China to create international courts for Belt and Road disputes

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Sri Lanka, January 2 2018: A Chinese-funded $1.4 billion land reclamation project next to Colombo’s main sea port

Multi-jurisdictional dealings between Chinese entities and their emerging market counterparts can pose immense regulatory challenges, especially in the realms of financing and execution. To address trade and investment disputes along the Belt and Road, the world’s second-largest economy intends to establish international courts in Beijing, Xi’an and Shenzhen, local media reports announced last week.

The new institutions will be based on Beijing’s existing judiciary, arbitration and mediation agencies, according to state-run media outlet Xinhua. There are concerns, however, that the China-led legal system will favor local parties over foreign players.

“The fact that the arbitration courts will be under the Supreme People’s Court will be a red flag for many corporate entities,” said Hugo Brennan, analyst at risk consultancy Verisk Maplecroft, referring to China’s highest judicial body. “The judiciary is subservient to the Chinese Communist Party and its interests, which will raise legitimate concerns around.”

Excessive Chinese control is a frequent complaint about President Xi Jinping’s initiative to boost Beijing’s economic influence throughout Asia and Europe, with the government deciding which countries get funding and when. Critics have said Beijing is using the multibillion-dollar program of railways and ports to push its political and economic agenda in the developing world.

“It is uncertain how much the legal authority of China is expected by Beijing to influence disputes, which by their cross-border nature, are also bound by other nations’ sovereign laws,” Chris Devonshire-Ellis, founder at Dezan Shira & Associates, an Asia-focused advisory firm specializing in legal, accounting and compliance services, wrote in a recent note.