China’s New Belt and Road Trade Dispute Mechanism

China has announced that it will establish Belt and Road Courts in Beijing, Xi’an, and
Shenzhen under the authority of the Supreme People’s Court of China […] It is unclear which authority China have claimed jurisdiction over BRI disputes. There are existing mechanisms to deal with such matters, ranging from existing bilateral investment treaties to multilateral agreements […]


The Chinese government has approved a guideline to establish a mechanism to solve trade and investment disputes among Belt and Road Initiative (BRI) nations; the guidelines were passed during a meeting of the Leading Group for Deepening Overall Reform of the 19th Communist Party of China Central Committee.

It was agreed that the principle of wide consultation, joint contribution, and shared benefits should be observed in establishing the mechanism and institution. The basic text states that a dispute settlement mechanism connecting litigation, mediation, and arbitration will be created on the basis of China’s current judiciary, arbitration, and mediation agencies, and by absorbing and integrating legal service resources from home and abroad. Members of the group called for equal protection for both Chinese and foreign parties’ rights to create a stable, fair, and transparent law-based business environment.

China does have an existing trade dispute body, the China International Economic and Trade Arbitration Commission (CIETAC); however, the organization has had problems. All joint ventures in China must contain a trade dispute clause within their articles, which typically refers such matters to CIETAC.

Examining exactly how China proposes to handle trade dispute mechanisms along the Belt and Road while potentially attempting to impose its own arbitration rules on other nations is going to be an interesting legal development to follow. The circumstances of the new arbitration process once it goes into effect and whether it takes precedence over existing trade dispute mechanisms is of vital importance. If so, legal counsel globally will need to look at the implications, regardless of whether their clients even have a presence in China or not.

Dispute resolution at China’s new Belt and Road courts

China has announced that it will establish Belt and Road Courts in Beijing, Xi’an, and Shenzhen under the authority of the Supreme People’s Court of China. The Xi’an court will manage commercial disputes for the Silk Road Economic Belt, which connects China, Central Asia, the Middle East, and Europe. The Shenzhen court will manage commercial cases for the Maritime Silk Road, which connects China,Southeast Asia, Africa, and Europe. Media reports state that Beijing will seek to promote the courts to resolve disputes that emerge in the BRI; observers have noted that the courts appear like the International Commercial Court in Singapore and the International Finance Centre Courts in Dubai.

It is unclear over which authority China has claimed jurisdiction over BRI disputes.There are existing mechanisms to deal with such matters, ranging from existing bilateral investment treaties to multilateral agreements such as those ASEAN has with China, the 2012 “Agreement on Dispute Settlement Mechanism of the Framework Agreement on Comprehensive Economic Cooperation”.

Most bilateral treaties and the ASEAN treaty provide for similar conflict resolution processes: consultation, followed by mediation,followed by arbitration by an ad-hoc arbitration tribunal, with no preset venue or choice of law, either procedural or substantive.

Beijing’s move to establish BRI-specific courts seems to alter that position, and move jurisdiction specifically to China. The Memo randum of Understanding (MoU) China has signed off with over 70 nations concerning cooperation on BRI projects also does not appear to suggest any differing mechanisms for dealing with disputes, other than the usual terminology referring to “friendly consultations”, though these may differ from case to case. The question concerning China’s establishment of the BRI courts therefore revolves around the question of how this mechanism was agreed to between China and the BRI nations with which it has signed agreements.

Understanding China’s Belt and Road MoU

The Belt and Road arbitration courts that resolve trade and related disputes along the Belt and Road routes – in China – has raised eyebrows, as this goes against the generally accepted principal of utilizing an independent, third party as arbitrator. It is unusual for arbitration cases to be heard in a jurisdiction that has laws governing just one of the conflicted parties for obvious reasons of conflict of interest.

To establish how China may be able to pressure other countries to use its courts, the author has examined several of the publicly released MoUs China has signed with foreign governments, principally over the past 18 months to examine what has been agreed to or implied. Some of these, but not all, have been released as a matter of public record onto the public domain, and while there are differences in terms of the trade context in each – different countries have different trading environments with China, and regionally, than others – the basic structure of the agreements tends to have remained the same.

However, examination of the MoUs raise a number of other points about China’s intentions in having structured these, not least the clouding of their legitimacy, and apparent willingness to hang these (officially non-binding agreements) onto other existing legal platforms. These agreements also largely tend to favor China trade and institutions rather than those of the co-signatory, despite these being bilaterally agreed documents.

An interesting point to note is at the end of the document, where both parties agree that the document is not legally binding. However, this means that while the MoU itself may be seen as purely a cosmetic exercise as has been explained to the author by more than one diplomat, the inference swings to the implications and potential manner in which certain elements within the MoU could be interpreted by either party, and especially the Chinese. Such interpretations can, in fact, influence the way in which China views statements made within the MoU, and regard these as important in future diplomatic talks. In short, the purpose of these non-legally binding MoU is to influence, rather than direct – a subtlety that may be lost on some of the signatories.

The MoUs appear largely benign; however, it does contain the seeds of what could, in future, be used as diplomatic tools in terms of insisting that agreements have been reached over certain areas. The tying of the MoU as a non-binding agreement to agreements and institutions that already exist is a manner in which the MoU could later be seen to have implied legitimacy. Where the MoU does tend to veer towards unilateral preference, those preferences appear to benefit China and its institutions and trade, rather than those of the foreign signatory. It remains unsure how these MoUs will be used in future to influence diplomatic talks; however, the fact they refer to legitimate institutions and are signed off at government representative level does mean they could carry rather more future political influence than initially meets the eye – which is almost certainly the precise point.

Managing arbitration along the Belt and Road

There are other existing alternatives to accepting arbitration in China.These include an agreement reached in September last year between the Singapore International Mediation Centre and the China Chamber of International Commerce Mediation Centre (CCOIC), who entered into an MoU to resolve BRI cross-border disputes, while Hong Kong’s justice department has also been developing, an online dispute resolution tool for major BRI infrastructure projects.

Given these existing platforms, it could be argued that the Chinese government is trying to force other sides to accept Chinese mediation and arbitration through its proposal to have these three courts rule on all BRI disputes. China’s top legal body has been in the process of “internationalizing” its domestic court system and the three new courts are supposed to be modeled after the established ones in Singapore or Dubai.

Despite these steps by China, the choice of arbitration venue and law, both procedural and substantive, should be left to negotiation between the concerned parties. As a general rule of thumb, third party jurisdictions with established rules and an experienced body of jurists are always preferable to those jurisdictions affiliated with one or the other of the parties to a contract.

It remains to be seen how successful China will be in bringing Belt & Road disputes to courts in China. Meanwhile, legal counsel would be advised to look at exactly what was agreed upon when signing the MoU with China for Belt & Road cooperation. When signing up for Belt and Road participation, foreign governments, in the wake of all the political excitement and potential funding will still need to read the small print.

Further information

Professor Dr. Zheng Han

Professor Dr. Zheng Han is goetzpartners Chair Professor of Innovation
and Entrepreneurship at the Sino-German School for Postgraduate
Studies (CDHK), Tongji University, in Shanghai. Before his
academic career he gained relevant practical experience working
for McKinsey & Company and the Haniel Group. His latest publications
include the “German Business Innovation Survey” in cooperation
with AHK and “Insights into Success Factors of Innovation


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