Chinese SOE Investments and the National Security Protection under IIAs

Abstract

The rapid rise of state-owned enterprises (SOEs) and their cross-border investment activities in recent years has raised considerable concerns, particularly in relation to the potential detrimental impacts such investments may have on national security of host states. SOE investments are mostly from emerging economies, especially China, and are prominent in the critical or ‘strategic’ industries, such as energy, infrastructure and telecommunication sectors, and financial services. In this context, certain national security considerations in relation to foreign SOE investments have been accentuated in an increasing number of states. Here a very important issue is the role of international investment agreements (IIAs) in respect of national security protections. China’s investment treaties will be reviewed in respect of the treatment of SOEs with the objective of assessing the extent to which state capitalism has affected and contributes to the design of international treaties. The analysis will consider the period, partners, and typology of provisions. Most IIAs only provide protections in respect of the post-establishment phase. Thus, hypothetically after the Hinkley C project is established, the UK government could decide to close down the nuclear power station or divest the project for environmental or energy safety reasons. A similar situation did occur in the Vattenfall case, where the Swedish state-owned energy company brought cases in both the German Constitutional Court and ECT tribunals. Nevertheless, comparable scenarios may arise again in future SOE investments, and the problem is whether international investment agreements provide any scope for states to address their national security concerns over SOE investments.