China's Belt and Road initiative: Opportunities but some risks! 关于中国的一带一路倡议:机遇遍地,但仍有风险!

Published on 2019-05-06

China's Belt & Road Initiative (BRI), now heading into its 7th year, is a hugely ambitious undertaking by China and participating nations; with the aim of greatly improving regional connectivity, facilitating trade and mutual understanding in the regions.


As the International Monetary Fund (IMF) puts it, the “BRI has great potential for China and participating countries. It could fill large and long-standing infrastructure gaps in partner countries, boosting their growth prospects, strengthening supply chains and trade and increasing employment.” With so much work to be done, opportunities for commercial parties from China and the rest of the world are plentiful.


However, with increased cross border transactions comes the higher risk of disputes occurring. Parties to an agreement to a BRI project are most likely to hail from different countries, raising further difficulties regarding lack of familiarity with foreign laws and regulations, along with other customs of the land. We highlight the areas of risk that commercial parties may face, and how to navigate these risks with the guidance of experts and professionals; and indeed if disputes do arise, how to be best placed to resolve them.


What are the risks? 有什么风险?

BRI projects will inevitably be challenging for Chinese parties both politically and technically. Depending on the economic and political stability of the host state, BRI investments may be subject to risks in relation to security, laws, regulations, local customs and attitudes among other concerns. In relation to the law alone, pertinent to contract forms, the Belt and Road meanders through legal regimes of common law, civil law, continental law, Islamic law and other hybrid systems. This is before factoring in the cross border complexities of BRI transactions. Other considerations may include strict compliance with environmental and workplace laws, forcing Chinese contractors to negotiate with labour unions and local communities. An example can be seen with the Hambantota Port in Sri Lanka, where the locals made their feelings clear with protests regarding the development of the port which resulted in loss of land, fears of political corruption, national and regional political and security worries. Some markets of the BRI may harbour political turbulence or armed conflict. An example of this can be seen when in 2012 South Sudanese rebels kidnapped 12 Power Construction Corporation workers.


How to mitigate these risks? 如何将这些风险降至最低?

The best and simplest way of mitigating these risks is to seek professional advice and guidance. Professional services firms are able to help the commercial parties to navigate in unfamiliar territories where the business is based. Law firms can oversee compliance with local regulations such as labour and tax requirements; they will be able to work on contracts and insurance, business structure, as well as undertaking crucial due diligence on the country and business prospects. Local partners are also important for success. They are able to provide a real understanding of the culture of the territory.


Another factor which needs to be kept in mind is that success in one country does not necessarily mean success in another. Therefore, to build a genuine global business, professional services and local partners are imperative.


When disputes arise, why choose International Arbitration? 发生争议时,为什么要选择国际仲裁?

Unfamiliar courts and unfamiliar Law 不熟悉的法庭与法律

When cross border disputes arise, parties may face the daunting prospect of attending legal proceedings in a foreign court or be governed by foreign laws of another jurisdiction. Several questions will need to be answered, for example, what is the applicable law? Will the decision be enforced abroad? Will the court be impartial? These are risks which are particularly pertinent for commercial dealings spanning multiple jurisdictions.


Arbitration agreement 仲裁合约

Arbitration has more often than not been favoured by commercial parties globally for settling disputes. International arbitration allows for parties to disputes involving large, complex infrastructure projects to select arbitrators from amongst experts in the appropriate field. Each party can nominate an arbitrator to the panel, with a neutral chairperson. For the parties to the dispute, this would be preferable to the mandatory assignment of judges by domestic courts.


Therefore, clarity in drafting of the arbitration clause in a contract is important. A contracting party needs to ensure that it provides for disputes to be resolved by an arbitration institution under their administered arbitration rules or even on an ad hoc basis. This way, the risk of resolving disputes in potentially less favourable local courts on the BRI and/or being unable to enforce an award or judgment once obtained, are minimised.


Chinese companies are known to be open to arbitrations being held in the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC).


In January 2017, the Singapore International Arbitration Centre (SIAC) released updated arbitration rules and new SIAC Investment Arbitration Rules, with the intent on attracting BRI related investment disputes. In March 2018, the Court of Arbitration of the International Chamber of Commerce (ICC) set up a Belt and Road Commission to explore opportunities and develop appropriate dispute resolution procedures to support BRI disputes. In April 2018, the Hong Kong International Arbitration Centre (HKIAC) set up its own Belt and Road Advisory Committee and launched an online resource centre to support BRI related business opportunities.


Overcoming home court advantage 克服主场优势

The main aspect of obtaining a court judgement for a party to a dispute is to gain a fair and unbiased decision. A contractor will not want to find itself facing judges in the land of the other side to the dispute. Firstly, the law will be unfamiliar and the other side will have significant advantage in understanding the law. Secondly, in some countries with a reputation of corruption in the legal system, a foreign contractor will not be confident of a fair hearing. Therefore, it is important to include within the contract an Arbitration Agreement Clause, specifying a neutral location for the settlement.


Confidentiality of disputes 争议保密

Litigation is generally conducted in open court where the public is permitted to attend. The existence of disputes, crucial business information and adverse findings can all be made available to the public through court litigation.


The confidential nature of arbitration ensures that all information will remain between the parties. Preserving confidentiality will not only safeguard the reputation of the parties, but also protect the parties' business/trading from being affected by any ongoing dispute.


Enforcement of decisions 判决的执行

The 1958 New York Convention of the Recognition and Enforcement of Foreign Arbitral Awards (The Convention) specifies that arbitration awards made in a signatory's jurisdiction should be enforceable in another signatory's jurisdiction. With 159 contracting-parties to the Convention, commercial parties can be confident about enforcing an arbitral award in these states as long as the selected seat of arbitration is a signatory to the Convention. This is an advantage over the enforcement of court judgements, which depends on the mutual recognition of judgements between states and usually requires legislation. Furthermore, processes for enforcing foreign court judgements may vary significantly in different countries, therefore posing difficulties for parties seeking enforcement. When drafting the arbitration clause of a commercial contract, parties must ensure that the seat of arbitration chosen is also a signatory to the New York Convention. For an overview, 92% of countries on the BRI are signatories to the Convention. However, the following countries involved in BRI projects are not signatories to the Convention: Ethiopia, Iraq, Maldives, Timor-Leste, Turkmenistan, Yemen.

1958年在纽约缔结的《承认及执行外国仲裁裁决公约》规定:某具有管辖权的缔约国所做出的仲裁裁决应当在其他缔约国可得到强制执行。鉴于公约的缔约方共有159名,则只要仲裁庭所在地为该公约的缔约国,在这些国家中执行仲裁裁决就有保证。就这一点而言,仲裁裁决是优于法庭裁决的,因为法庭裁决需要两国间通过立法相互认可彼此的判决。此外,不同国家间对于执行国外法庭判决的程序差异巨大,从而对寻求执行裁决的当事方造成了困难。在起草商业合约的仲裁条款时,当事方必须确保所选择的仲裁庭来自于上述纽约公约的缔约国。综上,参与一带一路项目的国家中, 92%是公约的缔约国,下述国家除外:埃塞俄比亚、伊拉克、马尔代夫、东帝汶、土库曼斯坦和也门。

Make the right choice 做出正确选择

The Belt and Road Initiative is a historic venture in establishing and strengthening multinational trade corridors. It is an initiative that will improve economic connectivity and cooperation between two-thirds of the world’s population, and opportunities for contractors need to be taken. It is not without risk for those companies that are investing in and working on BRI projects. The risks include political risks, foreign investment restrictions, tax, local employment and environmental laws among many others. However, the prize of a successful business foray onto the Belt and Road is very much worth competing for. And for a project to be successful it is important for the preparations to be thorough in order to mitigate the risks involved. As discussed, this should be done by having expert advice from people with in depth knowledge of the localities. And when disputes do arise, it should always be remembered that they need to be resolved efficiently and with minimal damage to the parties' commercial relationships. Drafting an Arbitration Agreement Clause into the contract will go a long way in achieving that. For the Belt and road Initiative is a long journey, and there needs to be longevity in relationships between parties.

一带一路倡议是建立、加强跨国贸易的历史性创举。这一倡议将改善全球三分之二人口间的互联互通与合作;对承包商而言,可谓是充满了机遇。但这并不意味着投资、从事一带一路项目的公司就可高枕无忧了。这其中是有风险的,包括政治风险、外资投资限制、税负、当地劳工法与环境法等。然而, 参与一带一路项目,取得商业成功所能获得的丰厚回报,又使人甘冒风险,参与竞争。欲使项目取得成功就必须做好充分的准备,以使风险降至最低。如前所述,这点应该通过向当地有渊博知识的人士寻求专业意见来规避风险。发生争议时,应牢记:要高效解决争议,对当事方商业关系的破环要降至最低。在合约中起草仲裁条款能够有效实现这一目标。一带一路倡议是一条漫长的旅途,有必要确保各当事方之间的长久合作关系。

Authors: Peter Hirst and Mun Yeow —— Clyde & Co
著者:彼得·贺思特及张敏 –—其礼律师事务所

For further information, please contact:
Peter Hirst (彼得•贺思特)
Partner and Chairman of BRI Committee
Mun Yeow (张敏)
Partner and Chief Representative, Beijing