Dispute settlement on China's terms: Beijing's new Belt and Road courts

Beijing tries hard to sell its Belt and Road Initiative (BRI) as a “win-win” for all. But the announcement of a new Chinese-led dispute settlement mechanism will only feed suspicions that the cross-border connectivity program is negotiated entirely on China’s terms.

In the messy world of building infrastructure, legal disputes are an inevitable by-product of complex cross-border projects. China’s grand connectivity program for Eurasia and beyond – the Belt and Road Initiative (BRI) – is no exception, and in response to a growing number of BRI-related court cases, Beijing has recently approved plans to set up a new Belt and Road dispute settlement mechanism.

According to the proposal, the Supreme People’s Court will establish “international commercial courts” in three cities: the historic Silk Road city of Xi’an, to cover the cross-continental land portion of the BRI; Shenzhen, Guangdong’s booming seaside metropolis, to cover the BRI’s maritime routes; and Beijing, to serve as the courts’ headquarters. Alongside these courts, the China Council for the Promotion of International Trade (CCPIT) will also establish a “Belt and Road International Dispute Management Center,” which will assist arbitration centers like the one already set up in Qianhai.

International arbitration on the Belt and Road

This sounds like a step towards more legal clarity. However, if parties fall out along the Belt and Road, it’s not as if they are currently without recourse. Procedures vary according to the nature of the dispute and the parties involved, but broadly speaking, local courts and international arbitration centres are well equipped to handle contractual disputes. With a functioning system and a  sizeable community of legal experts already excited about opportunities along the Belt and Road, the new dispute mechanism appears to have little raison d'etre.

Cost is one reason cited by the Chinese side. According to prominent Chinese scholar Wang Yiwei, the current system is “complicated, time-consuming, and costly.” By creating a dedicated BRI dispute mechanism, Beijing figures that it can streamline proceedings, cut costs, and make settlement more convenient.

But Wang’s criticism of international arbitration does not stop there. Another fault of the current system, according to him, is that it, “applies laws from Western countries and uses English as the common language.” Here, the justification for a new system finds its feet on familiar ground: the international status quo purportedly leaves China at a disadvantage. The Global Times, a state media tabloid under the People’s Daily, explicitly states that, “the existing dispute settlement regime cannot adequately protect the legitimate interests of Chinese enterprises overseas.”

A Sino-centric Belt and Road

The implication is that a dispute settlement mechanism set up under the auspices of the Supreme People’s Court will indeed protect Chinese interests. But if the new mechanism is proposed as a foil to the current international system, it is unlikely to better service international companies.

It is difficult to anticipate the precise extent to which the new Chinese courts will abide by domestic legislation and Beijing’s direction. And it is true that Beijing is not proposing that all disputes must involve the new mechanism – many issues should be settled by the terms of any given contract – but it is easy to imagine the creation of a new status quo under Beijing’s control. Given that under the current system parties are free to choose between courts and languages, the proposed mechanism might be at odds with contractual freedom along the Belt and Road.  For a small Tajik contractor entering into an agreement with a Chinese state-owned enterprise, accepting the new mechanism might prove a difficult proposal to resist.

Rhetoric and reality: a double win for Beijing

Focusing Belt and Road litigation within Chinese borders is unlikely to please investors and politicians who share a sense that BRI is already negotiated too much on Beijing’s terms.  On his state visit to China last month, French president Emmanuel Macron warned that the modern “Silk Road” could not be “one-way” and reminded his hosts that the ancient Silk Road was “never only Chinese.” Britain’s prime minister Theresa May made a similar (if less emphatic) point when she refused Beijing’s invitation to officially endorse the BRI.

China’s leaders know that the BRI’s success ultimately depends upon its acceptance by other countries. They are also keenly aware of the “western” perception that China is the main beneficiary of Belt and Road plans.

Accordingly, Beijing’s propaganda drive has been intense, and the main thrust of the party’s narrative is that the BRI is an open, “win-win” initiative, designed with the purpose of cultivating a worldwide “community of a shared destiny for humankind” In Xi Jinping’s own words, the BRI is “meant to build not China's own backyard garden, but a garden shared by all countries.”

But rhetoric does not match reality along the Belt and Road. While “win-win” is a mandatory adjective in any pronouncement on the BRI, the initiative has been much better at delivering a win for the Chinese side. The Centre for Strategic Studies recently calculated that 89 percent of Belt and Road projects are being built by Chinese companies.

Belt and Road detractors will view the establishment of the new dispute settlement mechanism as further proof that the initiative’s primary purpose is to increase Beijing’s oversight and to further the Communist Party’s ownership of the BRI narrative.