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The Issue of SOEs: Perspectives of AIIB and Other Institutions

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Chinese Multilateralism in the Asian Infrastructure Investment Bank (AIIB)

Part of the book series: Modern China and International Economic Law ((CIEL))

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Summary

The treatment standards of state-owned enterprises (SOEs) as public entities have far-reaching and significant implications against the background of China’s rise and the reform of global economic governance. The relevant standards have been abundantly debated and tested in three areas of international economic law: international financial law, represented by AIIB and other multilateral development banks; international investment law, represented by law of the International Centre for Settlement of Investment Disputes; and international trade law, represented by law of the World Trade Organization. After reviewing those areas of international law, the chapter concludes that a function-based approach has generally been observed in conducting the relevant examination, but some deviations, featuring an ownership-based approach, do exist. This finding is meaningful for the development of future international law, as well as for China’s domestic SOE reform. Broadly, it is instructive on whether China’s unique economic system, guided by a strong government, will be accepted by the international community, and if yes on what condition.

This chapter originally appeared in Hong Kong Law Journal (2020)50(3), entitled “Treatment Standards of State-Owned Enterprises as Public Entities: A Clash or Convergence across International Economic Laws”, coauthor Ms. Chengjin Xu.

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Notes

  1. 1.

    Some people describe China’s economic system by using the term “state capitalism”, which is defined as “a system in which the state functions as the leading economic actor and uses markets primarily for political gain”. “Political gain” in turn means “not for maximizing economic growth but for maximizing the state’s power and the leadership’s chances of survival”. Ming Du, “China’s State Capitalism and World Trade Law” (2014) 63 Int’l & Comp LQ 409, 410, quoting Bremmer. These people imagine that China’s state capitalism enables it to operate as China Inc., but the fact is that private firms generate the lion’s share of the Chinese economy, accounting for over 50 percent of tax revenue, 60 percent of gross domestic product growth and 70 percent of technological innovation, as well as providing 80 percent of jobs. Bin Gu, “Five Myths about China Must Be Debunked before the Trade War with the US Can End”, South China Morning Post, 15 June 2019.

  2. 2.

    As Professor Julien Chaisse rightly put it, “[I]n an increasingly interconnected world, simply discriminating [SOEs] on a political basis is no longer acceptable”; we must look into laws and their application with respect to this issue. Julien Chaisse, “Untangling the Triangle: Issues for State-controlled Entities in Trade, Investment, and Competition Law” in Julien Chaisse and Tsai-Yu Lin (eds), International Economic Law and Governance: Essays in Honour of Mitsuo Matsushita (Oxford: Oxford University Press, 2016) p 235.

  3. 3.

    A list of approved projects by the AIIB is available at https://www.aiib.org/en/projects/approved/index.html (visited October 14, 2019).

  4. 4.

    One important endeavor in this regard is the establishment of the Multilateral Cooperation Center for Development Finance (MCDF) in 2020, initiated by China and supported by eleven leading MDBs, including the World Bank and the AIIB. The MCDF’s mandate explicitly includes safeguarding debt sustainability for developing countries. “Memoranda of Understanding on Collaboration on Matters to Establish the Multilateral Cooperation Center for Development Finance”, art I.1. Full text is available at https://www.aiib.org/en/about-aiib/who-we-are/partnership/_download/collaboration-on-matters.pdf (visited September 22, 2019).

  5. 5.

    For example, the AIIB has the following requirement on Bank-financed contracts procured by public entities:

    “An international open competitive tender process is the normal method of procurement conducted for a Bank-financed contract. Alternative methods may be applied, provided the Recipient demonstrates to the Bank’s satisfaction that the alternative method is the best strategic procurement approach for the Project and that it adequately reflects the Core Procurement Principles” (AIIB Procurement Policy (January 2016) para 5.6).

  6. 6.

    For example, AIIB Interim Operational Directive on Procurement Instructions for Recipients (June 2, 2016) s II.10.1. World Bank Procurement Regulation s VI, para 6.11.

  7. 7.

    For example, the AIIB has the following requirement on Bank-financed contracts procured by private entities:

    “The Bank’s concerns for the appropriate use of funds, with due consideration from economy and efficiency, apply equally to Bank-financed contracts procured by Private Entities. Private Entity Recipients often meet these concerns by following established private sector or commercial practices other than formal international open competitive tendering for their procurement. Nevertheless, whenever the Bank deems appropriate, it may require the use of competitive tendering methods by Private Entities, particularly for large contracts” (AIIB Procurement Policy (January 2016) para 6.1).

    The EBRD similarly encourages the use of competitive tendering methods by its private sector clients, particularly for large contracts. EBRD Procurement Policies and Rules (revised October 2014) s 4.1.

  8. 8.

    A public entity is considered as part of the “government”. For example, the AIIB defines “government” to include its Member’s political and administrative subdivisions and all other public entities. See AIIB Operational Policy on Financing (January 2016) s II.2.1(e). Similarly, in WTO law, the term “public body” shares certain attributes of the “government”. Appellate Body Report, United States—Definitive Anti-Dumping and Countervailing Duties on Certain Products from China (US Anti-Dumping and Countervailing Duties (China)), WT/DS379/AB/R (March 11, 2011) para 317.

  9. 9.

    For example, AIIB Interim Operational Directive on Procurement Instructions for Recipients (June 2, 2016) s II.4.10.1 provides as follows:

    “No affiliate of the Recipient, or of a procurement agent engaged by the Recipient, is eligible to participate in a tender or RFP [request for proposals] in any capacity whatsoever, unless the Recipient demonstrates to the satisfaction of the Bank that there is no significant degree of common ownership, influence or control between the Recipient on the one hand, and the Recipient’s agent and the affiliate on the other.”

  10. 10.

    Advisory Opinion on Certain Issues Arising in Connection with Recent Sanctions Cases, No. 2010/1 (Legal Vice Presidency of the World Bank, November 15, 2010) (“Advisory Opinion”) para 129.

  11. 11.

    This part is heavily borrowed from Bin Gu, The Law and Governance of the Asian Infrastructure Investment Bank (The Netherlands: Wolters Kluwer, 2019), pp 50–51.

  12. 12.

    The revision enables the World Bank procurement policy to evolve from a traditional one-size-fits-all policy to a fit-for-purpose policy. See the key innovations of the new Procurement Framework at http://www.worldbank.org/en/projects-operations/products-and-services/brief/procurement-new-framework (visited November 1, 2019).

  13. 13.

    The SOEs were termed as “government-owned enterprises” in the World Bank’s past procurement policy, which stated in the relevant part as follows: “Government-owned enterprises in the Borrower’s country may participate only if they can establish that they (i) are legally and financially autonomous, (ii) operate under commercial law, and (iii) are not dependent agencies of the Borrower or Sub- Borrower”. See World Bank, “Guidelines: Procurement under IBRD Loans and IDA Credits” (January 1995, revised January and August 1996, September 1997 and January 1999) para 1.8(c); World Bank, “Guidelines: Procurement under IBRD Loans and IDA Credits” (May 2004, revised October 1, 2006, and May 1, 2010) para 1.8(c).

  14. 14.

    The World Bank Procurement Regulations for Investment Procurement Financing (IPF) Borrowers (July 2016, revised August 2018), s 3.23 (b).

  15. 15.

    EBRD Procurement Policies and Rules (revised October 2014) s 3.2(c).

  16. 16.

    The EIB is an atypical MDB in the sense that it is the bank of the European Union and regulated by EU law. It is the largest international long-term public lending institution.

  17. 17.

    The EIB terms the concept “public entities” as “bodies governed by public law”. EIB, Guide to Procurement (June 2011), Annex V.

  18. 18.

    This provision applies in the specific case of gas; heat; electricity; water; transport; exploration for, or extraction of, oil, gas, coal, or other solid fuels; ports and airports; telecommunications; and postal services. EIB, Guide to Procurement (June 2011), Annex V.2.

  19. 19.

    AIIB Procurement Policy (January 2016) s 2.1(b). Also, AIIB Environmental and Social Framework (February 2016) pp 24, 31 and 36, wherein a project established or carried out by “a private entity” is named “a private-sector project”.

  20. 20.

    For example, AIIB Policy on Prohibited Practices (December 8, 2016) s 2.1, Definition 19 (equating a state-owned commercial entity to a private enterprise) reads as follows:

    “Non-sovereign-backed Financing means any Financing extended by the Bank that is not a Sovereign-backed Financing; it includes any Financing to or for the benefit of a private enterprise, or a state-owned or sub-sovereign owned commercial entity that is not backed by a guarantee or counter-guarantee and indemnity provided by the Member to the Bank.”

  21. 21.

    With respect to the process of investigating and reviewing a sanctions case, see Gu (n 11 above) pp 149–151.

  22. 22.

    The World Bank Group’s Sanctions Regime: Information Note (November 2011) p 19.

  23. 23.

    Ibid.

  24. 24.

    Ibid., pp 19–20.

  25. 25.

    World Bank Sanctions Board Decision No. 118 (2019) para 38.

  26. 26.

    World Bank Sanctions Board Decision No. 115 (2019) paras 29–33. It is noted that, in an earlier case, the Sanctions Board distinguished the term “public official” from “government official”, stating that the former bears a meaning within the context of the Bank’s sanctions framework that is not equivalent to the latter for purposes of the general policy excluding government officials from sanctions (Sanctions Board Decision No. 78 (2015) para 45). The effort of making such distinction then revealed the Bank’s reluctance to subject government officials to sanction, regardless in their official or private capacity when committing prohibited practices. The attitude obviously changed in the present case No. 115.

  27. 27.

    World Bank Sanctions Board Decision No. 88 (2016) para 21. It is noted that the same reasoning regarding an SOE as respondent, using similar if not identical language, appears in Sanctions Board Decision No. 66 (2014) para 18, which states:

    “INT’s designation of a majority state-owned entity as the Respondent, which INT alleges to be liable for the acts of the State-Owned Corporation in regard to the Contract, does not contradict the Bank’s general policy that governments and government officials should not be sanctioned when acting in their official capacity, because this policy does not extend to state-owned enterprises that operate autonomously and are thus eligible to bid on Bank-financed contracts.”

  28. 28.

    The concept of “national”, as used in art 25(1), is declared in art 25(2) to include both natural and juridical persons, but none of the terms is defined further in the Convention. However, the legislative history of the Convention indicates that the term “juridical persons” as employed in art 25 and, hence, the concept of “national” was not intended to be limited to privately owned companies but to embrace also wholly or partially government-owned companies. This interpretation has found general acceptance. Ceskoslovenska Obchodni Banka, AS v The Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction (May 24, 1999) (CSOB), para.16.

  29. 29.

    ICSID has no jurisdiction to arbitrate disputes between two States nor between two private entities. Its main jurisdictional feature is to decide disputes between a private investor and a State. Aron Broches, “The Convention on the Settlement of Investment Disputes: Some Observations on Jurisdiction” (1966) 5(2) Columbia Journal of Transnational Law 267.

  30. 30.

    Beijing Urban Construction Group Co Ltd v Republic of Yemen, ICSID Case No. ARB/14/30, Decision on Jurisdiction (May 31, 2017) (BUCG), para. 33, quoting Broches.

  31. 31.

    Tribunals and commentators alike consider that “[w]hile those Draft Articles are not binding, they are widely regarded as a codification of customary international law”. Michael Feit, “Responsibility of the State Under International Law for the Breach of Contract Committed by a State-Owned Entity” (2010) 28 Berkley J Int’l L 1, 142, 146, quoting Noble Ventures, Inc v Romania, Award, ICSID Case No. ARB/01/11 (October 12, 2005), para.69.

  32. 32.

    BUCG (n 30 above), para.34.

  33. 33.

    For example, CSOB (28 above), para.17; BUCG (n 30 above), para.33.

  34. 34.

    CSOB (n 28 above), para.21.

  35. 35.

    Ibid., para. 18.

  36. 36.

    Ibid., paras. 1–2.

  37. 37.

    Ibid., para.23.

  38. 38.

    Ibid., para.24.

  39. 39.

    Ibid., para.25.

  40. 40.

    It is noted that there is criticism over the CSOB Tribunal’s reliance on the nature of, not the purpose of, the specific act. For example, Feldman criticizes that the CSOB Tribunal “accorded weight only to the nature (‘commercial’), and not the purpose (‘promoting the governmental policy or purposes of the State’), of a State-owned bank’s activities when determining whether the bank’s ICSID claim gave rise to a State-to-State dispute”. Mark Feldman, “State-Owned Enterprises as Claimants in International Investment Arbitration” (2016) 31(1) ICSID Review 34.

  41. 41.

    CSOB (n 28 above), para.25.

  42. 42.

    Lori Fisler Damrosch et al., International Law: Cases and Materials (Minnesota: Thomson Reuters, 5th ed., 2009) p 882.

  43. 43.

    CSOB (n 28 above), para.20.

  44. 44.

    BUCG (n 30 above), para.37.

  45. 45.

    Ibid., para.38.

  46. 46.

    In CSOB, the Tribunal found that “for much of its existence”, the claimant, a State-owned bank, “acted on behalf of the State in facilitating or executing the international banking transactions and foreign commercial operations the State wishes to support and... the State’s control of CSOB required it to do the State’s bidding in that regard” (CSOB (n 28 above)), para.20.

  47. 47.

    BUCG (n 30 above), para.39.

  48. 48.

    Ibid., para.42.

  49. 49.

    Ibid.

  50. 50.

    Ibid., para.43.

  51. 51.

    Ibid., para.40.

  52. 52.

    Ibid., para.39, footnote 19.

  53. 53.

    ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (January 25, 2000) (Maffezini v Spain, English Translation from Spanish Original). This case is different from CSOB and BUCG in the sense that the Tribunal was to decide jurisdiction based on the judgment whether SODIGA’s action is attributable to Spain as respondent.

  54. 54.

    The Tribunal stated that “the structural test by itself may not always be a conclusive determination whether an entity is an organ of the State.... An additional test has been developed, a functional test”, and “[i]t is difficult to determine, a priori, whether these various tests and standards need necessarily be cumulative. It is likely that there are circumstances when they need not be”. Maffezini v Spain (n 53 above) paras.79–81.

  55. 55.

    Ibid., para.77.

  56. 56.

    Ibid., para.79.

  57. 57.

    Ibid., paras.77–89.

  58. 58.

    BUCG (n 30 above) para.42.

  59. 59.

    Ibid., para.39.

  60. 60.

    Maffezini v Spain (n 53 above) para.86.

  61. 61.

    BUCG, paras.38–39. The respondent in BUCG cited the following paragraph in Maffezini v Spain for support, which the BUCG Tribunal dismissed diplomatically but without hesitation.

    “[T]he test that has been developed [to establish whether a particular entity is a state body] looks to various factors, such as ownership, control, the nature, purposes and objectives of the entity whose actions are under scrutiny, and to the character of the actions taken.” (Emphasis added by the respondent)

  62. 62.

    Draft Articles on Responsibility of States for Internationally Wrongful Acts, with Commentaries, in Report of the International Law Commission on the Work of Its 53rd Session, UN Doc A/56/10 (2001) (ILC Articles).

  63. 63.

    Commentaries on the ILC Articles, art 5, p 43.

  64. 64.

    This viewpoint will be reiterated and reinforced at the end of the following Sect. 5.4(a)(ii).

  65. 65.

    Be mindful of those important concepts such as environmental, social, and governance and corporate social responsibility. In August 18, 2019, a large and powerful US business group (i.e., the Business Roundtable) redefined the corporate purposes as multiple. Available at https://corpgov.law.harvard.edu/2019/08/21/legal-implications-of-the-business-roundtable-statement-on-corporate-purpose/ (visited August 29, 2019).

  66. 66.

    Commentaries on the ILC Articles, art 5, p 43.

  67. 67.

    The collective reference of “a government or any public body” as “government” under art 1.1 of the SCM Agreement suggests a certain degree of commonality or overlap in their essential characteristics.

  68. 68.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.94; Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 284.

  69. 69.

    United States Definitive Anti-Dumping and Countervailing Duties on Certain Products from China (US Anti-Dumping and Countervailing Duties (China)) WT/DS379/AB/R (March 11, 2011).

  70. 70.

    United States Countervailing Duty Measures on Certain Products from China (US Countervailing Duties (China)) recourse to art 21.5 of the DSU by China, WT/DS437/AB/RW (July 16, 2019).

  71. 71.

    Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 317; Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.95.

  72. 72.

    Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 318.

  73. 73.

    “In some cases, such as when a statute or other legal instrument expressly vests authority in the entity concerned, determining that such entity is a public body may be a straightforward exercise.” Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 318.

  74. 74.

    “Evidence that an entity is, in fact, exercising governmental functions may serve as evidence that it possesses or has been vested with governmental authority, particularly where such evidence points to a sustained and systematic practice.” Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 318.

  75. 75.

    “It follows, in our view, that evidence that a government exercises meaningful control over an entity and its conduct may serve, in certain circumstances, as evidence that the relevant entity possesses governmental authority and exercises such authority in the performance of governmental functions.” Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 318.

  76. 76.

    Commentaries on the ILC Articles, art 5, p 43.

  77. 77.

    Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 297.

  78. 78.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) paras 5.95–5.96.

  79. 79.

    Damrosch et al. (n 42 above) p 882.

  80. 80.

    Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 290.

  81. 81.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.100.

  82. 82.

    Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 318. To enhance this holding, the Appellate Body added a footnote in the same place, stating that “the analysis of whether the conduct of a particular entity is conduct of the government or a public body or conduct of a private body is indeed multi-faceted and that an entity may display characteristics pointing into different directions”.

  83. 83.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.88.

  84. 84.

    Peter Morici, “In Search of Stable Digital Money”, The Washington Times, July 8, 2019.

  85. 85.

    As Backer wisely commented, “The character of the action, rather than the status of the actor, ought to be the basis of legal systems where the object is to regulate actors who intervene in areas once deemed to be the sole preserve of states”. Larry Cata Backer, “Sovereign Investing in Times of Crisis: Global Regulation of Sovereign Wealth Funds, State-Owned Enterprises, and the Chinese Experience” (2010) 19 Transnat’l L & Contemp Probs 3, 144.

  86. 86.

    Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 318.

  87. 87.

    The term “meaningful control” was first used by the Appellate Body in DS379, nevertheless, with no clear definition; only in the later DS436 the Appellate Body gave the term an act-specific connotation. Appellate Body Report, US Carbon Steel (India) paras 4.37, 4.40, 4.43–4.44.

  88. 88.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.55, quoting the Public Bodies Memorandum. Regrettably, the Appellate Body failed to explain in what logic the two terms “meaningful control” and “governmental authority” are connected.

  89. 89.

    The Public Bodies Memorandum refers to: US Department of Commerce (USDOC)’s Memorandum dated 18 May 2012 for Sect. 129 Determination of the Countervailing Duty Investigation of Circular Welded Carbon Quality Steel Pipe; Light-Walled Rectangular Pipe and Tube; Laminated Woven Sacks; and Off-the-Road Tires from the People's Republic of China: An Analysis of Public Bodies in the People's Republic of China in Accordance with the WTO Appellate Body's Findings in WTO DS379; and USDOC Memorandum dated May 18, 2012 on the relevance of the Chinese Communist Party for the limited purpose of determining whether particular enterprises should be considered to be “public bodies” within the context of a countervailing duty investigation.

  90. 90.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) paras 5.56–5.57, quoting the Public Bodies Memorandum.

  91. 91.

    The Public Bodies Memorandum lists seven such indicia, almost none of which point to any specific act of the SOE (Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.56). The seventh indicium, for example, is “the presence of CCP [ie, China Communist Party] groups and committees within enterprises”, which is also the most controversial and debated among them. To understand this indicium, the key is not the presence of CCP in the enterprise, but what the CCP does there in practice. Here is a quote perfectly addressing the question:

    “What does the Party committee, established as required by law, do in a company? Here is an illustrative analogy. The Party in China is like God among Christians, while its Party committee is like a church. The church calls upon congregation to be helpful to neighbors, while the Party committee asks members to be role model for corporate codes compliance. In daily operations, Chinese companies perform commercially and autonomously, uncontrolled by the Party; just like a Christian CEO doing business on his own, free from God’s intervention.” (Bin Gu, “Western Fears of Party Influence on Chinese Companies Are Overblown”, Financial Times, February 18, 2019. Also, Bin Gu, “Five Myths about China Must Be Debunked before the Trade War with the US Can End”, South China Morning Post, June 15, 2019.).

  92. 92.

    Evidence is thus: “Rather, the relevant inquiry hinges on the entity engaging in that conduct, its core characteristics, and its relationship with government”. Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.100.

  93. 93.

    Ibid., para 5.56.

  94. 94.

    Ibid., para 5.56.

  95. 95.

    Chengjin Xu and Bin Gu, “A Review of State-Owned Enterprises from WTO Law Perspective” (《WTO法视野下的国有企业法律定性问题》) (May 2016) 23(3) Journal of SUIBE 18, quoting China’s Constitution Law, Property Law, and the Decision of 18th CCP Central Committee Third Plenary Session.

  96. 96.

    The Statement of Purpose text is available at https://corpgov.law.harvard.edu/2019/08/21/legal-implications-of-the-business-roundtable-statement-on-corporate-purpose/ (visited August 29, 2019).

  97. 97.

    Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 318.

  98. 98.

    “We stress, however, that, apart from an express delegation of authority in a legal instrument, the existence of mere formal links between an entity and government in the narrow sense is unlikely to suffice to establish the necessary possession of governmental authority. Thus, for example, the mere fact that a government is the majority shareholder of an entity does not demonstrate that the government exercises meaningful control over the conduct of that entity, much less that the government has bestowed it with governmental authority.” (Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 318).

  99. 99.

    Al-Kharafi & Sons Co v Libya, Final Arbitral Award, 22 March 2013, 263, quoting GB Born. The quote proves that attributability of the act of an entity to a state is stringently conditional; one must pass the tests of “full control” and “acting as an instrument of the state” to make it happen.

  100. 100.

    The relationship between the Memorandum and DS379 is demonstrated in the title of the Memorandum: “Sect. 129 Determination of the Countervailing Duty Investigation of Circular Welded Carbon Quality Steel Pipe; Light-Walled Rectangular Pipe and Tube; Laminated Woven Sacks; and Off-the Road Tires from the People’s Republic of China: An Analysis of Public Bodies in the People’s Republic of China in Accordance with the WTO Appellate Body’s Finding in WTO DS379” (Department of Commerce, May 18, 2012).

  101. 101.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.57, quoting the US Public Bodies Memorandum.

  102. 102.

    SIE, short for state-invested enterprise, is used interchangeably as SOE in the US Public Bodies Memorandum.

  103. 103.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.100.

  104. 104.

    Ibid., para 5.97.

  105. 105.

    Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) paras 343–346. In the dispute, the Appellate Body also reviewed the USDOC’s public body determinations in respect to other SOEs than SOCBs (i.e., state-owned commercial banks), namely “producers of steel, rubber and petrochemical inputs” that sold such inputs to downstream producers. The Appellate Body ultimately found those determinations to be WTO-inconsistent, because the USDOC had relied “principally” on government ownership.

    “In our view, this is not sufficient because evidence of government ownership, in itself, is not evidence of meaningful control of an entity by government and cannot, without more, serve as a basis for establishing that the entity is vested with authority to perform a governmental function. Accordingly, such evidence, alone, cannot support a finding that an entity is a public body.”

  106. 106.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.97.

  107. 107.

    Ibid., paras 5.101, 5.104. Indeed, as the Appellate Body commented, “while the USDOC did take into account evidence relating to the conduct of SOCBs, it did so within the framework of its inquiry into the core characteristics of those entities and their relationship with the GOC [ie, Government of China]”.

  108. 108.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.84.

  109. 109.

    Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 285.

  110. 110.

    Ibid., para 285.

  111. 111.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.84, quoting the United States.

  112. 112.

    Ibid., paras 5.84, 5.103.

  113. 113.

    Ibid., para 5.84.

  114. 114.

    Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 318.

  115. 115.

    Ibid., para 297.

  116. 116.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) paras 5.85, 5.101, 5.104.

  117. 117.

    Article 8 of the ILC Articles states as follows:

    “The conduct of a person or group of persons shall be considered an act of a State under international law if the person or group of persons is in fact acting on the instructions of, or under the direction or control of, that State in carrying out the conduct.”

  118. 118.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.80, quoting Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 355.

  119. 119.

    The anonymous Appellate Body member states: “There is no requirement for an investigating authority to determine in each case whether the investigated entity ‘possesses, exercises or is vested with governmental authority’”. Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.248.

  120. 120.

    Appellate Body Report, US Anti-Dumping and Countervailing Duties (China) para 355.

  121. 121.

    Appellate Body Report, US Countervailing Measures (China) (Article 21.5) para 5.101.

  122. 122.

    Such focus on entity is alternatively termed as “formal indicia of control”. Appellate Body Report, US Carbon Steel (India) para 4.43.

  123. 123.

    However, not all agree to treat an SOE as a private party, and it seems even insurmountable for some of them to accept such treatment ideologically. One may sense such flavor from this characteristic statement:

    “The current scenario is technically favorable to [SOEs], and it shows that they can now operate like any other private investor. Further, the whole ICSID and investment regime was designed for the promotion of foreign private investment. However, the [SOEs] have now become significant players who are treated like any private investors.... It is a paradox that the system states designed to promote private investment is being gradually penetrated and reshaped by state capitalism without much difficulty.” (Julien Chaisse, “State Capitalism on the Ascent: Stress, Shock, and Adaptation of the International Law on Foreign Investment” (2018) 27 Minn J Int'l L 339, 404–405.).

  124. 124.

    However, admittedly TFEU art 65(1)(b) may allow de facto prejudice over state ownership “on grounds of public order or public security”. As for a suggestion on avoiding an extensive use of TFEU art 65, see Julien Chaisse, “The Regulation of Sovereign Wealth Funds in the European Union: Can the Supranational Level Limit the Rise of National Protectionism?” in Karl P Sauvant et al. (eds), Sovereign Investment: Concerns and Policy Reactions (Oxford University Press, 2012) pp 485–486.

  125. 125.

    EU-China Comprehensive Agreement on Investment (concluded but not yet ratified), January 22, 2021, Section II, art. 3ter.

  126. 126.

    MOFCOM, “China officially applies to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)”, September 18, 2021. http://english.mofcom.gov.cn/article/newsrelease/significantnews/202109/20210903201113.shtml (visited November 5, 2022).

  127. 127.

    The term “control” here should not be interpreted loosely, but there seem wrong tendencies to overstretch it to mean “influence”, “guide”, “regulate”, or even “exercise of shareholder rights”, whereby the term risks being meaningless, because one cannot imagine a single firm uncontrolled by a state in this sense. For example, the Trump administration uses laws of export control and entity list to block American and other firms from doing business with Huawei and other Chinese firms; it does not mean that the US “controls” its firms, however. Rather “control” is a technical legal term, narrowly meaning “meaningful (or full) control” as discussed above in the article.

  128. 128.

    Gu, “Western Fears of Party Influence on Chinese Companies Are Overblown” (n 91 above).

  129. 129.

    China has recently passed a key three-year plan of SOE reforms, which has not been made public at the time of writing, for implementing the Decision of 19th CCP Central Committee Fourth Plenary Session (党的十九届四中全会《决定》). The latter Decision, passed on October 31, 2019, and in the relevant sector of SOE reform, focuses on both “mixed ownership” and “corporate governance”. The original text of the CCP Decision is available in Chinese at https://china.huanqiu.com/article/9CaKrnKnC4J (visited August 29, 2020). Also see my earlier comments and proposals about China’s SOE reform, Bin Gu, “Corporate Governance Pivotal Part of State-Owned Enterprise Reforms”, The Global Times, November 25, 2013.

  130. 130.

    The proposal aims to make the Board diversified and dynamic, by having different Board members representing interests of different shareholders. The reform is different from privatization in purpose, in the sense that “whether privatization is a necessary condition for improving the efficiency of the SOEs cannot be determined a priori. Fundamentally, for any large modern corporation,... there are no owners in any meaningful sense.” Justin Yifu Lin et al., “Competition, Policy Burdens, and State-Owned Enterprise Reform” (1998) 88 Am Econ Rev 422, 427.

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    Bin Gu

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Gu, B. (2024). The Issue of SOEs: Perspectives of AIIB and Other Institutions. In: Chinese Multilateralism in the Asian Infrastructure Investment Bank (AIIB). Modern China and International Economic Law. Springer, Singapore. https://doi.org/10.1007/978-981-97-1219-9_5

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