Why China is changing its laws to allow court action against foreign states
- Analysts say changes had been in the pipeline for a long time, but Beijing was spurred to act because of concerns about its increasing investments abroad
- The move aligns the country with international norms, but some concerns have been raised about protections for lower-ranked officials
China’s recent decision to allow legal action against foreign states indicates its increased willingness to use legal means to defend its national interest, analysts have said.
From January 1 next year, sovereign states and their property will no longer be fully immune from prosecution in China.
China will move to allow cases concerning commercial activities and territorial torts – defined as cases involving death or injury, or damage to property – from foreign state representatives, including diplomats, to come to court.
But there are often exceptions to non-sovereign state actions, most commonly defined as commercial activities or territorial torts.
By ratifying the Foreign State Immunity Law, China will abandon its traditional “absolute immunity” theory – in which states cannot be sued or have assets seized, even in commercial activities – and move to provide “restrictive immunity”, where that immunity only applies to the exercise of sovereign power.
The law is seen as a response to current economic pressures and China’s increasing investments overseas, especially under the Belt and Road Initiative, a project to connect China to the rest of Asia, Europe and Africa.
Legal analysts said the new law could provide room for Chinese companies to take legal action over unfair treatment such as sudden infrastructure contract termination. But they also raised concerns about the protection of lower-ranking foreign officials and a flexible application of reciprocity.
The idea is not new and was in fact discussed for decades, according to Sophia Tang, an international law professor at Newcastle University in Britain.
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But the action was only taken until recently as China was alarmed by what is regards as the unfair treatment of its companies and a series of now-dismissed lawsuits brought by US individuals, companies, and states in 2020.
Over a dozen lawsuits were filed in the US against China in 2020 to seek damages over the pandemic, including the one by the state of Missouri – which was brought to a federal district court.
The case was eventually dismissed as the court decided that China and eight affiliated defendants, including state bodies like the Chinese Communist Party and China’s Ministry of Civil Affairs, were immune from being sued.
“Although those actions were not admissible even with restrictive immunity theory, this phenomenon still alerted China,” Tang said.
If China continued upholding “absolute theory”, it could “only defend by challenging foreign courts’ jurisdiction or utilising diplomatic measures, but cannot proactively bring similar actions against foreign countries for their violation of international law”, she said.
As cross-border commercial activities increase, the new law will allow private firms to seek redress from Chinese courts or arbitral tribunals while “sending out the signal that China is willing to apply the common and more commercial friendly international standards”, Tang continued.
That would help to improve foreign investors’ confidence in China, she said.
Under the Foreign State Immunity Law, individuals or companies in China will be allowed to file lawsuits against sovereign states or their representatives when they have conflicts over commercial transactions, investment, loans, labour contracts, immovable property, intellectual property and so on.
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Lawsuits against foreign states or diplomats causing “personal injury or death or damage to movable or immovable property” will also be allowed.
The law also permits foreign state assets to be seized and bank accounts to be frozen if they are used for commercial activities in line with Chinese civil law.
One major issue that the law responds to is the termination of Chinese company contracts by foreign governments, said Cai Congyin, a professor of international law at Fudan University.
As a major part of the Chinese investment profile is infrastructure for foreign governments, “you may understand how huge of risks arising from the host state because of government changes,” he said.
It’s odd to me that the Chinese foreign state immunity law … only mentions head of state immunity
The country adopted the Anti-Foreign Sanctions Law in 2021 in response to increasing trade restrictions issued abroad, while it amended the Anti-Espionage Law this year to expand investigative power against foreign spies.
The Chinese law has also raised concerns about the immunity of foreign officials, especially lower-ranking ones. It says that diplomatic immunity, which is guaranteed under international agreements, will not be affected.
Under the new law, lawsuits against foreign states or diplomats causing “personal injury or death or damage to movable or immovable property” will be allowed.
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There are generally two categories of immunity under customary international law – one provides full immunity to high-level officials while another provides immunity to the lower ranks, former heads of state and foreign ministers when their acts are taken in their official capacity, according to William S Dodge, a law professor at the University of California, Davis.
He said: “It’s odd to me that the Chinese foreign state immunity law … only mentions head of state immunity [which includes heads of government and foreign ministers] and not immunity of other officials.
“Maybe that is because it intends for the law to apply to and govern the immunity of those other officials,” Dodge said, citing a hypothetical example of a US official who arranges for a debt offering that contradicts Chinese commercial interest.
He said the Chinese law is closely aligned to the international standards set by the United Nations, with the main difference being one of reciprocity, which was added to China’s own laws but does not feature in the UN Convention on Jurisdictional Immunities of States and Their Property.
“This provision justifies that if a foreign country grants China less immunity than their law provides, China can similarly grant the same lesser immunity to that foreign country,” Dodge explained.
“So if the United States were to pass a Covid-19 exception to the Foreign Sovereign Immunities Act, then China, based on the exception and Article 21 of the law, could allow Covid-19 related lawsuits to go forward in Chinese courts.”
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But the concept of reciprocity is yet to be interpreted in the Chinese courts, he said, adding that making exceptions according to foreign laws before the exception was applied to China could be possible.
He said with the rare US exception of state-sponsored terrorism, Chinese courts could conceivably apply the article to what they might designate as US terrorism against China, even before the US applied any terrorism-related suits to China.
Ryan Mitchell, an associate professor at the Chinese University of Hong Kong, also noted the “most important provision” of reciprocity.
He said: “This article leaves open a relatively flexible application of the Foreign State Immunity Law, and could ultimately mean exceptions to immunity being carved out in response to litigation occurring in overseas jurisdictions.”
While he expected commercial cases to take up most its most immediate applications, he said tort cases could raise more ambiguous questions when deciding whether immunity applies.
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The ambiguity sometimes involves state-owned enterprises, which China generally views as a separate legal entity from the state when performing commercial functions.
However, Beijing has publicly stressed that US courts have no jurisdiction in suits against a country’s “state-owned properties” on some occasions.
For example, when China National Building Materials Group, a state-owned building products company, was sued by some individuals and a company from the US for making drywalls that led to health problems, the foreign ministry in Beijing sent a diplomatic note arguing US courts had no jurisdiction over the form.
Mitchell explained that the key of Beijing’s “stronger insistence on immunity” lies in the involvement of the state-owned Assets Supervision and Administration Commission, a higher-level holding company of CNBM, as well as its political element of the case.
However, in purely commercial cases, when Malaysia’s TNB Fuel Services filed an arbitration award against China National Coal Group Corporation in 2016 in a Hong Kong court, Beijing did not voice support for its claim of sovereign immunity.
Hong Kong’s highest court ruled that courts in the city follow the Chinese practice on state immunity after the Congo case – in which the Democratic Republic of Congo was sued by a Delaware company seeking to enforce two arbitration awards obtained in Paris and Zurich.
The city’s courts eventually ruled that a state’s commercial activities are immune from litigation in Hong Kong.
While the law does not directly apply to China’s own immunity or that of its state-owned enterprises, China’s positions on immunity claims for Chinese companies overseas is expected to “closely match with the rules it has adopted at home for foreign states and their instrumentalities in Chinese courts”, Mitchell said.
Bing Ling, a Chinese law professor at the University of Sydney, said Article 19 of the law allows the foreign ministry to advise the court on how to adjudicate a state immunity case, meaning “extralegal considerations” may become a factor
“A foreign state who feels it is unfairly treated may take the matter to the Chinese government on the diplomatic level and the case would then become a political rather than legal matter,” he said.
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Ling, said with the passing of the law, China would eventually develop its own theory and practice on the restrictive doctrine.
Tang, the Newcastle University international law expert, agreed Chinese individuals and companies may use litigation as geopolitical tools, as some individuals attempted in response to the US Covid-19 accusations.
“But those are exceptional examples,” she said. “I do not consider the new Foreign State Immunities Law will lead to the flood of this type of litigation.
“It is likely China would interpret this law pursuant to international common practice. In technical terms, there is no sign that China would induce a different interpretation from Western countries,” she said.
