Foreign Direct Investment and Investment Arbitration in China and Hong Kong

Abstract

INTRODUCTION Investment has become increasingly important in shaping the economic landscape in Asia. In recent years, there has been a burgeoning number of bilateral investment treaties (BITs) and investment chapters incorporated into bilateral and regional free trade agreements (FTAs) in China. The rapid growth in the economy of China means that China's approach to investment and the resolution of investment disputes are of significant importance for other Asian countries and for the world at large. This chapter gives an overview of Foreign Direct Investment (FDI) trends in China, examines the existing investment legal regime in China, and gives a detailed analysis of China's track record in investment treaty claims. Given the specific autonomous status of Hong Kong Special Administration Region (Hong Kong SAR), it is authorised to conduct the relevant external affairs in accordance with the Basic Law, including to conclude bilateral investment treaties. Therefore, the FDI trends in Hong Kong and Hong Kong's existing investment legal regime will also be discussed separately. Whether the BITs entered into by China will apply in Hong Kong will also be addressed. OVERVIEW OF FOREIGN DIRECT INVESTMENT IN CHINA AND HONG KONG FDI plays a significant role in the economic growth of developing countries. Despite its potential risks, FDI remains the largest and most constant external source of finance for developing economies, compared with portfolio investments, remittances and official development assistance. The definition of FDI varies from treaty to treaty and researcher to researcher. This chapter makes reference to the FDI definition provided by the United Nations Conference on Trade and Development (UNCTAD) : an investment reflecting a lasting interest and control by a foreign direct investor, resident in one economy, in an enterprise resident in another economy (foreign affiliate). Globally, after a strong rise in 2015, FDI flows lost growth momentum in 2016, as a result of weak economic growth and significant policy risks. Global FDI inflows fell by two percent to USD 1.75 trillion. Flows to developing economies were especially hard hit, with a decline of 14 percent to USD 646 billion. FDI inflows to developing Asia contracted by 15 percent to USD 443 billion in 2015.