INTERNATIONAL ARBITRATION 1/3LY
CHINESE WHISPERS 21
“Chinese companies want to diversify. They want yield and they want to acquire new technologies and ways of doing business. While that is admirable, it is our experience that the more active the investment, the more likely it is that there will be disputes. I regularly deal with cases where a joint venture has come undone because the parties were at cross purposes due to cultural differences or conflicting commercial objectives.” THE ECONOMI C BACKDROP Since the 1990s, the Chinese economy has seen astonishing growth – which analysts trace back to 1978, when the Communist Party decided to adopt capitalist market principles, starting in the agricultural sector. But in the past two years, the fire breathing dragon has been getting short of puff. Growth has slowed, and in 2015 the Chinese economy expanded by only 6.9 per cent – the slowest rate for 25 years. The International Monetary Fund predicts 6.6 per cent growth this year, falling below 6 per cent in 2018. As the world’s second biggest economy after the US, a severe Chinese slowdown would send tremors – and potentially financial earthquakes – across the globe. But this is not the expected outcome. Andrew Fennell of Fitch Ratings, for example, who has been assessing China’s predicted outlook for the next two years, suggests that a “hard landing” for the Chinese economy is “unlikely”. But he adds: “China faces an inevitable structural adjustment that will last for years to come, and is likely to see growth settle well below the 6.5 per cent that many expect by the end of the decade.” Part of the reason for China’s slowing growth lies in its current attempts to re- balance itself, moving from an economy driven by exports and investment, to one in which consumption and services are the main drivers. Some of its big challenges include high levels of corporate debt, relatively low productivity compared to rival countries – partly due to the high number of state-owned enterprises, which are not as productive as the private sector – and serious overcapacity in the iron ore, steel and coal-mining sectors.
The ‘OBOR’ project recognises that stimulating growth elsewhere in the world will benefit China, by creating a demand not only for its steel, but also the goods it produces. It also increases China’s ‘soft power’, and with foreign governments vying for its capital, it arguably lessens the West’s determination to challenge China over difficult issues such as human rights. E A S TERN PROMI SES With this surge in outward investment, doing business with Chinese companies will become increasingly common. But when it is a Chinese company sitting across the table, there is one issue in particular at the forefront of a general counsel’s mind: What happens if the Chinese party breaches the contract? Bell recommends that, if signing a deal with a Chinese company that has assets in multiple jurisdictions, it is a good idea to include a dispute resolution clause that provides for international arbitration. This is because it should be possible to enforce the arbitration award against assets in a wide range of jurisdictions. But if the Chinese company only has assets in China, then arbitration before CIETAC, China’s most widely used arbitration centre, is probably the next best option. Protecting intellectual property (IP) rights is another key issue for general counsel, Bell adds. “Where a Chinese company has infringed IP rights by manufacturing and selling goods in China using the other party’s IP, it can be very difficult to bring this to a halt,” he warns. “While this risk cannot be completely eliminated, it can be minimised by getting advice from a lawyer familiar with IP law in China before the contract is signed.” If a breach of contract does indeed occur, and recourse to arbitration is needed, what can be expected from a Chinese counterparty? Ruth Stackpool-Moore, head of Harbour Litigation Funding in Hong Kong and former managing counsel at the Hong Kong International Arbitration Centre, explains that Chinese companies have recently begun to change their attitude towards arbitration.
CHINESE COMPANIES HAVE RECENT LY BEGUN TO CHANGE THE IR AT T I TUDE TOWARDS ARBI TRAT ION.
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