China’s direct investment in ASEAN countries began quite late. The overall investment scale is low, and there are wide variations across countries. Since investment in social infrastructure is a public good, China is highly likely to face problems when it invests in overseas infrastructure, such as issues pertaining to sovereignty, public consciousness, and cultural differences. In particular, Thailand, Myanmar, and the Philippines are politically unstable, so it is appropriate to regard investment in infrastructure construction there as being at a developmental stage rather than a mature stage. Nevertheless, there are several reasons why China invests in ASEAN-based infrastructure. It is possible to solve the problem of excessive supply in China, which is increasing at a phenomenal rate; it is advantageous for China's energy imports; and ASEAN is one of China’s three largest trading partners. If cooperation in the fields of cement, steel, and natural gas proceeds, remarkable results can be achieved. Investing in infrastructure construction in China and ASEAN countries is not only beneficial to the economic development of both but can also play a positive role in further promoting their investment liberalization. However, efforts must be made to identify different laws and institutions for each ASEAN country. In addition, when signing a contract, reasonable and sufficient legal review must be conducted, and legal experts must confer with one another so that ambiguous agreements can be continuously supplemented.
The legal risks for China’s investment in the construction of infrastructure in ASEAN countries are primarily political unrest or civil wars, such as coups. In fact, if such a case occurs, compensation for the losses incurred by Chinese companies is stipulated. However, because there are no specific standards for compensation, specific compensation standards must be established through the amendment of the law in this regard. Risks related to exchange rate restrictions, violations of contracts by the government of the target country, and the conscription and compensation of land by the target country should be checked at all times.
ASEAN countries' social infrastructure loan laws are generally of three kinds: build-operate-transfer (BOT), public-private partnership (PPP), and transfer-operate-transfer (TOT). The BOT method has a simple organizational structure and is easy for Chinese companies to negotiate. However, the government has less control over the BOT method. BOT legal regulations are rather complex, so it is recommended that companies have detailed legal knowledge in advance. The decline in government creditworthiness under the PPP model is a major risk facing investors. Among ASEAN countries, the PPP method is inappropriate for countries with high political risk, unstable politics, and complex legal and institutional environments. Otherwise, Chinese companies face an excessively high risk. The essence of the TOT model is patent management. Since it is not necessary to consider the risk of business failure due to direct investment, the main risk factors when adopting the TOT model are political instability, financial market turmoil, and a decline in government and corporate creditworthiness.
The variation in foreign capital entry procedures in ASEAN countries is very large due to historical causes and different levels of economic development. Dispute settlement methods include litigation and arbitration, and the International Center for Settlement of Investment Disputes (ICSID) provides mediation and arbitration procedures for investment disputes arising between parties from different states. As a result, it has the advantage of eliminating the involvement of the investor's home country government, thereby enhancing mutual trust and realizing stronger investor protection. Since DAB proceedings are very slow and there is no legal form for such proceedings, it is difficult to guarantee legal effectiveness through DAB method judgments.
Legal issues that can arise when Chinese companies invest in the infrastructure of ASEAN countries also include labor and human rights issues and environmental issues. ASEAN countries are active in hiring foreign workers if they meet the appropriate requirements, but restrictions on foreign workers are also strict in order to protect their own employment market and increase the employment rate of their own citizens. In the process of construction investment for social infrastructure, problems related to human rights protection include land use, compensation, employment of workers, environmental impact assessments, construction, and business management. ASEAN countries require their environmental protection ministries to submit an environmental impact assessment report for investment in the construction of infrastructure, and each country stipulates in detail the agency, content, progress, evaluation criteria, and evaluation items for the environmental impact assessment. Of course, demands for the environment vary because the development history of environmental legislation in each ASEAN country and the situation of each country are different. Investment in infrastructure construction cannot simply consider profitability, but at the same time, it is not possible to think only about the provision of public services, and efforts must be made to achieve harmony between the two goals.
As for the legislative task of Chinese enterprises in relation to investment laws and policies for ASEAN countries’ infrastructure, international treaties and bilateral agreements involving both China and ASEAN countries should be utilized. The main purpose of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States is to provide mediation and arbitration for investment disputes between the respective states and nationals of other states participating in the Convention. This eliminates political and diplomatic interference and makes the investment of private capital in developing countries more advantageous. Second, it is necessary to utilize the policies of investment destination countries regarding investment in the construction of social infrastructure. Some ASEAN countries have relatively complicated legal systems because of the influence of the colonial period. In addition, it is necessary to know the relevant policies of the investment partner country, the government's asset credit level, and the credit status of the relevant companies. In addition, reinforcement of response capabilities—through preliminary forecasting and evaluation of overseas legal risks—and the establishment of an early warning system are essential competencies. A safe investment environment should be created by hiring local and foreign workers, analyzing the legal system, and establishing a legal risk response system.
In a patent management contract, when there is a significant change in the contract performance requirements, the government of the target country will, by securing stable provisions, amend the contract provisions, improve the investment amount, or grant other compensation based on the provision to guarantee maximum profits. There are two main categories of stable provision: the freezing clause and the economic equilibrium clause. The economic equilibrium clause has been used more recently because it focuses on solving legal stability issues from a risk diversification angle.
In terms of compensation for losses, China can claim that the preferential benefits are higher for the treatment of nationals and of the most-favored countries. Under exceptional circumstances, it is also necessary to ensure that ASEAN investment partners bear an absolute compensatory obligation. With regard to the task of improving the dispute resolution system, regulations that are more detailed should be added to the Agreement on Dispute Settlement Mechanism of the Framework Agreement on Comprehensive Economic Cooperation between the People’s Republic of China and the Association of Southeast Asian Nations. At the same time, the investment market for infrastructure construction in China and ASEAN countries must significantly expand the rules of the dispute settlement system between investors and target investment countries. The USMCA can be referred to for this matter. Specifically, it includes a combination of negotiation and arbitration methods, professional qualifications and candidate lists, ICSID, and UNCITRAL.
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