period(usually six months).249 For other types of disputes, investors couldonly obtain relief through the host state’s domestic courts unlessthe host state consented to submit a particular dispute to arbitration.250

In China’s case, this was “hardly a sufficient bulwark against govern-mental interferences” due to corruption and lack of judicial indepen-dence.251

This situation changed in the late 1990s with the advent of the “newgeneration” BITs.252 In the 1997 BIT with South Africa, the partiesagreed that if “any dispute” between an investor of one party andthe other party “in connection with an investment in the territory ofthe [party]” could not be settled within six months, the investor“shall be entitled to submit the dispute to an international arbitral

247. See, e.g., Agreement between the Government of Sweden and the Government ofMalaysia Concerning the Mutual Protection of Investments, Malay.-Swed., art. 6, Mar. 3, 1979,available at http://unctad.org/sections/dite/iia/docs/bits/sweden_malaysia.pdf (providingthat if a dispute concerning an investment arises between an investor of one of the ContractingParties and the other party, “it shall upon the agreement by both parties to the dispute besubmitted for arbitration to [ICSID]”); Agreement on Economic Co-operation between theGovernment of the Kingdom of the Netherlands and the Government of the Republic of Kenya,Neth.-Kenya, art. 11, Sept. 11, 1970 available at http://unctad.org/sections/dite/iia/docs/bits/netherlands_kenya.pdf; Agreement Between the Government of Sweden and the Government ofthe Arab Republic of Egypt on the Mutual Protection of Investments, Swed.-Egypt, at art. 6, July 15,1978.

248. See China-Sweden BIT, supra note 106. The Thailand BIT also contained no investor-state dispute settlement provision. See China-Thailand BIT, supra note 189.

249. See, e.g., China-Belgium BIT, supra note 23, art. 10(3).250. See, e.g., China-Switzerland BIT, supra note 122, art. 12(1)(b).251. Schill, supra note 5, at 91.252. See id.


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tribunal.”253 Two years later, the BITs with Barbados254 and Belize255

contained similar provisions. After the 2000 Botswana BIT,256 only oneagreement (the 2005 BIT with the Democratic People’s Republic ofKorea257) lacked an unrestricted investor-state dispute settlement pro-vision. The 2003 BIT with the Netherlands pioneered another impor-tant change to China’s standard dispute resolution provision. Until theNetherlands BIT, all of China’s agreements required investors tochoose between submitting a dispute to national courts or to interna-tional arbitration, and the agreements made that choice final; if aninvestor submitted a dispute to national courts, the option of interna-tional arbitration was foreclosed.258 The Netherlands agreement, how-ever, provided that if a dispute was submitted to domestic courts, itcould still be submitted to arbitration if the investor “withdr[ew] itscase from the [Chinese] court.”259 Since 2001, nine other agreementscontained similar provisions.260 The Netherlands provision expandedinvestors’ rights by expanding their options. Arguably, it also promotedthe improvement of Chinese courts by introducing competition withinternational arbitration tribunals and creating the possibility thatinternational tribunals will hear cases that began in Chinese courts.

Understanding how the transition from the first to second genera-tion BITs occurred is critical, since the scope of a BIT’s disputeresolution provision defines which of its protections can be enforcedagainst a party outside of its own courts.261 Broad dispute resolutionprovisions afford investors greater freedom of choice and, at least intheory, promote the rule of law by exposing national courts to competi-tion with and scrutiny by international arbitration tribunals.262 TheSouth Africa BIT was the first to contain the unrestricted provision.263

Thereafter, all of the thirteen BITs with developing democracies

253. See China-S. Africa BIT, supra note 147, art. 9(1)-(2).254. China-Barbados BIT, supra note 108, art. 9(2).255. China-Belize BIT, art. 7.256. China-Botswana BIT, supra note 143, art. 4.257. China-N. Korea BIT, supra note 148, art. 9(2).258. See, e.g., China-Barbados BIT, supra note 108, art. 9; China-Botswana BIT, supra note 143,

art. 9; China-Cyprus BIT, supra note 144, art. 9(3); China-Jordan BIT, supra note 148, art. 10(3).259. China-Netherlands BIT, supra note 117, art. 10(2).260. These are the agreements with Germany (ad art. 9), Latvia (art. 9(2)), Finland

(art. 9(2)), the Czech Republic (art. 9(2)), New Zealand FTA (art. 153), Mexico (art. 13(4)), the2009 agreement with Switzerland (art. 11), ASEAN (art. 14), and Canada (Annex C.21).

261. See Yackee, supra note 57, at 814.262. See Schill, supra note 5, at 88; Yackee, supra note 57, at 806, 814.263. See China-S. Africa BIT, supra note 147, art. 9(1)-(2).


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contained the same provision.264 Eleven out of the twelve BITs withOECD countries (ninety-two percent)265 and seventy-four percent ofthe nineteen BITs with non-democratic developing countries con-tained the broader provision.266

The first BIT with an OECD country to contain the new provision,the Netherlands agreement, expanded its protections by allowinginvestors to withdraw disputes from Chinese courts and submitthem to arbitration.267 Subsequently, seventy percent of China’s BITswith OECD countries contained the Netherlands provision,268 com-pared to eleven percent of the BITs with developing democracies269

and ten percent (only the ASEAN FTA) of agreements with non-democracies.270 Thus the original transformation occurred in a BITwith a developing democracy and the second change occurred in a BITwith an OECD country. After the changes, OECD BITs were most likelyto contain the most investor-favoring provision, followed by BITs withdeveloping democracies, and then BITs with non-democracies.

264. See id. art. 9(2); China-Barbados BIT, supra note 108, art. 9(2); China-Belize BIT, art. 7;China-Botswana BIT, supra note 143, art. 9; China-Cyprus BIT, supra note 144, art. 9(3);China-Trinidad & Tobago BIT, supra note 147, art. 10(2); China-Guyana BIT, supra note 147,art. 9; China-Benin BIT, supra note 147, art. 9; China-Latvia BIT, supra note 147, art. 9(2);China-Madagascar BIT, supra note 157, art. 9(2); China-India BIT, supra note 147, art. 9;China-Colombia BIT, supra note 134, art. 9; China-Malta BIT, supra note 135, art. 9(2).

265. Only the 1998 Poland BIT, which came six months after the South Africa BIT, containedthe first generation restricted provision. See China-Poland BIT, supra note 122, art. 10. Thefollowing agreements contained the broader provision: Netherlands (art. 10(2)); Germany(ad art. 9); Finland (art. 9(3)); Spain (art. 9); Czech Republic (art. 9(2)); Portugal (art. 9); Korea(2007) (art. 9); New Zealand FTA (art. 153); Mexico (art. 13(4)); the 2009 agreement withSwitzerland (art. 11); and Canada (Annex C.21).

266. The BITs with Iran (art. 12); Brunei (art. 9); Sierra Leone (art. 9); Nigeria (art. 9);Jordan (art. 10); Myanmar (art. 9); Bosnia (art. 8); Cote d’Ivoire (art. 9); Djibouti (art. 9), Uganda(art. 9), Tunisia (art. 9), Russia (art. 9); Pakistan (art. 54); and Cuba (art. 9) provided a right tointernational arbitration. The agreements with Cape Verde; Ethiopia; Qatar; Bahrain; and theDemocratic People’s Republic of Korea did not. See infra Appendix 1.

267. See China-Netherlands BIT, supra note 117, art. 10(2).268. These were the Germany BIT (ad art. 9), the Finland BIT (art. 9(3)), the Czech

Republic BIT (art. 9(2)), the New Zealand FTA (art. 153), the Mexico BIT (art. 13(4)), the 2009agreement with Switzerland BIT (art. 11), and the Canada BIT (Annex C.21). The Portugal(art. 9), Korea (2007) (art. 9(4)), and France (art. 7) BITs contained the old provision. See infraAppendix 1.

269. The Latvia BIT contained the Netherlands provisions. See China-Latvia BIT, supranote 147, art. 9(2). The other eight BITs with developing democracies contained the oldprovision.

270. See China-ASEAN BIT, supra note 135, art. 14.


306 [Vol. 45

6. Umbrella Clauses

In contrast to the provisions so far discussed, which apply to the actsof the contracting parties in their governmental capacity, umbrellaclauses apply to the government’s actions as a party to a contract. Atypical provision states that each party “shall observe any other obliga-tion it has assumed with regard to investments in its territory bynationals or companies of the other Contracting Party.”271 Umbrellaclauses aim to bring within the scope of a BIT (and, therefore, withininvestors’ right to arbitration) commercial actions of the host govern-ment. They are particularly important to some capital exporting coun-tries because many FDI projects, including large infrastructure projectsand natural resource projects, are conducted through private contractsbetween the state or a state agency and the investor.272 Absent anumbrella clause, a breach of contract by the government that was not abreach of another substantive treatment provision would be outsidethe scope of the BIT.273

The language of umbrella clauses tends to be nearly the same acrossinternational agreements, and China’s agreements are no excep-tion.274 The 1984 BIT with Belgium and Luxembourg was the first ofChina’s BITs to contain an umbrella clause.275 The language of theprovision was standard and remained substantively identical in allsubsequent BITs containing such a provision.276 Since the Belgiumagreement, about forty percent of China’s BITs have included anumbrella clause.277 Depending on how broadly arbitral tribunals inter-pret the Chinese state, umbrella clauses have the potential to signifi-cantly broaden investors’ rights under BITs by bringing violations ofcontracts by state-owned enterprises under the treaty.278

271. Germany-Guyana BIT, supra note 162, art. 8(2); see Agreement Between the Govern-ment of the United Kingdom of Great Britain and Northern Ireland and the Government ofMalaysia for the Promotion and Protection of Investments, Malay.-U.K., art. 2(2), May 21, 1981,available at http://unctad.org/sections/dite/iia/docs/bits/uk_malaysia.pdf.

272. See Schill, supra note 5, at 109.273. See DOLZER & STEVENS, supra note 93, at 82.274. See id. at 81-82.275. See China-Belgium BIT, supra note 23, art. 9 (“Each Contracting Party shall observe any

obligations it may have entered into with investors of the other Contracting Party”).276. See, e.g., China-Malta BIT, supra note 135, art. 10(2) (“Each Contracting Party shall

observe any commitments it may have entered into with the investors of the other ContractingParty with respect to their investments.”)

277. See infra notes 279-81 and accompanying text.278. See Schill, supra note 5, at 111.


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The pattern of BITs containing umbrella clauses is somewhat in-consistent with the trends among other pro-investor provisions. Begin-ning with the Belgium BIT, sixty percent of investment agreementswith OECD countries contain umbrella clauses.279 As with other clausesexpanding investors’ rights, umbrella clauses appear less frequently inBITs concluded with developing countries. Of the eighty-four develop-ing country agreements since the Belgium BIT, thirty-seven percentcontain umbrella clauses.280 However, the percentage is higher forBITs with non-democracies than with developing democracies, forty-three and twenty-seven percent, respectively.281 Since the umbrellaclause favors investors’ rights, the fact that an OECD BIT pioneeredthe provision and that subsequent OECD agreements are more likelyto contain such a provision is consistent with the findings concerningother provisions. It is more unusual that BITs with non-democraciesare more likely to contain the provision than BITs with developingdemocracies.

7. Transparency Provisions

In addition to the standard provisions, some of China’s BITs containprovisions promoting transparency in the legal systems of the parties.The first agreement to contain such a provision was the 1988 BIT withAustralia, which required that each party make “public and readilyaccessible” all laws and policies “that pertain to or affect investment”and, if requested, provide copies of specified laws and policies orconsult with the other party “with a view to explaining specified lawsand policies.”282 Six subsequent agreements contained similar provi-

279. These are the agreements with Belgium, Denmark, United Kingdom, Switzerland(1986), Australia, Spain (2005), Greece, Netherlands, Germany, Finland, Spain (1992), Portugal(2005), Korea (2007), and Switzerland (2009). The agreements with Finland, Norway, Italy, Japan,Portugal (1992), Czech Republic, France, New Zealand FTA, Mexico, and Canada do not containumbrella clauses. See infra Appendix 1.

280. Agreements with the following countries contain umbrella clauses: Mauritius, SouthAfrica, Belize, Trinidad, Guyana, Benin, Latvia, Malta, Thailand, Singapore, Kuwait, Sri Lanka,U.A.E., Egypt, Lebanon, Cape Verde, Iran, Brunei, Sierra Leone, Nigeria, Jordan, Myanmar,Bosnia, Cote d’Ivoire, Djibouti, Uganda, Tunisia, DPRK, Russia, and Pakistan. China’s otheragreements to do not contain umbrella clauses. See id.

281. Among BITs with developing democracies, nine of thirty-three agreements concludedsince the Belgium BIT (those with, Mauritius, South Africa, Belize, Trinidad, Guyana, Benin,Latvia, and Malta) contained umbrella clauses. Among BITs with developing non-democracies,twenty-two of the fifty-one agreements concluded since the Belgium BIT contained such clauses.See id.

282. China-Australia BIT, supra note 114, art 6.


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sions.283 Since these provisions contain mandatory language, they maypromote transparency in China’s rules and regulations and therebypromote the rule of law. The distribution of agreements with transpar-ency provisions is consistent with this study’s findings overall. After theAustralian BIT, twenty-five percent of subsequent agreements withOECD countries contained a transparency provision,284 compared withonly one agreement with a developing democracy (three percent of thetotal)285 and one with a non-democracy (two percent of the total).286

Thus, BITs with developed democracies were the most likely to incorpo-rate transparency provisions that enhanced investor rights and rule oflaw, followed by agreements with developing democracies, and lastlyagreements with non-democracies.

V. CONCLUSION

This Note assessed whether BITs involving China have been effectivewith respect to two of the most important purposes of internationalinvestment agreements: increasing investment flows and expandinginvestors’ rights. It argued that China’s BITs have had at least somesuccess along both dimensions. The presence of a BIT between Chinaand another country was correlated at a significant level with increasedinvestment flows from the partner country to China, suggesting thatBITs may have promoted FDI from partner countries to China. Con-versely, there was no significant relationship between the presence of aBIT with China and increased FDI flows from China to a developingcountry partner. This suggests that while BITs with China seem to havebeen effective at promoting inbound FDI to China, they have notpromoted FDI in China’s developing country partners. This trend mayindicate that BITs represent a credible commitment to pro-investorpolicies from the PRC government to capital exporting countries, butthat a BIT with China does not necessarily serve as a credible commit-ment by other developing countries. This suggests that perhaps someof China’s BITs with developing countries are concluded for politicalpurposes and not primarily to increase investment flows.

283. See China-Turkey BIT, supra note 122, art. 2(4); China-Latvia BIT, supra note 147,art. 10; China-Finland BIT, supra note 122, art. 12(1); New Zealand FTA, supra note 116, art. 146;China-ASEAN BIT, supra note 135, art. 19; China-Canada BIT, supra note 116, art. 17.

284. See China-Australia BIT, supra note 114, art. 6; China-Turkey BIT, supra note 122,art. 2(3); China-Finland BIT, supra note 122, art. 12(1); New Zealand FTA, supra note 116, art. 146;China-Canada BIT, supra note 116, art. 17.

285. See China-Latvia BIT, supra note 147, art. 10.286. See China-ASEAN BIT, supra note 135, art. 19.


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Additionally, significant changes expanding investors’ rights andstrengthening consistency and transparency in China’s legal systemhave taken place. Important developments have been implementedprimarily through BITs with developed democracies and, to a lesserextent, through BITs with developing democracies. This suggests thatpro-investor and pro-rule of law developments in China’s BITs haveoccurred as a result of other countries’ policies—particularly OECDcountries and developing democracies—rather than merely as a resultof China’s growing role as a capital exporting country. Thus, it seemsthat the BIT programs of developed democracies have been successfulin promoting stronger property rights foreign investors and somereforms that promote consistency and transparency in China’s legalsystem.287 Furthermore, many of these changes have been incorpo-rated into China’s BITs generally, including those with developingnon-democratic regimes, suggesting that the developed democracies’BIT programs have supported the development of a more liberal bodyof international investment law.

The fact that China’s BITs seem to have increased inbound FDI toChina but not to its developing country partners has important im-plications for future BITs and suggests avenues for further study. First,it suggests that BITs between developing and capital exporting coun-tries can serve as credible commitments to pro-investor policies andattract additional foreign investment. Second, it suggests that South-South BITs exhibit a different dynamic than traditional developed-developing country BITs. The purposes of these new BITs may bepolitical rather than economic, and they may not represent crediblecommitments or increase investment in the way that BITs with devel-oped countries can. Since this Note only studied the effects of BITsbetween China and other developing countries, further study of thepurposes and effectiveness of South-South BITs is warranted. In addi-tion, examining the political benefits of South-South BITs could also beuseful in understanding the reasons for the emergence of this body oflaw.

This Note’s findings concerning BITs, investors’ rights, and therule of law also have important implications. A study of China’s BITssuggests that developed democratic countries have led the way in

287. As mentioned above, this Note did not assess the on-the-ground effects of the de jurelegal reforms it analyzed. A study of whether the pro-investor, pro-rule of law provisions this Notehas identified have, in practice, improved the consistency and transparency of China’s investmentlaw would be an important next step in understanding the effect of international investmentagreements on property rights in China and the Chinese legal system.


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creating a body of international law that is increasingly favorable tointernational investors and that, at least on its face, should promote therule of law in developing countries by promoting consistency andtransparency in national laws and regulations and in domestic courts.This is particularly important to the United States and to other devel-oped democracies that consider it to be in their national interest topromote property rights and the rule of law around the world.288

Overall, BITs seem to be achieving their declared goals for bothChina and developed democracies. BITs involving China seem to haveserved the interests of the PRC by increasing inbound investment flows.For OECD countries, BITs with China have increased investors’ interestin the world’s most dynamic economy, expanded foreign investors’rights, and have the potential to strengthen the consistency andtransparency of China’s legal system. Whether BITs have also strength-ened China’s political ties with other developing countries or improvedthe quality of the law governing domestic investors remains to be seen.

288. See supra notes 24-28 and accompanying text.


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APPENDIX 1.289

BITs China has Concluded, in Chronological Order byDate of Signature

PartnerDate of

SignatureDate Entered

into ForceFootnote

with citation

Sweden 29 Mar. 1982 106

Germany 7 Oct. 1983 18 Mar. 1985 116

France 30 May 1984 19 Mar. 1985 122

Belgium/Luxembourg 4 June 1984 5 Oct. 1986 23

Finland 4 Sept. 1984 26 Jan. 1985 122

Norway 21 Nov. 1984 10 July 1985 156

Italy 28 Jan. 1985 28 Aug. 1987 204

Thailand 12 Mar. 1985 13 Dec. 1985 189

Denmark 29 Apr. 1985 29 Apr. 1985 140

Austria 12 Sept. 1985 11 Oct. 1986

Singapore 21 Nov. 1985 7 Feb. 1986 135

Kuwait 23 Nov. 1985 24 Dec. 1986 141

Sri Lanka 13 Mar. 1986 25 Mar. 1987 243

United Kingdom 15 May 1986 15 May 1986 141

Switzerland 12 Nov. 1986 18 Mar. 1987 141

Australia 11 July 1988 11 July 1988 114

Japan 27 Aug. 1988 14 May 1989 116

Malaysia 21 Nov. 1988 31 Mar. 1990 228

New Zealand 22 Nov. 1988 25 Mar. 1989 146

Pakistan 12 Feb. 1989 30 Sept. 1990

Bulgaria 27 June 1989 21 Aug. 1994 243

Ghana 12 Oct. 1989 22 Nov. 1991

Turkey 13 Nov. 1990 20 Aug. 1994 122

Papua New Guinea 12 Apr. 1991 12 Feb. 1993

Hungary 29 May 1991 1 Apr. 1993 122

Mongolia 25 Aug. 1991 1 Nov. 1993

Czech & Slovak Republic 4 Dec. 1991 1 Dec. 1992 169

289. Titles in bold indicate that the text of the agreement is publicly available and theagreement was included in this paper’s study of the text of China’s investment agreements.

— Indicates the agreement is not in force. No entry in the third column indicates theagreement did not provide a date for entry into force and the UNCTAD website did not specify adate.


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PartnerDate of


into ForceFootnote

with citation

Portugal 3 Feb. 1992 1 Dec. 1992 238

Spain 6 Feb. 1992 1 May 1993 122

Uzbekistan 13 Mar. 1992 12 Apr. 1994

Bolivia 8 May 1992 1 Sept. 1996 179

Kyrgyzstan 14 May 1992 8 Sept. 1995

Greece 25 June 1992 21 Dec. 1993 122

Armenia 4 July 1992 18 Mar. 1995

Philippines 20 July 1992 8 Sept. 1995 179

Kazakhstan 10 Aug. 1992 13 Aug. 1994

South Korea 30 Sept. 1992 4 Dec. 1992 171

Ukraine 31 Oct. 1992 29 May 1993

Argentina 5 Nov. 1992 1 Aug. 1994 116

Moldova 6 Nov. 1992 1 Mar. 1995

Turkmenistan 21 Nov. 1992 4 July 1994

Vietnam 2 Dec. 1992 1 Sept. 1993 108

Belarus 11 Jan. 1993 14 Jan. 1995

Laos 31 Jan. 1993 1 June 1993

Albania 13 Feb. 1993 1 Sept. 1995

Tajikistan 9 Mar. 1993 20 Jan. 1994

Georgia 3 June 1993 1 Mar. 1995

Croatia 7 June 1993 1 July 1994

United Arab Emirates 1 July 1993 28 Sept. 1994 148

Estonia 2 Sept. 1993 1 June 1994 116

Slovenia 13 Sept. 1993 1 Jan. 1995 171

Lithuania 8 Nov. 1993 1 June 1994 239

Uruguay 2 Dec. 1993 1 Dec. 1997 179

Azerbaijan 8 Mar. 1994 1 Apr. 1995

Ecuador 21 Mar. 1994 1 July 1997 179

Chile 23 Mar. 1994 1 Aug. 1995 179

Iceland 31 Mar. 1994 1 Mar. 1997

Egypt 21 Apr. 1994 1 Apr. 1996 148

Peru 9 June 1994 1 Feb. 1995

Romania 12 July 1994 1 Sept. 1995

Jamaica 26 Oct. 1994 1 Apr. 1996 179

Indonesia 18 Nov. 1994 1 Apr. 1995

Oman 19 Mar. 1995 1 Aug. 1995 148


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PartnerDate of


into ForceFootnote

with citation

Morocco 27 Mar. 1995 27 Nov. 1999

Israel 10 Apr. 1995 13 Jan. 2009 147

Serbia 18 Dec. 1995 13 Sept. 1996

Saudi Arabia 29 Feb. 1996 1 May 1997 116

Mauritius 4 May 1996 1 Apr. 2009 179

Zimbabwe 21 May 1996 1 Mar. 1998 220

Lebanon 13 June 1996 10 July 1997 148

Zambia 21 June 1996 -- 237

Cambodia 19 July 1996 1 Feb. 2000 237

Bangladesh 12 Sept. 1996 25 Mar. 1997 179

Algeria 17 Oct. 1996 -- 237

Syria Arab Republic 9 Dec. 1996 1 Nov. 2001 237

Gabon 9 May 1997 16 Feb. 2009

Cameroon 10 May 1997 -- 148

Sudan 30 May 1997 1 July 1998 237

Macedonia 9 June 1997 1 Nov. 1997 147

South Africa 30 Dec. 1997 1 Apr. 1998 147

Yemen 16 Feb. 1998 10 Apr. 2002

Swaziland 3 Mar. 1998 --

Cape Verde 21 Apr. 1998 1 Jan. 2001 148

Ethiopia 11 May 1998 1 May 2000 237

Poland 7 June 1998

Barbados 20 July 1998 1 Oct. 1999 108

Belize 16 Jan. 1999

Costa Rica 25 Mar. 1999

Qatar 9 Apr. 1999 1 Apr. 2000 237

Bahrain 17 June 1999 27 Apr. 2000 237

Congo 20 Mar. 2000 --

Botswana 12 June 2000 -- 143

Iran 22 July 2000 1 July 2005 190

Brunei Darussalam l17 Nov. 2000 -- 148

Cyprus 17 Jan. 2001 29 Apr. 2002 144

Sierra Leone 16 May 2001 -- 148

Mozambique 10 July 2001 26 Feb. 2002

Kenya 16 July 2001 --

Nigeria 27 Aug. 2001 -- 148


314 [Vol. 45

PartnerDate of


into ForceFootnote

with citation

Jordan 1 Nov. 2001 -- 148

Netherlands 26 Nov. 2001 1 Aug. 2004 117

Myanmar 12 Dec. 2001 21 May 2002 148

Bosnia & Herzegovina 26 June 2002 1 Jan. 2005 148

Trinidad & Tobago 22 July 2002 24 May 2004 147

Cote d-Ivoire 23 Sept. 2002 -- 148

Guyana 27 Mar. 2003 26 Oct. 2004 147

Djibouti 18 Aug. 2003 -- 148

Germany 1 Dec. 2003 11 Nov. 2005 108

Benin 18 Feb. 2004 -- 147

Latvia 15 Apr. 2004 1 Feb. 2006 147

Uganda 27 May 2004 -- 148

Tunisia 21 June 2004 -- 148

Sweden 27 Sept. 2004 --

Finland 15 Nov. 2004 15 Nov. 2006

DPRK 22 Mar. 2005 1 Oct. 2005 148

Belgium & Luxembourg 6 June 2005 1 Dec. 2009

Equatorial Guinea 20 Oct. 2005 --

Spain 14 Nov. 2005 1 July 2008 116

Namibia 17 Nov. 2005 --

Guinea 18 Nov. 2005 --

Madagascar 21 Nov. 2005 1 June 2007 157

Slovakia 7 Dec. 2005 25 May 2007

Czech Republic 8 Dec. 2005 1 Sept. 2006 176

Portugal 9 Dec. 2005 26 Jan. 2008 116

Vanuatu 7 Apr. 2006 --

Russian Federation 9 Nov. 2006 1 May 2009 148

India 21 Nov. 2006 1 Aug. 2007 147

Pakistan (FTA) 24 Nov. 2006 July 2007 148

Seychelles 10 Feb. 2007 --

Romania 16 Apr. 2007 1 Sept. 2009

Cuba 20 Apr. 2007 1 Dec. 2008 237

Bulgaria 26 June 2007 10 Nov. 2007

Korea, Republic of 7 Sept. 2007 1 Dec. 2007 145

Costa Rica 24 Oct. 2007 --

France 26 Nov. 2007 20 Aug. 2010


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PartnerDate of


into ForceFootnote

with citation

New Zealand (FTA) 7 Apr. 2008 1 Oct. 2008 116

Mexico 11 July 2008 6 June 2009 23

Singapore (FTA) 23 Oct. 2008

Colombia 22 Nov. 2008 -- 134

Switzerland 27 Jan 2009 13 Apr. 2010 122

Mali 12 Feb. 2009 16 July 2009

Malta 22 Feb. 2009 1 Apr. 2009 135

Peru (FTA) 28 Apr. 2009 134

ASEAN (FTA) 15 Aug. 2009 15 Feb. 2010 135

Bahamas 4 Sept. 2009 --

Costa Rica (FTA) Apr. 2010 1 Aug. 2011

Chad 26 Apr. 2010 --

Libya 4 Aug. 2010 --

D.R. Congo 11 Aug. 2011 --

Uzbekistan 19 Apr. 2011 1 Sept. 2011

Canada 9 Sept. 2012 -- 116


316 [Vol. 45

APPENDIX 2.

Sources for the Variables Included in the Econometric Studies

1. Explanatory Variables Used in All Three Regressions

Presence of a BIT with China (Signed and in-Force)

This variable, either a 1 or a 0, represents the presence or absence ofa BIT with China for each year of the dataset. The data was taken fromthe UNCTAD and Ministry of Commerce databases.290 For each study,I ran two regressions, one using the presence or absence of a signedBIT between China and the country in question and the other usingthe presence or absence of a BIT in force between China and thecountry in question.

GDP

GDP is the sum of gross value added by all resident producers in theeconomy of the country in question plus product taxes and minus anysubsidies not included in the value of products.291 Data are in constant2000 U.S. dollars for each year. Dollar figures for FDP are convertedfrom domestic currencies using yearly official exchange rates or (forthe few countries for which official exchange rates are not available)using an alternate conversion factor.292 The data was collected fromthe WDI 2012 database.293

GDP Per Capita

Data on the GDP are in constant 2000 dollars divided by totalpopulation for the year in question.294 The data was collected from theWDI 2012 database.

290. See UNCTAD CHINA BITS; supra note 1; Bilateral Investment Treaty List, DEP’T OF TREATY

LAW, P.R.C. MINISTRY OF COMM., http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html (last visited Dec. 28, 2012).

291. See WORLD BANK, supra note 71.292. Id.293. See id.294. See id.


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GDP Growth Rate

The annual percentage growth rate of GDP is calculated at marketprices based on constant local currency.295 Like GDP, it is calculatedwithout making deductions for depreciation of assets or depletion anddegradation of natural resources. The data are collected from theWorld Bank’s World Development Indicators 2012 (WDI 2012) data-base.

Trade as a Percentage of GDP

Trade as a percentage of GDP is the sum of the exports and importsof the country in question for the year in question.296 It is calculatedin current U.S. Dollars. The data are collected from the 2012 WDIdatabase.

Inflation, Consumer Prices (Annual Percent)

As reported in the 2012 WDI report, inflation is measured by theyearly percent increase in the consumer price index (CPI).297 The CPIreflects the annual percentage change in the costs to the averageconsumer of acquiring a stable basket of goods and services, which maybe altered at specified intervals.

Real Effective Exchange Rate Index (2005 � 100)

This figure represents the nominal effective exchange rate, whichmeasures the value of a currency against a weighted average of severalother currencies, divided by a price deflator (or index of costs).298

Political Openness and Stability

To represent this variable, I used the Polity 2 number from thePolity IV dataset published by the Center for Systemic Peace.299 Themeasure ranges from �10 to 10 (most open and stable) and reflects, onthe one hand, suppression of political participation, opacity of execu-tive recruitment, and absence of institutional constraints and, on theother hand, institutions and procedures through which citizens can

295. Id.296. Id.297. Id.298. Id.299. Polity IV data, supra note 97.


318 [Vol. 45

express preferences, institutionalized constraints on the power of theexecutive, and guarantees of civil liberties.300

2. Effect of China’s BITs on Bilateral FDI Flows fromOther Countries to China Bilateral Inbound FDI Flows

from Other Countries into China

This number represents the net inflows per year of investment usedto acquire a lasting management interest (ten percent or more ofvoting stock) in an enterprise operating in China. It comprises equitycapital, reinvestment of earnings, other long-term capital, and short-term capital.301 The data are in current (or nominal) U.S. dollars,meaning the value of the dollar for that particular year. Data from years1985 through 2011 was collected from editions of the China StatisticalYearbook302 and cross-checked with UNCTAD data where possible.303

300. Marshall, supra note 97, at 13-17.301. See WORLD BANK, supra note 71.302. NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2012); NAT’L

BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2011); NAT’L BUREAU OF STA-TISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2010); NAT’L BUREAU OF STATISTICS OF CHINA,CHINA STATISTICAL YEARBOOK (2009); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL

YEARBOOK (2008); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2007);NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2006); NAT’L BUREAU OF

STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2005); NAT’L BUREAU OF STATISTICS OF CHINA,CHINA STATISTICAL YEARBOOK (2004); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL

YEARBOOK (2003); NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2002);NAT’L BUREAU OF STATISTICS OF CHINA, CHINA STATISTICAL YEARBOOK (2001); STATE STATISTICAL

BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (2000); STATE STATIS-TICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1999); STATE

STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1998);STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK

(1997); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEAR-BOOK (1996); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL

YEARBOOK (1995); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTI-CAL YEARBOOK (1994); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA

STATISTICAL YEARBOOK (1993); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF CHINA,CHINA STATISTICAL YEARBOOK (1992); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC OF

CHINA, CHINA STATISTICAL YEARBOOK (1991); STATE STATISTICAL BUREAU OF THE PEOPLE’S REPUBLIC

OF CHINA, CHINA STATISTICAL YEARBOOK (1990); STATE STATISTICAL BUREAU OF THE PEOPLE’SREPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1989); STATE STATISTICAL BUREAU OF THE

PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1988); STATE STATISTICAL BUREAU OF

THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1987); STATE STATISTICAL BUREAU

OF THE PEOPLE’S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK (1986).303. See UNCTADS Statistics, UNCTADSTAT, http://unctad.org/en/Pages/Statistics.aspx

(last visited Dec. 30, 2012).


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Total Number of China’s BITs

Numeric variables show how many BITs China had signed with allother countries. The data was taken from the UNCTAD database,304

which lists treaties concluded up to June 1, 2012, and the ChinaMinistry of Commerce website.305

3. Effect of China’s BITs on Aggregate FDI Flows toDeveloping Countries

Total Inbound FDI Flows into Developing Countries

This number represents the aggregate net inflows per year of invest-ment used to acquire a lasting management interest in an enterpriseoperating in the developing country host. FDI is defined as the sum ofequity capital, reinvestment of earnings, other long-term capital, andshort-term capital, as shown in the balance of payments. Data are incurrent U.S. dollars.306 The data was collected from the WDI 2012database.307

Population

The statistics include the population for each year from 1985 to 2010as reported in the WDI 2012 database.

Cumulative BITs Signed by Developing Country

The variables represent the total number of BITs signed by eachcountry in the dataset up to and including the year in question. Thedata was collected from the UNCTAD database.308

4. Effect of China’s BITs on Bilateral FDI Flows from China toDeveloping Countries Bilateral Inbound Outward FDI

Flows from China to Developing Countries

This number represents the aggregate net inflows per year of in-vestment from Chinese investors (including the PRC government)used to acquire a lasting management interest in an enterprise operat-

304. UNCTAD China BITs, supra note 1.305. Bilateral Investment Treaty List, supra note 290.306. See WORLD BANK, supra note 71.307. See id.308. Country Specific Lists of BITs, UNCTAD, http://unctad.org/en/Pages/DIAE/

International%20Investment%20Agreements%20(IIA)/Country-specific-Lists-of-BITs.aspx (lastvisited June 1, 2012).


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ing in the developing country host. The data was collected from theStatistical Bulletin of China’s Outward Foreign Direct Investment, pub-lished by the Chinese Ministry of Commerce and the National Bureauof Statistics.309

309. P.R.C. Ministry of Comm., Nat’l Bureau of Statistics of China & Admin. of ForeignExch., 2010 Statistical Bulletin of China’s Outward Foreign Direct Investment (2011); P.R.C.Ministry of Comm., Nat’l Bureau of Statistics of China & Admin. of Foreign Exch., 2008 StatisticalBulletin of China’s Outward Foreign Direct Investment (2009).


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