In late May, the Washington, DC-based International Centre for Settlement of Investment Disputes (ICSID) disclosed something remarkable. For the first time, a foreign investor had moved to sue China for breaching legal protections owed to foreigners.

ICSID, part of the World Bank Group, was established half a century ago to arbitrate disputes between foreign investors and host countries. China became a card-carrying member in 1993. But until now no one doing business in China has had the temerity to drag the Chinese state before an ICSID arbitration panel. That changed on May 24, when a Malaysian construction conglomerate, EkranBerhad, had its claims against China registered at the centre.


The details of EkranBerhad’s claims have yet to be publicly disclosed. However, the company’s financial statements reveal that a Chinese subsidiary lost rights to some 900 hectares of land when Chinese authorities ruled that the financially struggling company was not moving to develop the property. At such an early stage, it is unclear to what extent the dispute – and its adjudication by an ICSID arbitration panel – may alter the broader treatment of foreign investors in China.

Typically, ICSID arbitration panels award compensation if an investor has suffered as a result of a breach of contract or international treaty. But, it remains to be seen whether the EkranBerhad case is a serious claim – much less one that is likely to inspire a review by Chinese authorities of the country’s legal and regulatory machinery, and its impact on foreign investors.

Nevertheless, the filing of the case has set off a feeding frenzy among lawyers active in the dispute resolution industry, with one London-based lawyer averring that “dozens” of firms will be jockeying to pitch their services to the Chinese government.

When China joined the World Trade Organisation (WTO) a decade ago, the country’s ability to sue (and be sued) at the WTO created a bonanza for lawyers. Many international law firms hope that China’s debut at ICSID will lead to a similar boom in dispute-related legal work, but with China tapping outside lawyers to defend the country against future arbitration claims by foreign investors.

Mind you, a flood of international lawsuits against China still looks like a long shot, even if foreign investors continue to complain about the quality of governance in the country. Indeed, some global law firms would think twice before helping a foreign investor sue China in this fashion. Dragging the Chinese state to arbitration is perceived by some as a bad business strategy for companies with longer-term aspirations in the country. It is also seen as a bad idea by some lawyers, whose own law firms harbour aspirations to set up offices in China (or expand existing ones).

Still, as the first claim at ICSID works its way through the system, some foreign investors will become aware of the possibility of arbitrating disputes with the Chinese state, particularly in cases where relations have broken down to the point that such litigation poses no risk of souring things further.

EkranBerhad may be the first, but we will surely see other investors (and their brave lawyers) deciding that a claim at ICSID may be the best means of resolving otherwise intractable grievances with China.

Luke Peterson is the editor of Investment Arbitration Reporter, an online news service tracking developments and disputes in the law of foreign investment.