The Third Belt and Road Forum for International Cooperation was held in Beijing between October 17-18, 2023 Photo: CFP

In October, China hosted the Third Belt and Road Forum for International Cooperation in Beijing, marking the 10th anniversary of the Belt and Road Initiative (BRI). The Report to the 20th National Congress of the CPC once again emphasizes the promotion of high-quality development in the joint construction of the BRI. While welcoming new opportunities, Chinese companies engaging in economic and trade activities with countries participating in the BRI also face various legal risks that could potentially harm the interests of investors and affect the long-term development of the BRI. Therefore, it is crucial to further coordinate domestic and international legal frameworks, mitigate various legal risks, and ensure the stable and far-reaching progress of the BRI construction.

Legal risks

The legal risks associated with the joint construction of the BRI are diverse and can be broadly categorized into three main types.

Firstly, risks associated with legislation and policy changes are prominent, especially in Africa, which is a crucial region for the BRI. In recent years, countries such as Tanzania, the Democratic Republic of the Congo, South Africa, and others have enacted localization laws in the mining and energy sectors. These laws typically impose requirements such as the mandating of a higher ratio of local ownership in foreign-owned companies, local sourcing of goods and services, employing local staff, and technology transfer to local entities. Since Chinese companies have primarily concentrated their investments in these areas, they are particularly susceptible to the potential impacts of these regulations.

Incomplete or changing tax laws and policies can also pose risks. On one hand, China and many BRI countries have not yet signed or implemented double taxation avoidance agreements, which can expose Chinese companies to the risk of double taxation. On the other hand, tax laws and policies in many BRI countries are subject to significant changes, and some governments may impose additional taxes on Chinese enterprises, particularly in the aftermath of the pandemic, introducing legal risks.

Political changes in host countries can also introduce risks. For instance, internal conflicts or military coups in countries such as Ethiopia, Guinea, Chad, Mali, and others are often accompanied by armed conflicts, property expropriation, and government defaults, which may lead to interruptions in investment projects or threats to investment security.

The second source of risks pertains to specific legal sectors. Chinese companies face numerous legal risks in areas such as labor law and environmental protection law. Regarding labor law, Chinese companies may lack familiarity with the labor and employment legal systems of the host country. Differences in management practices and local customs, as well as challenges in communicating with local labor unions, can give rise to labor disputes. These disputes are closely related to ESG standards and human rights. For example, in recent years, Chinese companies investing in countries like Zambia, Zimbabwe, Ethiopia, and others have experienced labor disputes. Some of these disputes, have had adverse effects on the BRI.

Meanwhile, with respect to environmental protection law, many BRI countries have fragile ecosystems and weaker economies. With a primary focus on the mining, energy and construction industries, Chinese investment is particularly susceptible to environmental disputes or lawsuits. This can strain the relationship between Chinese companies and local communities, and in some cases, lead to the revocation of investment permits by local governments, resulting in economic losses. Moreover, environmental issues can be exploited by Western media to propagate narratives like “resource exploitation” and “irresponsible development” by Chinese companies, tarnishing China’s investment image. For instance, in June 2011, a Chinese company had to abandon a highway project in Poland after two years of development due to environmental concerns. In 2018, a Chinese gold mining company’s project in Ecuador faced accusations of causing environmental pollution, leading to a temporary halt in construction.

The third risk is associated with transnational disputes. As the BRI advances, economic and trade activities between China and the countries participating in the initiative have increased, leading to a significant number of transnational civil and criminal disputes. Currently, legal systems of BRI countries vary, and there are limited channels for bilateral and multilateral judicial cooperation. This situation is not conducive to the resolution of civil and commercial disputes and does not effectively address and combat transnational crimes.

For example, civil and commercial disputes between China and African BRI countries are increasing. However, China has only signed bilateral civil and commercial judicial assistance treaties with five African countries. Additionally, only a few African countries, such as South Africa, Seychelles, and Mauritius, have joined conventions like the Hague Evidence Convention and the Hague Service Convention. This creates significant inconveniences for the resolution of civil and commercial disputes between China and Africa.

Furthermore, some Chinese individuals have been involved in criminal cases in African countries in recent years. However, China has signed bilateral criminal judicial assistance and extradition treaties with only a few African countries. This limited legal framework is not conducive to combating such transnational criminal cases and protecting the personal and property rights of Chinese companies and individuals.

Integrating domestic, foreign systems

In recent years, the Party and the country have attached great importance to safeguarding the legitimate rights and interests of Chinese citizens and enterprises overseas. Guided by Xi Jinping’s legal thought, China has formulated a series of foreign-related laws, including the Anti-Foreign Sanctions Law, the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures, and the Counter-Espionage Law. These laws effectively counteract unilateral sanctions and long-arm jurisdiction imposed by certain countries, safeguard national sovereignty, security, and development interests, and play a crucial role in protecting China’s overseas interests. However, in the long run, for better utilizing legal means to support the high-quality construction of the BRI, it is necessary to further coordinate domestic legal systems and foreign-related legal frameworks.

To begin with, the enhancement of the domestic legal framework and the expansion of foreign legal governance are imperative. China should further refine its domestic legal framework to establish a solid foundation for foreign legal governance. Although China has already enacted laws such as the Law on Foreign Relations and Foreign State Immunity Law and has made amendments to the foreign-related sections of the Civil Procedure Law, there is still a need for further improvement of relevant provisions in laws like the Arbitration Law, National Security Law, Criminal Law, and the Anti-Foreign Sanctions Law.

At the same time, China should broaden the scope of bilateral legal systems and expand its involvement in multilateral legal frameworks. Specifically, China should sign more bilateral agreements with countries participating in the BRI, including bilateral investment protection treaties, double taxation avoidance agreements, civil and commercial judicial assistance treaties, bilateral criminal judicial assistance treaties, and extradition treaties. These agreements will provide a legal basis for addressing relevant issues. Furthermore, China should strengthen collaboration within the framework of multilateral treaties such as the United Nations Convention against Corruption and the United Nations Convention against Transnational Organized Crime, as well as with institutions and mechanisms like The Hague Conference on Private International Law, the International Centre for Settlement of Investment Disputes, and the Asian-African Legal Consultative Organization.

Secondly, we need to establish dispute resolution mechanisms for the BRI. Currently, investment disputes between China and countries participating in the BRI are primarily resolved in Western arbitration institutions, with most arbitrators coming from Western countries. This can be inconvenient for Chinese and partner country parties.

On one hand, China and partner countries can establish joint arbitration mechanisms tailored to the types of cases and their unique characteristics, creating a multilateral BRI dispute resolution platform. On the other hand, there is a need to further strengthen the development of the China International Commercial Court, and make amendments to relevant legal systems like the Civil Procedure Law and the Arbitration Law, to enable Chinese outward investment enterprises to better utilize the China International Commercial Court for resolving disputes with parties from partner countries.

Finally, it’s crucial to cultivate talent with expertise in foreign legal affairs and raise legal awareness among Chinese enterprises. Strengthening foreign legal governance requires a group of highly qualified professionals in the field of foreign law. Specifically, we should nurture versatile individuals who are proficient in foreign languages, have a good grasp of economics, technology, international trade rules, and foreign legal systems. Such individuals can provide due diligence for Chinese enterprises’ investments in countries participating in the BRI. Moreover, they can represent or assist Chinese companies in asserting their rights abroad or in international arenas.

In addition, during the advancement of the BRI, Chinese companies must continuously enhance their legal awareness. They should willingly adhere to the legal systems of the host countries, refrain from employing unfair competition practices and bribery to secure contracts, respect local customs and practices, fulfill corporate social responsibility, localize their operations, maintain positive community relationships, and prioritize the long-term development of their investments in host countries.

Zhu Weidong is the director and research fellow of the African Legal Research Center at the Institute of West Asian and African Studies at CASS.