China’s State-Directed Economy and the International Investment Regime

Abstract

This chapter examines China’s involvement in the international investment regime, which has more profound implications compared to its practice in the world trading system, as the state tends to positively develop its role as a competitor by facilitating powerful SOEs to participate in international investment. The chapter reveals how China maintains its triple role in both inbound and outbound investment markets and how it employs various legal instruments to assist its performance of the triple role. It argues that international investment law is faced with challenges from the rise of the state-directed economies at three different levels. Firstly, this is because the state is able to directly participate as a competitor in the investment market and to implement long-term plans through the operation of its SOEs, whereby it can easily escape from the governance of traditional international investment law, which mainly focuses on the regulatory measures of the state. Secondly, the state can play a role as a competitive investor and extend its participation in outward investment markets because the majority of existing international investment instruments merely encumber host states. It means that in most circumstances a state assumes obligations under international investment treaties only when it intervenes in its inward investment market. Thirdly, the state’s role as a competitor enables it to utilise contracts, rather than international treaties only, to shape its inward and outward investment regimes and to advance investment interests. By contrast, although a traditional capitalist country may also enter into a contractual arrangement, it is usually in the role of a regulator with its capacity restrained by both national and international investment treaties.