Bashar Malkawi, The Belt and Road Initiative

The Belt and Road Initiative Law, Economics, and Politics Edited by Julien Chaisse Jędrzej Górski leiden | boston For use by the Author only | © 20...
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The Belt and Road Initiative Law, Economics, and Politics Edited by

Julien Chaisse Jędrzej Górski

leiden | boston

For use by the Author only | © 2018 Koninklijke Brill NV

Contents

Foreword: Belt and Road Initiate – Navigating New Challenges and Opportunities  ix Acknowledgements  xi List of Figures and Tables  xii List of Abbreviations  xiii Notes on Contributors  xvi 1 Introduction  1 Julien Chaisse and Jędrzej Górski

Part 1 The Foundations of the Belt and Road Initiative 2

One Belt One Road (“obor”) Roadmaps: the Legal and Policy Frameworks  17 Donald J. Lewis and Diana Moise

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The Political Economy of obor and the Global Economic Center of Gravity  59 Usman W. Chohan

4 The obor Global Geopolitical Drive: the Chinese Access Security Strategy  83 Francisco José Leandro 5

It Is Not the End of History: the Financing Institutions of the Belt and Road Initiative and the Bretton Woods System  107 Maria Adele Carrai

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Northern Sea Route: an Alternative Transport Corridor within China’s Belt and Road Initiative  146 Vasilii Erokhin and GAO Tianming

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The Effect of the “Belt and Road Initiative” on Countries’ Employment  168 LU Yue, JIA Yingqi and TU Xinquan

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Challenges and Possible Responses of the Eurasian Economic Union to the Belt and Road Initiative  183 Alexander Mikhaylenko

Part 2 Towards the Expansion of Chinese Outward Investment 9

What Is One Belt One Road? A Surplus Recycling Mechanism Approach  205 Usman W. Chohan

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The International Investment Agreement Network under the “Belt and Road” Initiative  220 Anna Chuwen Dai

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Paving the Silk Road bit by bit: an Analysis of Investment Protection for Chinese Infrastructure / Projects under the Belt & Road Initiative  250 LAI Huaxia and Gabriel M. Lentner

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The Role of Chinese State-Owned Investors and obor-Related Investments in Europe: the Implication of the China-EU bit  284 YIN Wei

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National Security Review of Chinese Foreign Direct Investment (‘fdi’) into the Cooperation Council for the Arab States of the Gulf (‘gcc’): Challenges and Opportunities  315 Bashar H. Malkawi and Joel Slawotsky

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A Domestic National Controls a Foreign Investor in Investment Arbitration: in Light of China’s Negative Lists  359 ZHANG Anran

Part 3 The International Trade Issues of the bri 15

“Unimpeded Trade” in Central Asia – a Trade Facilitation Challenge  375 Joanne Waters

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One Belt, One Road Initiative into a New Regional Trade Agreement: Implication to the wto Dispute Settlement System  401 Sungjin Kang

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bri Initiative: a New Model of Development Aid?  416 Tymoteusz Chajdas

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Turning Doors – Piracy, Technology and Maritime Security along the Maritime Silk Road  454 Helen Tung

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Infrastructure Investments: Port, Rail, and International Economic Rules  465 Karlok Carlos Li and Julien Chaisse

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20 Development Banks as Environmental Governance Actors: the aiib’s Power to Promote Green Growth  505 Flavia Marisi 21

Stakes and Prospects of the Right to Free, Prior & Informed Consent in ‘One Belt One Road’ Projects in the Context of Transnational Investment Law and Arbitration  523 Anna Aseeva and YIP Ka Lok

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Central and Eastern Europe, Group 16+1 and One Belt One Road: the Case of 2016 Sino-Polish Comprehensive Strategic Partnership  557 Jędrzej Górski

Part 4 bri Dispute Resolution: Directions for the Future 23

Some Considerations on the Civil, Commercial and Investment Dispute Settlement Mechanisms between China and the Other Belt and Road Countries  607 ZHU Weidong

24 International Commercial Mediation, an Opportunity for the obor  621 Giovanni Matteucci

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Energy Dispute Settlement and the One Belt One Road Initiative (‘obor’)  649 MA Sai

26 The Energy Charter Treaty and Central Asia: Setting an International Standard for Energy-Related Disputes  668 Maria Bun 27

Central Asian Investment Arbitration and obor – Learning from the Current Investment Climate  709 Mariel Dimsey

28 China’s Maritime Silk Road and the Future of African Arbitration  734 Aweis Osman

Index  753

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Chapter 13

National Security Review of Chinese Foreign Direct Investment (‘fdi’) into the Cooperation Council for the Arab States of the Gulf (‘gcc’): Challenges and Opportunities Bashar H. Malkawi and Joel Slawotsky 1 Introduction China’s One Belt One Road (‘obor’), is a trillion dollar grand strategy1 envisioning a massive new network of inter-connected railways, roads, sea and ­airports throughout Asia, the Gulf Cooperation Council (‘gcc’), Africa and into Europe, substantially influencing the global economy.2 obor forms an * Bashar Malkawi is Dean and Professor of Law at University of Sharjah, uae. He holds an llm in International Trade Law from the University of Arizona and sjd from American University, Washington College of Law. He has taught at several law and business schools in Jordan and Italy. He can be reached at . ** Joel Slawotsky was a law clerk to the Hon. Charles H. Tenney (u.s.d.j., s.d.n.y.) and AV peerreview rated attorney at Sonnenschein Nath & Rosenthal (now Dentons). He has taught at Radzyner Law School, Interdisciplinary Center (idc) Herzliya, Israel and other law and business schools. He can be reached at . The authors would like to thank the editors for their feedback and comments which helped improve the final outcome of the article in its current format. While the paper focuses on and makes specific recommendations with respect to the uae, this paper is relevant to the entire gcc. 1 See ‘Our Bulldozers, Our Rules,’ (Economist, 2 July 2016) accessed 18 July 2017, describing obor as a means ‘of extending ­China’s commercial tentacles and soft power … [President Xi] has endorsed his predecessors’ view that China faces a ‘period of strategic opportunity’ up to 2020, meaning it can take advantage of a mostly benign security environment to achieve its aim of strengthening its global power without causing conflict.’ See also Julien Chaisse and Mitsuo Matsushita, ‘China’s “Belt and Road” Initiative: Mapping the World Trade Normative and Strategic Implications’ (2018) 52(1) Journal of World Trade 163–186. 2 See Charlie Campbell, ‘China Says It’s Building the New Silk Road. Here Are Five Things to Know Ahead of a Key Summit’ (Time, 12 May 2017) accessed 18 July 2017, specifying that ‘obor covers 65% of the

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integral part of China’s aspirational ascendancy both in Asia and in the global context3 and ‘will be a catalyst for shifting power alliances and the changing fortunes of nation states.’4 The core component of obor is massive Chinese outbound investment in infrastructure5 inherently implicating the critical transport and energy sectors of participating nations and thereby triggering issues of state sovereignty and national security.6 In terms of scale or scope, obor has no parallel in modern history. It is more than 12 times the size of the Marshall Plan, America’s post-World War ii initiative to aid the reconstruction of Western Europe’s devastated economies. Even if China cannot implement its entire plan, obor will have a significant and lasting impact.7

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world’s population, three-quarters of global energy resources and 40% of gdp. China’s annual trade with obor countries already exceeds $1.4 trillion.’ ‘President Xi Jinping Delivers Important Speech and Proposes to Build a Silk Road Economic Belt with Central Asian Countries’ (prc Ministry of Foreign Affairs, 7 September 2013) accessed 18 July 2017, noting obor’s critical importance to China. Alex Capri, ‘China’s Growing Influence On Middle East Shouldn’t Be Lost on An Impulsive Trump Administration’ Forbes (21 June 2017) accessed 18 July 2017. ‘The “One Belt, One Road” initiative runs through more than 60 roadside countries in Europe, Asia and Africa, and is aimed at promoting cooperation in policy coordination, facilities connectivity, unimpeded trade, financial integration, and people-to-people bond.’ See Ernst & Young, ‘Navigating the Belt and Road: Financial sector paves the way for infrastructure’ ­(August 2015) accessed 18 July 2017. Numerous initial questions have yet to be answered: how will the grand vision be implemented? Which ­infrastructure banks will be the lead lenders? What csr standards will be used in projects? What dispute resolution mechanisms will be utilized? See Bashar H. Malkawi, ‘The Dubai Ports World Deal and U.S. Trade and Investment Policy in an Era of National Security’, [2006] 7 (3) J World Invest Trade 443, analysing the issues from the perspective of United States national security concerns in the context of inbound fdi from the Middle East. China’s obor similarly presents a dilemma for recipient nations in terms of possible strategic influence. See Campbell (n2), specifying that ‘Beijing’s overlapping disputes in the South and East China Seas have fed suspicions that obor is a Trojan horse for extending its geopolitical clout.’ Brahma Chellaney, ‘China’s Imperial Overreach’ (Project Syndicate. 24 May 2017) accessed 18 July 2017.

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Over the long-term, obor will necessitate staggering fdi from China.8 obordriven Chinese fdi is already increasing sharply. China’s foreign direct investment (fdi) is increasingly going along the Silk Road. In 2015, by official reckoning, its fdi in obor countries rose twice as fast as the increase in total fdi. Last year 44% of China’s new engineering projects were signed with obor countries. In the first five months of 2016, the share was 52%.9 Located in the oil and gas rich Middle-East, the gcc10 is a natural strategic partner in China’s obor plans11 and China has sharply increased its economic investment and collaboration in the gcc.12 The substantial wealth of the region and the resulting high standards of living and per capita wealth present an important and potentially lucrative market for trade and development. For example, out of the top richest nations on the basis of per capita millionaires, the oil and gas rich Middle-East dominates: the United Arab Emirates, Israel, Saudi Arabia and Qatar rank among the wealthiest nations.13 Moreover, the

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‘The initiative, called “One Belt, One Road,” looms on a scope and scale with little precedent in modern history, promising more than $1 trillion in infrastructure and spanning more than 60 countries.’ See Jane Perlez and Yufan Huang, ‘Behind China’s $1 Trillion Plan to Shake Up the Economic Order’ (New York Times, 13 May 2017) ­accessed 18 July 2017. 9 Economist (n1). 10 The gcc members are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. See ‘gcc Member States’ (The Portal of the gcc) ­accessed 18 July 2017. 11 ‘Xi Jinping Attends Opening Ceremony of Sixth Ministerial Conference of China-Arab States Cooperation Forum and Delivers Important Speech Stressing to Promote Silk Road Spirit and Deepen China-Arab Cooperation’ (prc Ministry of Foreign Affairs, 5 June 2014) accessed 18 July 2017, noting the vital role of gcc members in obor). 12 ‘Since 2014, China has been the single largest foreign business stakeholder in the Gulf Cooperation Council – and the dependence only set to grow.’ See ‘China’s giant leap towards the gcc’ (TheNewArab, 7 January 2016) accessed 18 July 2017. 13 Global Wealth 2014: Riding a Wave of Growth,’ Global Wealth 2014: Riding a Wave of Growth’ (2014) accessed 18 July 2017, ranking the uae, Israel, Saudi, Qatar and other oil and gas rich mena nations among the world’s wealthiest nations.

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gcc’s strategic location and proximity to both Europe and Africa re-enforce the importance of the gcc.14 In parallel, China, the second largest economy, is expected to continue growing sharply perhaps rivalling the United States in a couple of decades thus providing extensive mutually advantageous economic opportunities for both the gcc and China. As a dynamic gcc member, the uae will have an important role in obor and will likely be an anchor point of Chinese obor investment. A vital question will arise as Chinese fdi into the uae intensifies; namely, whether China’s fdi is ‘good’ for the uae. This question, framed in the context of ‘Chinese colonization’, will be increasingly asked in other nations within obor’s ambit ­grappling with the same concerns over Chinese fdi.15 How should the uae consider the large wave of Chinese fdi that can be expected in the coming years? Reviewing fdi generally involves a careful cost-benefit evaluation16 and a rational balancing of interests rather than a resort to blanket protectionism or curbs to discourage investment.17 The economic benefits of fdi are 14

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Sumedh Anil Lokhande, ‘China's One Belt One Road Initiative and the Gulf Pearl chain’ (ChinaDaily, 5 June 2017) accessed 18 July 2017, noting the importance to China of the ­Persian Gulf, the Mediterranean (through West Asia), and the Indian Ocean (via South Asia). Pakistan is another strategic player which is debating the role of China in the domestic economy. See Tayab Tariq Narula, ‘Is China going to colonise Pakistan through cpec?’ (Pakistan Today, 20 May 2017) accessed 18 July 2017, discussing concerns and arguing that Pakistan should ‘play its cards wisely,’ encouraging Chinese investment but simultaneously ensuring direct and concrete benefits to Pakistan to avoid being exploited). But see Athar Z Abbasi, ‘obor Summit and Pakistan’ (The Nation, 20 May 2017) accessed 18 July 2017, supporting Pakistan’s partnering with China and opining that Chinese motives are economic and peaceful and will help Pakistan integrate into the global economy. Capital recipient nations also take into account strategic interests. See Mathieu ­Duchâtel et al., ‘Absorb and Conquer: An EU Approach to Russian and Chinese Integration in Central Asia’ (European Council of Foreign Relations, May 2016) accessed 18 July 2017, stating that ‘a number of ­Eurasian countries view obor as a politically critical initiative to guard against becoming dependent on Moscow.’ But see the argument to ban all Chinese soe investment in the United States in: David Lawder and Denny Thomas, ‘U.S. panel urges ban on China state firms buying U.S. companies’ (Reuters, 17 November 2016) accessed 18 July 2017, referring to a U.S. Congressional report calling for a total ban on Chinese soe acquisitions of U.S. companies.

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­ ell-documented and protectionism and barriers to cross-border movement w of capital are universally recognized as potentially disastrous economic policy. However, two additional dimensions of complexity arise in terms of outbound Chinese investment into the uae which impact on this traditional balancing of interests. One, an incipient U.S.–China rivalry18 is underway which may force both the U.S. and China to utilize auxiliary power in a global game for hegemonic leadership. Inherently, a successful obor will further empower China and propel its rising influence19 much as the U.S.-led order has enabled U.S. exceptionality over the prior 70 years.20 This is potentially problematic inasmuch as the uae enjoys close defense ties with the United States and hosts significant U.S. military assets.21 The uae will need to take into account the possible deleterious effects on the relationship with the U.S. if for example the Chinese military (or alternatively Chinese soft-power) becomes intertwined with the 18 19

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Daniel J. Ikenson, ‘Into the Abyss: Is a U.S.–China Trade War Inevitable?’ (6 February 2017) Cato Free Trade Bulletin No. 69 accessed 18 July 2017. See Giorgio Cafiero and Daniel Wagner, ‘What the Gulf States Think of “One Belt, One Road”’ (The Diplomat, 24 May 2017) accessed 18 July 2017, stating that‘[m]any countries naturally see obor as Beijing’s attempt to spread Chinese geopolitical influence, trade, and investment, rather than a purely benign embrace of free trade, as China’s leadership maintains.’ See Joel Slawotsky, ‘The Clash of Architects: Impending Developments and Transformations in International Law’ [2017] 3 Chinese Journal of Global Governance (forthcoming), detailing the exceptional United States control of the global legal and economic architecture since the conclusion of WW2. U.S. dominated international financial institutions such as the imf and World Bank, the status of the U.S. dollar as global reserve currency and U.S. influence over world trade institutions have enabled U.S. exceptionality.) See also Caroline Freund, ‘Why China Isn’t Ready Yet to Lead Globalization’ (Peterson Institute, 24 July 2017) accessed 24 July, 2017 (‘[China] is the world’s largest exporter and by some measures also the world’s largest economy. It is time for China to play a bigger role in setting international rules.’). See ‘uae-us Security Relationship’ (uae Embassy to Washington D.C) accessed 18 July 2017, describing the strong military cooperation). See also Rajiv Chandrasekaran, “In the uae, the United States has a quiet, potent ally nicknamed ‘Little Sparta,” (Washington Post), (November 2014) accessed 6 August 2017.

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uae. U.S. defense ties and bases serve as a deterrent to potential enemies and the uae will need to take this factor into account.22 Second, and both related and independent of the first factor, while obor has been compared to the U.S. Marshall Plan without the explicit political linkage23 to a particular governance order,24 obor is inextricably linked with China’s foreign policy25 and is the lynchpin of ‘the great rejuvenation of the Chinese nation.’26 Strategic undertones exist and ‘[a]lthough China tends to impose fewer conditions for development assistance, it still has a clear political agenda in its lending, though perhaps not as transparent as its 22 23

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We note that it is entirely plausible that over time China will replace the United States as a close military ally of the uae thus obviating concerns about damaging the long-term relationship with the U.S. See Melvyn P. Leffler, ‘The United States and the Strategic Dimensions of the Marshall Plan’ , stating that the Marshall Plan objectives were ‘American [] control of raw materials, industrial infrastructure, skilled manpower, and military bases. And from their viewpoint, the most fundamental strategic interest of the United States was to prevent any potential adversary or coalition of adversaries from mobilizing the resources and economic-military potential of Europe for war-making purposes against the United States.’) Investment by the United States is sometimes viewed in the context of securing U.S. military advantage and projection of national security interests as opposed to helping build economies. See Charlie Campbell, (Time, 12 May 2017) ‘China Says It’s Building the New Silk Road. Here Are Five Things to Know Ahead of a Key Summit’ accessed 12 May 2017, providing that the China-Pakistan Economic Corridor – connecting China’s westernmost city of Kashgar to Pakistan’s port city of Gwadar, some 2,000 miles away – will alone cost $46 billion. (By comparison, the U.S. has spent $33 billion in Pakistan since 2002, two-thirds on security. Notwithstanding this purely economic context, as will be discussed infra, a natural outgrowth would logically encompass geo-political self-interest and extraction of political and military benefits. See ‘Where Will China’s “One Belt, One Road” Initiative Lead?’ ([email protected], 22 May 2017) (noting obor’s military and strategic benefits to China). See Economist (n1) (‘In 2014 the foreign minister, Wang Yi, singled out obor as the most important feature of the president’s foreign policy.’). Robert L. Kuhn, ‘Xi Jinping’s Chinese Dream’ (New York Times, 4 June 2013) accessed 4 June 2013. See also Chellaney (n7), stating that some believe ‘Chinese President Xi ­Jinping’s tenure has been marked by high ambition. His vision – the ‘Chinese dream’ – is to make China the world’s leading power by 2049, the centenary of communist rule.’ See also ­Nectar Gan, ‘China has reached a turning point in its history, Xi says’ (South China Morning Post, 27 July 2017) accessed 6 August 2017 (Xi claiming that China had reached an historic turning point, ‘The Chinese nation … has achieved the historic leap of rising to our feet, getting rich and getting powerful.’).

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­Western counterparts.’27 While these concerns would naturally exist over any ­nation’s titanic infrastructure plan,28 anxieties over obor are enhanced due to ­China’s unique one-party political system which plays a prominent role in the governance of private companies. Most obor investment will be through ­Chinese State-Owned Enterprises – thus raising the potential of non-financially ­motivated fdi (as it does with other nations’ state-owned enterprises).29 Since ­Chinese soes exist at least in part to serve the interests of advancing the ­political aims of the state, the potential for non-economically-driven investment decisions further complicates the review of Chinese investment as government-controlled entities will be the primary conduits of capital.30 In Western nations, Chinese investment has become increasingly viewed with suspicion based upon national security concerns.31 In particular, United States concerns have increased32 and are amplified because most Chinese 27 28

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See Simon Chesterman, ‘Asia’s Ambivalence about International Law and Institutions: Past, Present and Futures’, (2017) 27 ejil 945, 976 (emphasis added). See Charlie Campbell, ‘China Says It’s Building the New Silk Road. Here Are Five Things to Know Ahead of a Key Summit’ accessed 12 May 2017 (‘obor consists of $900 billion of planned investments, making it probably the grandest investment drive put forward by a single country.’). See Wade Sheppard, Xi Jinping To China’s Private Sector: Go Home, The New Silk Road Is Not For You, https://www.forbes.com/sites/wadeshepard/2017/07/25/xi-jinping-to-chinas -private-sector-go-home-the-belt-and-road-is-not-for-you/#ba6d13e17fbf July 25, 2017 (‘It is now clear that the vanguard of the Belt and Road will not be the “gray rhinos” – the tycoons who lead dynamic and innovative private companies like Wanda, hna Group, and Anbang – but shadowy state-owned firms with ambiguous acronyms that start with the letter C: cosco, crec, crcc, cngc, cmg…’). See also Greg Levesque, ‘China’s Evolving Economic Statecraft’ (Diplomat, 12 April 2017 ) accessed 12 April 2017, discussing rising concerns that Chinese soes are employed as tools to advance ccp political and strategic objectives, transfer technology to China and make decisions based on non-financial factors. See Campbell (n 23), (‘In 2015, China transferred $82 billion to three state-owned banks for obor projects. It also set up the Asian Infrastructure Investment Bank (aiib) primarily to fund obor, of which the $100 billion of initial capital may be doubled soon.’). See Levesque (n 29), stating that governments in Tokyo, Taipei, and Seoul have effectively banned Chinese investment in core sectors of their economy. Australia, the United Kingdom, and Canada have already implemented more comprehensive investment review procedures in response to growing Chinese investment. See also Julia Hollingsworth, ‘Why western countries are saying “no thanks” to Chinese cash’ (South China Morning Post, 22 November 2016) accessed 6 August 2016, noting heightened regulatory review and increased rejection of deals. See Zhenhua Lu, ‘US aims to ramp up scrutiny of foreign investment in defence technology companies’ (South China Morning Post, 23 June 2016) accessed 6 August 2017, noting a new Senate bill would be introduced soon to broaden and strengthen cfius oversight to ‘include foreign transactions such as joint ventures or minority investments designed to acquire equity stakes in companies with advanced technologies used in rockets, sensors, autonomous vehicles application in the military space and other projects’. See also Keith Bradsher and Paul Mozur, ‘Political Backlash Grows in Washington to Chinese Takeovers’ (New York Times, 16 February 2016) accessed 6 August 2017, providing that as Chinese companies try to snap up American tech businesses, they are setting off ripples of unease in the Obama administration and in Congress, inciting a backlash that has stopped the latest acquisition attempt. See also Robert Fife and Steven Chase, ‘U.S. rebukes Canada over Chinese takeover of Norsat’ (Globe and Mail, 13 June 2017) accessed 6 August, 2017 noting strong condemnation from the U.S. over Canada’s approval of a deal with a Chinese buyer over U.S. security. See Jonathan Soble, ‘Why the U.S. Fears a Chinese Bid for Westinghouse Electric’ (New York Times, 7 April 2017) accessed 6 August 2017, providing that Westinghouse is believed to have been targeted by Chinese spies. If a Chinese entity were to buy the company, China could obtain secrets without the cloak and dagger. See also Jennifer J­acobs, Saleha Mohsin, and Jennifer A Dlouhy, ‘Trump Team Takes Steps to Keep Chinese From Westinghouse’ (Bloomberg, 5 April 2017) accessed 6 August 2017, stating that "the Trump administration is so alarmed that Chinese investors may try to purchase Westinghouse Electric Co.’s nuclear business that U.S. officials are trying to find an American or allied buyer for the company.” See Lawder and Thomas (n17), stating in its annual report to Congress, the U.S.–China Economic and Security Review Commission said the Chinese Communist Party has used state-backed enterprises as the primary economic tool to advance and achieve its national security objectives. The report recommended Congress prohibit U.S. acquisitions by such entities by changing the mandate of cfius (the U.S. government body that conducts security reviews of proposed acquisitions by foreign firms). See ‘China’s Ant hikes MoneyGram bid by over a third, beats rival U.S. offer’ (Reuters, 17 April) accessed 6 August 2017 (Chinese bidder offers the highest price). cfius is considering rejecting the Chinese offer. See James Fontanella-Khan, ‘US lawmakers sharpen criticism of $1.2bn MoneyGram deal’ (Financial Times, 15 May, 2017) accessed 6 August 2017 (discussing potential U.S. opposition to the higher Chinese offer based upon national security concerns). Ironically, rejecting a higher offer militates against the supreme value of enhancing shareholder value capitalism which is the lynchpin of U.S. corporate governance. See Joel Slawotsky and Jon Truby, [2016] The Director Duty of Care in Qatar, 26 Duke Journal of Comparative and International Law, 337, 354 (referencing the obligation of directors to seek the highest value for shareholders in the change of corporate control context, i.e., mergers and acquisitions). See ‘Macron wants limits on Chinese investments, takeovers in Europe’s strategic industries’ (Reuters, 23 June 2017) accessed 6 August 2017, stating that French President Emmanuel Macron vowed on Thursday to convince China’s closest allies in Europe that curbing foreign takeovers in strategic industries was in their interest, warning EU governments not to be naive in global trade. See ‘France, Germany, “Italy urge rethink of foreign investment in EU”’ (Reuters, 14 February 2017) accessed 6 August 2017.

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Overview of China’s obor: Economic and Strategic Implications

2.1 The Economic Rise of China and obor China’s rising economic preeminence has been stunning,38 firmly ensconcing China as the second most powerful world economy,39 dethroning previously second-ranked Japan.40 With a population of 1.3 billion, China is the second largest economy and is increasingly playing an important and influential role in development and in the global economy. China has been the largest contributor to world growth since the global financial crisis of 2008.41 In a remarkably short span, less than 15 years, the US economy has experienced a relatively huge decline vis a vis China on a nominal gdp basis: In 2001, the US economy was eight times bigger but by 2015 it was only 1.6 times bigger than China’s.42 To put the decline into context, in 2001 the total gdp of the United

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See ‘The World Bank In China’ (World Bank) . See accessed 6 August 2017, providing that China’s meteoric rise over the past half century is one of the most striking examples of the impact of opening an economy up to global markets. Over that period the country has undergone a shift from a largely agrarian society to an industrial powerhouse. In the process, it has seen sharp increases in productivity and wages that have allowed China to become the world’s second-largest economy. Joel Slawotsky, ‘The Virtues of Shareholder Value Driven Activism: Avoiding Governance Pitfalls’ (2016) 12 Hastings Business Law Journal 521, 555, providing that Japan’s performance has been so lackluster that it has fallen behind China, and is now the world’s number three economy. Japan is perilously close to slipping to the fourth position and being replaced by India. By some measures India has already taken the number three position from Japan. See also World Bank, ‘Gross domestic product 2016’ (World Bank Data) accessed 6 August 2017, noting that China is in fact nearly triple number three ranked Japan. See World Bank (n 38). See Amitav Acharya, ‘American Primacy in a Multiplex World’ (National Interest, 26 September 2016) accessed 3 August 2016, stating that the United States could lead in each of three areas – military, economic, and soft power – is questionable. China by some measures is set to overtake the United States as the world’s leading economic power. A recent estimate in Bloomberg shows that in 2001, America’s gdp ($10.6 trillion) was eight times that of China’s. By 2015, the American gdp was only 1.6 times China’s – $18 trillion to China’s $11.4 trillion.

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States was nearly equal to the combined gdp of the next six top ­nations.43 Moreover, China is on-track to surpass the United States within thirty years to become the largest and most important economy.44 On a ppp basis, the astounding fact is China’s gdp has already surpassed the United States.45 China’s remarkable economic juggernaut has been fueled by an opening of markets, globalization and booming free trade which has provided immense financial benefit to Chinese companies.46 The free market open rules trading system ‘led to the establishment of China as a major global exporter. It eventually allowed for the reopening of the Shanghai stock exchange in December 1990 for the first time in over 40 years and, ultimately, to China’s accession to the World Trade Organisation’.47 China has also benefited from large stateowned enterprises (‘soes’) which have received preferential financing and market access as well as protected domestic markets.48 obor is a planned strategic framework further propelling China’s economic hegemony in Asia focusing on economic integration focusing on large-scale infrastructure projects, cultural exchanges, and broadening trade. obor will link China and the rest of Eurasia and consists of the land-based ‘Silk Road Economic Belt’ (sreb) (linking China to Central Asia, West Asia, the Middle East, and Europe), and the ocean-based ‘Maritime Silk Road’ (msr), (linking China to the South China Sea, the South Pacific Ocean, and the wider Indian Ocean and Red Sea areas). Dozens of countries will be included within obor’s

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See World Bank, ‘World Development Indicators database,’ (World Bank Data, August 2002) accessed 6 August 2017, stating that gdp growth has averaged nearly 10 percent a year – the fastest sustained expansion by a major economy in history – and has lifted more than 800 million people out of poverty. China reached all the Millennium Development Goals (mdgs) by 2015 and made a major contribution to the achievement of the mdgs globally. See pwc, ‘The long view: how will the global economic order change by 2050?’ (February 2017) The World in 2050 accessed 20 May 2017. See World Bank ‘Gross domestic product 2016, ppp’ (World Bank Data) accessed 28 May 2017. As will be discussed infra, Chinese companies differ markedly from the structures of many Western companies. See Tomas Hirst, ‘A brief history of China’s economic growth’ (World Economic Forum, 30 July 2015) accessed 6 August 2017, providing that China’s meteoric rise over the past. See Sean Miner, ‘Commitments on State-Owned Enterprises,’ in: Cathleen Cimino-Isaacs and Jeffrey J. Schott (eds.), Trans-Pacific Partnership: An Assessment (Peterson Institute 2016), noting soes receive favorable treatment, lax enforcement of regulations and close ties to the government.

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‘territorial jurisdiction’ covering nearly half the world’s economy and over 4 Billion people.49 As China’s economy has boomed, China has looked increasingly abroad for investment opportunities to both deploy its cash hoard as well as to provide long-term growth for its citizens. Chinese outbound fdi has increased reaching almost $140 billion in 2015.50 This torrid growth is expected to be substantially strengthened by obor infrastructure projects which will require tremendous amounts of capital.51 Outbound Chinese fdi into infrastructure projects is anticipated to reach well-over $1 Trillion by 2025.52 Out of dozens of announced transactions, the following five serve as exemplars of the enormity of the outbound infrastructure investments.53 – Tanzania (Bagamoyo – $10 billion); – Sri Lanka (Colombo and Habamtota – $3 billion); – Burma [Myanmar] (Maday Island – $2.5 billion); – Australia (Darwin, Newcastle, and Melbourne – $2.2 billion); and – Israel (Ashdod and Haifa – $2.9 billion).54 Chinese obor-driven outbound fdi will be invested in mergers and acquisitions, cross-border deals and joint-ventures. The unique obor context is that these investments will be primarily channeled through companies dominated or controlled by the Chinese government.55 As will be discussed infra, China’s 49

See Enda Curran, ‘China’s Marshall Plan’ (Bloomberg, 8 August 2016) accessed 20 June 2017. 50 Ibid, stating that China’s outward fdi grew by 13.3% in 2015, hitting a historical high of usd 139.5 billion. 51 See E&Y, ‘Navigating the Belt and Road Financial sector paves the way for infrastructure’ (August 2015) providing that it is estimated that the infrastructure construction investment of the ‘One Belt, One Road’ initiative will total US$6. 52 See E&Y (n51), stating that China’s outward fdi is expected to continue to be about 10% in the next five years; and by 2025, China’s accumulated outward fdi is projected to have increased nearly three-fold to US$1.25t. 53 See David Bewster, ‘China’s Pakistan project: a geopolitical game-changer’ (EastAsiaForum, 15 December 2016) accessed 6 August 2016 stating that ‘[t]hese projects come with huge price tags and would involve the construction of roads, railways, pipelines and other major infrastructure in corridors stretching for hundreds and even thousands of kilometres.’ 54 See Mercy A. Kuo, ‘The Power of Ports: China’s Maritime March’ (Diplomat, 8 March 2017) ­accessed 6 August 2017. 55 See Economist (n1), stating that many big state-owned enterprises (soes) have an obor department, if only in the hope of getting money for their projects.

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soes have decision-making structures and motivations that can be based in part (or largely) by governmental influence.56 Since such non-financial motivations are inherently opaque, concerns exist that geo-political motivations may be present which potentially raise national security concerns. The next sub-section will briefly raise these potential apprehensions in the obor specific context. 2.2 obor – The Strategic and Political Context obor is not simply a large-scale economic endeavor but ‘leverage[s] commercial actors to drive economic and military modernization, advance foreign policy objectives, and enhance Beijing’s power projection abroad.’57 Moreover, success breeds success and obor’s success would mean China will naturally ‘win friends and influence nations’ by the exercise of massive soft-power and therefore has far-reaching strategic significance with a global impact. One, the sheer economic size of the hub of alliances would involve over 4 billion people with a collective gdp of over 2 Trillion usd.58 Second, obor envisions obor members benefitting from an interconnected transport network by land, sea and air. Third, obor will create numerous free-trade zones and hubs which will support the production and marketing within obor as well as export. Indeed, it would be naïve to expect that a large powerful nation wielding titanic economic soft power59 will not gravitate towards exercising legitimate selfadvantage in the geo-political context.60 A critical element of Xi’s strategy to realize the Chinese dream is the ‘one belt, one road’ (obor) initiative, whereby China will invest in 56 57 58 59

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Levesque (n 29), discussing the concerns that Chinese soes make investments based upon political factors advancing ccp strategic objectives. Levesque (n 29). See Curran (n 49). See Justina Crabtree and Cheang Ming, ‘Why soft power could be the real value of China’s massive Belt and Road project’ (cnbc, 2 May 2017) accessed ^ August 2017, stating the potential increase in soft power attributable to obor. See ‘One Belt, One Road’ Will Define China’s Role as a World Leader’ (South China Morning Post, 2 April 2015) accessed 6 August 2015. See also Bewster (n 53), providing that “China’s virtual remoteness allowed it to keep its hands clean of domestic political and security problems…. But China’s role in the region may be about to fundamentally change.” Indeed, obor has ‘the potential to fundamentally alter China’s role in South Asia and the entire strategic make-up of the region’. See also Julien Chaisse and Mitsuo Matsushita, ‘China’s “Belt and Road” Initiative: Mapping the World Trade Normative and Strategic Implications’ (2018) 52(1) Journal of World Trade 163–186.

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i­nfrastructure projects abroad, with the goal of bringing countries from Central Asia to Europe firmly into China’s orbit.61 One likely advantage will arise from the likely increased use of the Chinese dominated aiib as well as the ndb;62 a parallel to United States advantage stemming from post WW2 United States influence over the imf and World Bank.63 The likely increasing importance of the aiib and ndb in obor will significantly raise these international financial institutions’ profile and strategic influence. [China] set up the aiib with $100 billion of initial capital. The bank is not formally part of obor but the loans approved at its first general meeting – roads in Pakistan, Tajikistan and Uzbekistan, for example – are all in Silk Road countries.64 This aspect alone will enhance prospects for a Chinese-led governance order and is by definition an important geo-political factor advancing China’s ascendancy.65 In addition, as an important global economic actor, China will likely benefit as did the United States with respect to sway over allied nations – since enlightened financial self-interest is a proximate shaper of foreign policy.66

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See Chellaney (n7). See ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road,’ (prc Ministry of Foreign Affairs, 28 March 2015) . See Jose E. Alvarez, The Internationalization of U.S. Law, [2009] 47 Columbia Journal of Transnational Law 538, noting that the imf, World Bank and wto support the U.S. national strategic interest. See Economist (n1). See Andrew Hammond, ‘The tpp gives the U.S. – rather than China – the power to influence global trade’ (National Post, 6 October 2015) accessed 6 August 2015 (‘As former President Obama argued with respect to the tpp: the treaty will enable Washington, rather than Beijing, to create the foundation for “21st-century trade rules,” including standards on trade, investment, data flows and intellectual property.’). See Steven Liao and Daniel McDowell, ‘No Reservations: International Order and Demand for the Renminbi as a Reserve Currency’, [2016] 60 (2) International Studies Quarterly 272, providing that research has shown that countries that receive more Chinese aid and investment or that sign bilateral currency swap agreements (bsas) to exchange rmb are more likely to side with China on votes at the United Nations.

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Most strikingly, following the Permanent Court of Arbitration’s finding against China’s position on the South China Sea, the European Union failed to adopt a common position toward the ruling, as two of the EU members, Hungary and Greece, both obor partners, were cited in media reports as wary of upsetting their economic relations with Beijing.67 Military and strategic benefits exist as well which can help propel China into a hegemonic global power rivalling and/or surpassing the United States. There is plausibility in the argument that developing routes, naval support and securing assets, supply lines, and political and economic ties in the Middle East, Africa, and Indian Ocean littoral are a parallel objective for China strategically and defensively in the obor project, in addition to the grand and benign objectives promoted in the obor rhetoric.68 Indeed, China’s obor may very well constitute a robust manifestation of nationalism enabled by the economic power of soes.69 Inevitably, a successful obor will bring enormous advantage to China in the geo-political and military theatres.70 This is not a critique of obor or of China – the United States has also exploited to full advantage the U.S. led post ww2 global governance architecture such as the imf and World Bank and the reserve status of the U.S. Dollar: dozens of U.S. military bases are embedded in strategic locations throughout Europe, the Persian Gulf and Asia. Another dimension to the strategic issue is that a successful obor will enable China to establish itself as a dynamic global leader and possible equal to the United States. obor matters because it is a challenge to the United States and its traditional way of thinking about world trade. In that view, there are two 67 68 69

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See Robin Emmott, ‘EU’s statement on South China Sea reflects divisions’ (Reuters, 16 July 2016) accessed 15 July 2016. See Kuo (n54). See Larry Catá Backer, ‘The Human Rights Obligations of State-Owned Enterprises: Emerging Conceptual Structures and Principles in National and International Law and Policy’ (2017) 50(2) Vanderbilt Journal of Transnational Law (forthcoming) (‘[China’s] project of outbound nationalism – the One Belt One Road policy, relies to some extent on the projection of commercial power through Chinese soes.’). See Kuo (n54), providing that China’s expanding naval presence does not only have strategic implications for the United States, it has implications for all countries using international sea lanes to conduct business.

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main trading blocs, the trans-Atlantic one and the trans-Pacific one, with Europe in the first, Asia in the second and America the focal point of each. Two proposed regional trade deals, the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, embody this approach. But obor treats Asia and Europe as a single space, and China, not the United States, is its focal point.71 obor investment will be a central factor in determining China’s ultimate success in both economic and strategic spheres. By definition, an ascendant China is a national security issue for the United States and coupled with the unique nature of Chinese corporate governance (and the ccp’s dominant role in Chinese corporate conduct), the possible non-financially motivated investment is an important aspect of obor. This rivalry and the potential ramifications of an ascendant China impinges on the self-interest the uae and is a calculus the uae should take into account. 2.3 Evaluating Chinese soe Investment In China, many large companies are soes, and are the most common form of entity that will be involved in obor investment. Chinese soes receive preferential treatment in terms of access to capital and obtaining regulatory approvals72 and are employed in the advancement of Chinese governmental aims ‘serv[ing] political goals, including fostering indigenous innovation, supporting social stability and crisis response in China, and advancing economic initiatives abroad such as “One Belt, One Road.”’73 By definition, all soes raise national security concerns because of their connection to their home states. Investments made by states trigger different regulatory sensitivities compared to considerations raised by private companies because of the possibility that in conducting business government owned or controlled entities may utilize non-profit motivations and substitute political ambitions instead of (or in addition to) profit-making.74 71 72

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See Economist (n1) (emphasis added). Wendy Leutert, ‘China’s Reform of State-Owned Enterprises’ (2016) 21 Asia Policy 83, 86, stating that state firms continue to enjoy advantages in obtaining bank loans and regulatory approvals, even if their privileged capital access has gradually declined. The central government currently owns 106 companies, out of which 47 firms ranked in the 2014 Fortune Global 500. Leutert (n72). Joel Slawotsky, ‘Sovereign Wealth Funds as Emerging Financial Superstars: How U.S. Regulators Should Respond’ [2009] 40 Geo. J. Int’l L. 1239. See also Qingjiang Kong, ‘Emerging Rules in International Investment Instruments and China’s Reform of State-owned

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These anxieties over state-owned businesses are not unique to China and relate to all soes in general. [H]ost countries cannot summarily assume that [soe] investments will never be guided by political objectives or that the management of [soes] will never be motivated by ‘nationalistic considerations’ deviating from conventional wealth maximization…. Russia and China are regularly singled out as countries with major strategic and political interests shown in their swf usage. These countries also have strategies to control critical assets, such as infrastructure, and this raises issues of market integrity as well as concerns over national security.75 Thus, these concerns are associated with any government-owned business which potentially subjugates private market interests (or at a minimum injects non-profit maximizing motivations) to the political interests of the state.76 Indeed, such concerns are not entirely new. As an illustration of prior concerns with respect to government-owned businesses and their investment decisions was the opposition over Dubai Ports’ attempt to invest in the United States. In 2007, the Dubai government-owned Dubai Ports World sought to acquire port terminals located in the United States. Members of the U.S. Congress, concerned about a foreign government controlling the flow of goods and people into the United States voiced strenuous opposition on national security grounds.77 In this respect, Chinese soes are no different than other stateowned businesses.

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­ nterprises’ [2017] 3 The Chinese Journal of Global Governance 73 (‘soes are exactly esE tablished to execute national strategic goals.’). Julien Chaisse, ‘Demystifying Public Security Exception and Limitations on Capital Movement: Hard Law, Soft Law and Sovereign Investments in the EU Internal Market, [2015] 37 U. Pa. J. Int’l L 583, 594–595. See Edwin M. Truman, ‘Sovereign Wealth Fund Acquisitions and Other Foreign Government Investments in the United States: Assessing the Economic and National Security Implication’ (Testimony Before the Comm. on Banking, Housing, and Urban Affairs, 110th Cong. 4, 2007), accessed 6 August 2017 (hereinafter ‘Sovereign Wealth Fun Testimony’), noting ‘that these trends in the growth of state-owned businesses and their investment activities involve a dramatic increase in the role of governments in the ownership and management of national assets. This characteristic is unnerving and disquieting. It calls into question our most basic assumptions about the structure and functioning of our economies and the international financial system.’ See Malkawi (n6).

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However, there are additional factors with respect to China’s soes which increase national security concerns of fdi recipient nations; China’s ­political structure and unique state dominance/control of soes presents a ‘different’ type of investor. China is a communist economic order and the state is purposely directly involved in all critical economic sectors. ‘The way that the Chinese government exercises “state capitalism” is that it directly or indirectly controls a large number of powerful soes, especially in the strategic and key sectors.’78 [W]hen governments undertake commercial activities, they remain answerable to a wide range of societal pressures that their governance structures are designed to take into account. For this reason, governments may encounter difficulties in making credible commitments to pursue only ‘commercial’ objectives, since their raison d’être involves being sensitive to political pressures and to pursuing non-commercial objectives.79 The raison d’être of the Chinese soe is the advancement of the ccp’s objectives thus amplifying the customary ‘state-ownership’ concerns. China is ruled by one political party, the ccp, and its domination of Chinese soes is of critical importance. The ccp wields near total non-financial control over its citizenry; singularly legislates the law of the land and ccp appointed judges rule on the interpretation of law in courts. In China, pro-Western reformers are accused of ‘worshipping Western ways,’ ‘glorifying Western models’ or ‘caving in to Western pressures.’80 The ccp views Western democracy as flawed, proclaiming the ‘ultimate defeat of capitalism would enable Communism to emerge victorious.’81 Clearly the freedom and ability to freely create wealth and retain it for private purposes is a uae national interest which would be incompatible in a ‘victorious’ Communist global order. These facts are not meant as a criticism of China which has expressed no intent (nor is there any present evidence) of 78 79 80 81

Chaisse (n75). See also Kong (n74) (‘China is a socialist country with a dubbed “socialist market economy”, which is quite different from the market economy prevalent in the rest of the world.’). Kathryn Gordon & April Tash, ‘Foreign Government-Controlled Investors and Recipient Country Investment Policies: A Scoping Paper’ oecd (January 2009) , 10. Kuhn (n26). See ‘China Slams Western Democracy as Flawed’ (Bloomberg, 23 January 2017) accessed 6 August 2016, stating that democracy has reached its limits, and deterioration is the inevitable future of capitalism, according to the People’s Daily, the flagship paper of China’s Communist Party.

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aggressively advancing such goals through soe investment. Nevertheless, Chinese soes may have motivations that align with ultimate ccp goals and those aims may not necessarily correlate with uae national security interests. At a minimum, the question is whether Chinese governmental aims – expressed potentially via Chinese soe investments into the uae – raise national security concerns with a Western looking uae. While the United States government also wishes to advance its geo-political goals, the key distinction is that the United States government’s pursuit of policies is not part of private U.S. company investment decision making. In evaluating fdi from United States companies, the presumption is the decision to invest is 100 percent profit motivated; but the same cannot innately be inherently said of Chinese soe investment. China’s state-owned enterprises (soes), as well as ostensibly private entities, serve on the front lines of Beijing’s economic statecraft. These companies’ activities increasingly signal political, not commercial, goals and are directed by the Communist Party of China (cpc), which rules China’s one-party state.82 It is thus crucial to internalize that Chinese soes obor-related investments in the uae may very well harbor an agenda to advance geo-political and strategic goals in the political interests of the ccp. Chinese soes constitute ‘important forces to implement’ the decisions of the Party to ‘enhance overall national power, economic and social development, and people’s wellbeing.’83 Furthermore, these concerns can be expected to grow. The ccp is apparently strengthening its control over soes. In October 2016, Xi effectively defined the corporate missions of China’s soes, declaring that they should ‘become important forces to implement’ the decisions of the Party to ‘enhance overall national power, economic and social development, and people’s wellbeing.’ Xi’s pronouncement is having an immediate effect as the cpc moves to consolidate power over soes corporate operations. For example, a number of state-owned firms, including faw Car Co. and Sinoma Science & Technology Co., are amending their articles of association to provide internal Party Committees a ‘central role’ in corporate management. This includes requiring the board of directors to seek direction from the Party Committee ­before 82 Levesque (n29). 83 Ibid.

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making ‘major decisions.’ Many soes are also combining the role of company chairman and Party secretary, a policy reversal dashing any notion of separation between cpc and soe corporate affairs. These policies and the elevation of Party Committees within soes reflect a coordinated and gradual reorientation of soe reforms consolidating cpc control over core industries deemed vital to future prosperity and power.84 The potential motivation to further the strategic and political goals of an alternative vision of global governance by a private entity investing and buying companies presents a very different context for review than traditional corporate acquirers. In addition, investments and joint ventures from soes may not be an efficient allocation of resources or be a profit-generator.85 If investments are not based upon pure economic motivations, the investments may prove to be less than stellar performers or at a minimum, fail to achieve the potential return. Crucially, such motivations bring potential economic risk/loss of potential profit-maximization into the calculus for a recipient nation. Given China’s insistence on government-to-government deals on projects and loans, the risks to lenders and borrowers have continued to grow. Concessionary financing may help China’s state-owned companies bag huge overseas contracts; but, by spawning new asset-quality risks, it also exacerbates the challenges faced by the Chinese banking system…. The ratings agency Fitch has warned that many obor projects – most of 84 Ibid. See also ‘Reform of China’s ailing state-owned firms is emboldening them’ (Economist, 22 July 2017) accessed 6 A ­ ugust 2017 (‘[Xi’s] declaration that soes should continue to play a dominant role in the economy. The implication is that he wants state firms to be better run – hence the emphasis on the market – but only so that they better serve the party by helping it to manage the economy at home and carry China’s flag into foreign territory. Mr Xi has made this point in increasingly strident terms. At a meeting on soes last October he devoted his comments not to reform but to the necessity of strengthening the party’s grip. “The party’s leadership of soes is a major political principle, and that principle must be insisted on,” he said.’). 85 See e.g. ‘Debt risk for main state-owned enterprises is controllable: China’ (The Economic Times, 27 January. 2017) accessed 6 August 2017, stating that while many state companies are bloated and inefficient, China has relied on them more heavily over the past year to generate economic growth in the face of cooling private investment.

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which are being pursued in vulnerable countries with speculative-grade credit ratings – face high execution risks, and could prove unprofitable.86 China has acknowledged the crucial need to reform its inefficient soes and doing so would lend confidence to recipient nations and lower national security concerns.87 However, economic considerations have not trumped political considerations and increasing concerns exist as to whether soe reform is meaningful.88 Rather than utilizing pure commercial factors as the benchmark for soe reform, political factors are considered which may impinge on the efficiencies and profitability of Chinese soes.89 In terms of enacting reforms to China’s soes, economic performance is surely a factor but not the controlling factor as it would be in a private sector business. [Financial] performance concerns are a lesser priority for soes in strategic industries, where political rather than market logic remains paramount.90 This demonstrates that soe investment into the uae may potentially be made based at least in part upon non-economic factors. The fact that some obor investments into the uae may not have pure economic profit as the driving

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Chellaney (n7). For an excellent discussion of soe reforms see Leutert (n72). See also Jing Li and Jun Xia, ‘State-owned enterprises face challenges in foreign acquisitions’(31 July 2017) Columbia fdi Perspectives No. 205 (‘If home country governments want their soes to become global players and their acquisitions to be more welcome, some fundamental reforms at home are necessary; these reforms include providing a level playing field on which private firms can more freely compete with soes and improving the corporate governance and transparency of soes by reducing direct interference and subsidies, listing soes in investment destinations and/or introducing foreign ownership participation. These reforms will improve efficiency and competitiveness of soes and make them more legitimate in the eyes of host country stakeholders.’). Freund (n20) (‘In recent years, however, economic reform has slowed or even reversed. Reform of state-owned firms has taken the form of mega-mergers, which has reduced the number of firms without reducing the share of output coming from the state sector. Of the 1,000 largest firms in the world by revenue, 136 were Chinese in 2014, as compared with only 41 in 2006, and 70 percent of these giants are state-owned. The strategy of creating super-sized state-owned firms is neither good for growth nor good for global business.’). See Leutert (n72). Leutert (n72). See also Kong (n74) (‘One of the criticisms against state-led-economy modality is its unsustainability. The soes are low-efficient, easily corrupted and lack of risk management due to the governmental leadership.’).

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motivation may constitute an inefficient allocation of financial resources and loss of economic potential in addition to raising national security concerns.91 2.4 The usa–China Rivalry Another unique aspect uae review should consider is the incipient rivalry for global hegemony currently underway. The existing political and economic mechanics of the global financial governance order – trading, lending, development – has been dominated by the United States and U.S. led international financial institutions such as the imf, the World Bank and the icsid – which are all based in Washington D.C.92 In addition, the United States Dollar – the currency of the world’s largest economy – has reigned supreme as the most desired currency of international business and global trade93 and forms the principle reserve currency of the world’s central banks.94 Moreover, American military power has been vigorously projected to enforce the existing architecture; dozens of United States land, sea and air military bases are embedded strategically in a large number of nations and powerful American warships and aircraft carriers sail throughout the strategic waterways of the globe.95 91

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Freund (n20) (‘The presence of these large state-owned firms in construction and steel raise concerns that the real intention of the “One Belt One Road” initiative is to export excess capacity.’). See also Economist (n84) (‘there has been a bewildering array of directives and pilot programmes since then but little real progress. The fear is that the reforms, taken together, not only fail to solve the most pressing problems, but might even be aggravating them. soes are getting bigger, not smaller; their management has become more conservative; and their deficiencies are beginning to infect the economy more widely.’). See Larry Catá Backer, ‘International Financial Institutions (ifis) and Sovereign Wealth Funds (swfs) as instruments to combat corruption and enhance fiscal discipline in Developing States,’ (2015) (2) International Review of Law 1, discussing the imf and World Bank as international financial institutions and discussing their influence in shaping swf conduct and policy). See M.J. Stephey, ‘A Brief History of Bretton Woods System’ (Time, 21 October 2008) accessed 6 ­August 2008, providing that since the end of World War ii, the U.S. dollar has enjoyed a unique and powerful position in international trade. Indeed, the World Bank ranks global central bank reserves in gold and US Dollars. See World Bank, ‘Total reserves (includes gold, current US$)’ (World Bank Data) accessed 6 August 2017. Vijay Prashad, ‘End of Exceptionalism’ (Frontline, 22 July 2016) accessed 6 August 2016, stating that U.S. military bases litter the continents of the world, and U.S. warships move from ocean to ocean, bearing terrifying arsenals. The United States maintains a large number of air, land and sea bases in the UK, Germany, Italy, Turkey, South Korea, Saudi Arabia, Bahrain, Qatar, Japan, Australia, etc. See, ‘List of US military bases world-wide’. See

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However, China’s ascent presents an opportunity for developing a complementary – or potentially alternative – governance architecture. For example, as a counter balance to the imf, World Bank and adb, China has launched a Chinese dominated institution – the aiib96 and will likely leverage the aiib to extract strategic benefits97 as the United States did with the existing infrastructure banks.98 The Chinese-led obor clearly is part of this potential ­re-orientation of the global power structure which will naturally lend itself to geo-strategic intrigues.99 Moreover, with the tremendous capital-intensive needs of obor, the role of the aiib (and ndb) may become significant. ‘­Although China tends to impose fewer conditions for development assistance, it still has a clear political agenda in its lending, though perhaps not as transparent as its Western counterparts.’100 Referring to China’s move to establish the aiib, former U.S. Treasury Secretary Summers called 2015 ‘the moment the United States lost its role as the underwriter of the global economic system.’101 ‘Major US Bases Around the World’ (Google Maps) accessed 7 August. 96 See S.R, ‘Why China is creating a new “World Bank” for Asia’ (Economist, 11November 2014) accessed 7 August 2014 (‘[T]he aiib has stoked controversy because Asia already has a multilateral lender, the Asian Development Bank (adb). Why is China creating a new development bank for Asia?’). 97 See Chellaney (n7), providing that China dangles low-interest loans in front of countries in urgent need of infrastructure, thereby pulling those countries into its economic and security sphere. China stunned the world by buying the Greek port of Piraeus for $420 million. From there to the Seychelles, Djibouti, and Pakistan, port projects that China insisted were purely commercial have acquired military dimensions. 98 Michael Schuman, ‘Whose Money Will the World Follow?’ (Bloomberg, 15 May 2015) accessed 7 August 2017, stating that the aiib has come to represent those ambitions. Since the bank would be steered by China, Beijing could use it to draw other emerging nations into its orbit and advance its own political and economic interests. That was made clear when the mainland rejected Taiwan’s application to join, apparently over what to call the island. China still considers it a runaway province. 99 See Surya P. Subedi, ‘Are the Principles of Human Rights “Western” Ideas? An Analysis of the Claim of the “Asian” Concept pf Human Rights’ (1999) 30 California Western International Law Journal 45, 62, stating that it is natural that when nations become more prosperous and more powerful, they try to find their own independent role and place in the galaxy of nations. 100 See Chesterman (n297), 976. 101 See Lawrence H. Summers, ‘Time US leadership woke up to new economic era’ (Larry Summers, 5 April 2015) accessed 7 August 2017.

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I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the US to persuade dozens of its traditional allies, starting with Britain, to stay out of it.102 China acknowledges that its rise had global implications. Chinese President Xi has called for ‘a regional order that is more favorable to Asia and the world’, noting that China, ‘[b]eing a big country means shouldering greater responsibilities for regional and world peace and development.’103 China’s leadership believes: China should take the lead in shaping the ‘new world order’ and safeguarding international security, one of the latest moves putting him in stark contrast to Donald Trump and the US president’s ‘America First’ policy.104 While President Trump is well-known to perceive China as a strategic adversary,105 former President Obama also shared this view. This underscores the long-term American perception – regardless of political affiliation – that China’s ascent poses a challenge to American dominance. The first [upcoming challenge] is contested norms, in which increasingly powerful revisionist states and select non-state actors will use any and all elements of power to establish their own sets of rules in ways unfavorable to the United States and its interests.106 China has already advanced the prospect of a reduced global American role to a far greater extent by masterfully integrating – and immensely benefiting 102 Ibid. 103 See Schuman (n98), stating that the scuffle over the aiib ‘is about the U.S. trying to retain political power, and it is about the Chinese challenging it,’ says Gerald Curtis, an Asia specialist at Columbia University. 104 See Zheping Huang ‘Chinese president Xi Jinping has vowed to lead the “new world order”’ (Yahoo Finance, 22 February 2017) accessed 23 July 2017. 105 See Richard C. Bush, ‘Trump’s adversarial view of China is out of line with the A ­ merican public’ (Brookings, 19 January 2017) accessed 22 July 2017 stating that The Trump administration enters office with an undisguised antipathy towards China. 106 See Joint Chiefs of Stuff (US), ‘Joint Operating Environment 2035’ (14 July 2016) accessed 26 July 2017, 4.

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from – globalization and free trade. Indeed, an impressive array of metrics indicates that China is a bona fide rival ‘of equals’ as compared to the United States. China is the lone nation that can wield enough military power to openly confront the United States107 and a recent comprehensive analysis108 indicates that China’s military is close to reaching parity with the Western powers.109 Aside from military empowerment, China is also investing substantially in education110 and is attempting to rival Western academic institutions.111 In the most vital technological spheres of the coming decades, robotics, space exploration and artificial intelligence, Chinese aspirational hegemony is selfevident.112 A Chinese White Paper envisions China as the most powerful space nation113 and China is indeed on course to achieve a relative parity or perhaps superiority to the United States exploration.114 nasa concedes China is a serious contender for global leadership in space.115 107 See accessed 10 May 2017. 108 See ‘Military Balance’ (International Institute for Strategic Studies) accessed 25 May 2017. 109 See ‘Chinese weapons, warplanes reaching “near-parity” with West, study says’ (Japan Times, 15 February 2017 accessed 23 July 2017. 110 See Keith Bradsher, ‘Next Made-in-China Boom: College Graduates’ (New York Times, 16 January 2013) accessed 23 July 2017. 111 See Jessica Shepherd, ‘China’s top universities will rival Oxbridge, says Yale president’ (Guardian, 3 February 2010) accessed 23 July 2017. 112 See Paul Mazur, ‘Beijing Wants A.I. to Be Made in China by 2030’ (New York Times, 20 July 2017) accessed 7 August 2017 (‘The country laid out a development plan on Thursday to become the world leader in A.I. by 2030, aiming to surpass its rivals technologically and build a domestic industry worth almost $150 billion. Released by the State Council, the policy is a statement of intent from the top rungs of China’s government: The world’s second-­ largest economy will be investing heavily to ensure its companies, government and military leap to the front of the pack in a technology many think will one day form the basis of computing.’). 113 See The State Council Information Office of the People’s Republic of China, ‘White Paper on China’s Space Activities in 2016’ (SpaceRef, 27 December 2016) accessed 25 July 2017. 114 See Brett Biddington, ‘Parity is Beginning to Emerge between America and China in Space’ (National Interest, 5 July 2016) accessed 23 July 2017. 115 See ‘China’s Secretive Space Program Threatens nasa’s Dominance’ (Bloomberg, 28 November 2016) accessed 23 July 2017. Another potential new architect, India is also rapidly expanding its technological prowess. See ‘India’s record satellite launch ramps up space race: Chinese media’ (Times of India, 20 February 2017) accessed 7 August 2017. See Malcolm Scott and Cedric Sam, ‘China and the United States: Tale of Two Giant Economies’ (Bloomberg, 12 May 2016) accessed 7August 2016, providing that China wants to overtake the U.S. to become the world’s biggest economy. That could happen in about 10 years if China can pull off the tricky transition from a government-run, centralized growth model to a more market-driven one where services and consumption play a greater part. See David Arase, ‘The China’s Two Silk Roads Initiative – What It Means for Southeast Asia’ (2015) Southeast Asian Affairs’ 25, 28 (A major international actor has ‘the ability to determine the nature of international order’.). See Cafiero and Wagner (n19), providing that some of China’s geopolitical adversaries such as the United States, Japan, and India are concerned about such strategic implications and, in India’s case, sovereignty issues. See ‘The Silk and Spice Routes’ (draconia.jp) accessed 7 August. See Bewster (n53), stating that Beijing has many motivations for these ambitious undertakings. Most immediately, they put to work Chinese infrastructure companies that are facing a tough domestic market. They also promise the development of new regional production chains with China at the centre. See Capri (n4), providing that a scenario where China has become a resident power in the Middle East. How much would the geopolitical calculus have changed between Saudi Arabia, Iran, Qatar and the Americans? It’s a fair question: The Chinese have been buying and building their way into the international landscape at a pace never before seen in history. And now China is rolling out One-Belt-One Road (obor), the mother of all infrastructure master plans.

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The Contexts of obor Investment in the uae

3.1 The China – gcc Context The gcc nations have substantial economic and geopolitical interests in a successful obor. [T]he gcc has much to gain from obor as the initiative aims to enhance Beijing’s diplomatic and economic relations with countries that maintain a positive view of China’s global economic and political ascendancy, and can provide China (the world’s top oil importer) with the energy resources it needs to fuel its economy.122 The gcc is an important obor partner and features as a prominent actor in the obor plan: China perceives the gcc nations as a conduit to EU and African markets and as a region with great demand for Chinese-led infrastructure projects.123 In return, the gcc views China both as a stable market for oil and gas exports and as a partner in diversifying124 from carbon based wealth into other economic areas.125 The development of gcc economies is important as the gcc is looking to diversify from over-reliance on crude oil and natural gas. The One Belt, One Road (obor). Saudi Arabia’s 2030 Vision and China’s obor are mutually beneficial and help cement a united vision, possibly one of more exciting components of the emerging geo-strategic engagements between Riyadh and Beijing.126

122 See Cafiero and Wagner (n 19). 123 See China, Saudi Arabia eye $65 billion in deals as king visits. (Reuters,16 March 2017 accessed 7 August 2017. 124 See ‘Feasibility study for Saudi Arabian htgr project’ (World Nuclear News, 17 March 2017) accessed 7 August 2017 2017. 125 See Zainab Fattah, Vivian Nereim, Deema Almashabi and Dana Khraich, ‘What’s in Saudi Arabia’s blueprint for life after oil?’ (Bloomberg, April 2016) accessed 7 August 2017. 126 See Theodore Karasik, ‘The geo-strategic significance of Saudi Arabia’s growing relations with China’ (Al Arabiya, 31 August 2016) accessed 7 August 2017.

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Thus, for both China and gcc nations, obor is perceived as a ‘win-win’ and has been enthusiastically embraced.127 For example, Qatar has welcomed ­Chinese construction firms and Chinese contractors are building large Qatari infrastructure projects.128 Saudi Arabia has similarly welcomed Chinese investment with closer economic ties and a proliferation of trade agreements.129 Yet the gcc also is cognizant of the geo-political stakes particularly in the context of regional rivalries. This concern is further complicated by a perception that the rivalries may serve as a manifestation of the greater U.S.–China rivalry. [T]here are concerns in the Council about the initiative’s geopolitical implications because Iran will likely achieve major gains from it. Iran plays a key role in obor as an integral country in China’s Eurasian overland route. Given Iran’s geographical role linking Central Asia and the Middle East (and by extension Europe), and the fact that Tehran and Beijing maintain positive bilateral relations, it is difficult to imagine Sino-Iranian relations not improving in the future…. Also, China’s determination to counteract the United States’ pursuit of its geo economic interests in the Gulf will increase Iran’s value to Beijing, particularly if tensions heat up in Washington-Tehran relations thanks to the Donald Trump administration’s increasingly anti-Iranian foreign policy.130 Therefore, the gcc will need to balance the benefits of obor investment with the prospect that obor’s success will enhance regional rivals and ‘weaken Saudi Arabia’s role in the Middle East’s geopolitical order by advancing Iran’s 127 See Cafiero and Wagner (n19). (‘China’s pursuit of oil and gas reserves from as many diverse sources as possible has brought Beijing close to the Arabian Peninsula’s sheikdoms, which are China’s top suppliers. In turn, the Arab Gulf countries have strongly embraced and benefited from Chinese trade and investment in the 21st century’). 128 See ‘Qatar, China to co-operate on obor initiative’ (Obor watch, 5 December 2016) accessed 7 August 2017. 129 See Robbie Ghamer, ‘Saudi Arabia, China sign deals worth 65-billion’ (Foreign Policy, 16 March 2017) accessed 7 August 2017, stating that during his meetings with Chinese President Xi Jinping, King Salman oversaw the signing of up to $65 billion worth of economic and trade deals, spanning sectors from energy to space, though the Chinese government disclosed few specifics. Saudi Arabia and China also deepened their energy relationship with more than 20 agreements on oil investments and in renewable energy. China even discussed taking a stake in Saudi Aramco, the state-owned oil firm, which is preparing for a public listing. 130 See Cafiero and Wagner (n19) (emphasis added).

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strategic interests and deepening its trade links with the rest of the world.’131 These types of concerns have led other nations to remain outside obor out of concern that a successful obor will empower regional rivals.132 3.2 The China–uae Specific Context Recognizing that the substantial carbon wealth of the uae is not infinite, the uae Vision 2021 envisions a comprehensive diversification away from exclusive reliance on energy exports and establishing a diversified knowledge based economy. uae Vision includes several important components in its agenda. One of these important elements is a sustainable and diversified economy that is flexible in adopting new economic models, and capitalizing on global economic partnerships to guarantee long-term prosperity for current and future generations of Emiratis.133 Several factors contribute to positioning the uae as a hub for investment such as the uae’s political and economic stability, rapid population and gdp growth, and efficient and fast-growing capital markets.134 Naturally, economic diversification policy constitutes an important pillar of its economic performance. For instance, the contribution of the non-oil sector to the national economy has increased over the past few decades. To harness laws so that the uae becomes more attractive for investment, the uae issued a new companies law in 2015 that included measures to enhance corporate governance and permit free zone companies to operate onshore. In addition, the uae issued a new 131 See Cafiero and Wagner (n19). 132 For example, India has so far refused China’s invitation to join obor because India believes doing so will disadvantage India’s claims with respect to a disputed region. See Samanth Subramanian, ‘Modi to miss China’s “Silk Road” summit’ (The National, 11 May 2017) accessed 7 August 2017, stating that the Indian government has objected to the route of the China-Pakistan Economic Corridor (cpec), a section of the obor network that passes through a region called Gilgit-Baltistan. This has led to an internal debate over whether the decision is prudent or mistaken. See S N M Abdi, ‘India, stay away from Shanghai’ (New India Express, 29 May 2017) accessed 7 August 2017 (arguing joining obor would be a strategic catastrophe from both an economic and geo-political perspectives). But see http://indianexpress.com/article/opinion/obor-is-the-grandest-failure-ofindian-foreign-policy-4657738/ (arguing that Indian failure to join obor is a strategic blunder). 133 See uae government, ‘United in Knowledge’ (Vision 2021) accessed 7 August 2017. 134 See William Faria, ‘The uae will Remain Hub for Key fdi’ (The Gulf Today, 3 April 2017) accessed 7 August 2017.

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bankruptcy law in 2016 that supports businesses struggling to make payments to stay afloat via protective composition and restructuring. The uae also aspires to be a regional hub for sustainable energy. Not only does the uaes massive oil reserves provide a springboard for the incumbent energy revolution, but also the uaes huge solar resources and cutting-edge technology development are leading the region as a hub for the new, clean energy revolution.135 Furthermore, the uae is set to diversify its economy through the development, and ultimately, export of renewable energy and clean technology. The government’s uae Vision 2021 clearly sets out its goal to reduce the nation’s dependence on fossil fuels while increasing the use and development of renewable energy. The uae in particular, plays an important part in China’s obor strategy.136 Chinese companies increasingly are using the uae as a trading hub for their business along the Silk Road.137 Chinese nationals now make up about 10 per cent of Dubai’s population, and there are 4,500 Chinese-owned businesses in the city. For China’s big contractors, opportunities abound in the uae construction markets. The energy needs of China and the uae are closely intertwined. On an industry level, it paves the way for a new breed of Chinese energy companies to play a much greater role in a sector that in the past was almost exclusively dominated by Western firms. The blossoming economic partnership between China and the uae has already provided significant positive results. Between 1984 (the year China and the uae commenced official diplomatic relations) and 2016, trade between the two nations has grown from $60 million to $60 Billion reflecting a flourishing economic partnership and vigorous cross-border transactions.138 China is the uae’s second largest trading partner139 and the uae is one of the founding members of the aiib with Chinese citizens enjoy visa-free travel in the uae.140 135 See The Climate Group, ‘uae Analysis: The uae-Hub of the Next Energy Revolution?’ (2015) accessed 7 August 2017, 2. 136 See Muhamad S. Olimat, China and the Middle East Since World war ii: A Bilateral Approach (Lexington Books 2014) 355, 249–250. 137 See Michael Fahy, ‘uae on China’s Silk Road’, The National (13 March 2017). 138 See ‘A breakdown of dealings between uae and China – graphic’ (The National) accessed 6August 2017. 139 See Dania Saadi, ‘China considers uae to be more than an end market’ (The National, 5 December 2016) accessed 7 August 2017. 140 See ‘With visa-on-arrival, Chinese tourists increase’ (Gulf News, 16 April 2017) accessed 7 August 2017.

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Indeed, China views the uae as an important strategic pillar and a hub for finance and technology investments with large Chinese financial institutions building numerous uae financial centers.141 The uae is viewed favorably by China as a reliable and stable economic powerhouse with a majority of bilateral trade between the uae and China being re-exported to European and African nations. The uae is in prime position to become a critically important player in obor. Abu Dhabi and Beijing have cemented deep relations over the years, with China currently ranking as Dubai’s number one trade partner and the uae’s second-largest. Chinese investment in the Emirates is roughly $2.3 billion…. Approximately 60 percent of China-uae trade is re-exported to Africa or Europe … Dubai and the uae’s other six emirates are known for their stability, which the Chinese must rely on for obor to prove successful.142 The uae believes that obor is likely to strengthen this economic partnership with China and obor will ‘be the world’s largest project for global and regional trade collaboration over the next few decades.’143 Both nations have established an investment fund144 to collaborate on opportunities and will ‘play a critical role in supporting the One Belt, One Road initiative.’145 Chinese President Xi hailed the fund commenting it ‘will serve to further strengthen and deepen the strategic and economic relationship between China and the uae.’146 From the uae’s perspective, China’s obor offers an excellent economic opportunity and potential long-term sustainable partner. 141 See Saadi (n139), stating that in the past five years, all four major state-owned Chinese banks have set up operations in the uae, mainly in the Dubai International Financial Centre, and some have listed bonds on Nasdaq Dubai. Even the government of Hong Kong has listed its US$1 billion Islamic bond or sukuk on Nasdaq Dubai. 142 See Cafiero and Wagner (n19). 143 See ‘DP World sees “huge potential” in China’s One Belt One Road initiative’ (Gulf News, 27 November, 2016) accessed 7 August 2017. 144 See Adam Bouyamourn, ‘uae, China to set up $10bn joint strategic investment fund’ (The National, 14 December 2014) accessed 7 August December 2017, ­providing that Mubadala, Abu Dhabi’s strategic investment company, will manage the uae–China Joint Investment Cooperation Fund with China Development Bank Capital and China’s State Administration of Foreign Exchange. The uae and Chinese governments will each contribute $5bn, or Dh18.3bn, to the fund, which will invest in ‘sectors of strategic importance for the uae and China’. 145 See Bouyamourn (n144). 146 Ibid.

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fdi and uae National Security Review

fdi: Advantages and Promotion of Economic Growth Versus National Security Concerns The uae National Vision seeks to diversify the uae economy from over-­ reliance on hydrocarbon based wealth; transforming the uae into an advanced diversified and leading global economy. Doing so is vital as failure to do so may lead to economic hardship and long-term economic damage.147 Indeed, the failure to transition from over reliance on hydrocarbon wealth presents a specific risk to the uae’s economic well-being and the prosperity of its residents. 4.1

Rich Gulf Arab countries have so far failed to diversify their economies away from oil revenue and some may eventually face political challenges as a result.148 Significantly, the ability to attract domestic capital and fdi is inextricably linked to good economic performance. Moreover, sustainable development and the avoidance of financial crises in developing economies is also linked to superior governance.149 In contrast, the inability to secure fdi is detrimental to an economy.150

147 See Ahmed Feteha, ‘Saudis Risk Draining Financial Assets in 5 Years, imf Says’ (Bloomberg, 21 October 2015) accessed 7 August 2017, stating that Saudi Arabia may run out of financial assets needed to support spending within five years if the government maintains current policies, the International Monetary Fund said, underscoring the need of measures to shore up public finances amid the drop in oil prices. 148 See Tom Arnold, ‘Gulf economies have failed to diversify, Qatar .banker says’ (Reuters, 24 February 2015) accessed 7 August 2017. 149 See oecd, ‘Capital Markets in Eurasia: Two Decades of Reform’ (prepared for the experts meeting of the Eurasia Group on Corporate Governance for Capital Market Development, Istanbul 19–20 June, 2012) expanded second draft accessed 7 August 2017, 4 mentioning that in emerging market economies, the experiences of economic transition and all too frequent financial crises have confirmed that a weak institutional framework for corporate governance is incompatible with sustainable financial market development. 150 See Avinash Dixit, ‘Governance, Development, and Foreign Direct Investment’ (2012) Max Weber Lecture No. 2012/01 accessed 7 August 2017, 1.

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Therefore, the success of the uae’s Vision will therefore hinge to a very significant degree on the vibrancy of financial markets, fdi, sustainability and economic growth.151 Although fdi is acknowledged as beneficial and an important enabler of economic vitality, many governments are concerned about national security implications of fdi.152 Chinese fdi has come under more stringent scrutiny153 in recent years ‘sparked [by] political concerns about foreign ownership in Europe and the U.S.’154 Some in the U.S. have urged a complete ban on Chinese soe investment.155 The bankruptcy of Japan’s Toshiba unit, U.S. based Westinghouse is an example of these concerns. Toshiba’s unit Westinghouse declared bankruptcy and is likely to be sold. Westinghouse builds nuclear reactors and ‘[f]or years, Chinese entities have been interested in the nuclear reactor builder, and the company has been a repeated target of Chinese espionage.’156 The United 151 See Stijn Claessens and Burcin Yurtoglu, ‘Corporate Governance and Development – An Update’ ifc (2012) Global Corporate Governance Forum Focus 10 accessed 7August 2017, highlighting the numerous studies linking good corporate governance with better economic performance. 152 Part of the concern is the claim that foreign companies are not permitted or face stiffer hurdles if seeking to buy Chinese companies. See Fontanella-Khan (n35), highlighting the inequity between US and Chinese companies when it comes to international acquisitions . . . there is virtually no chance that a US financial services company would be permitted to acquire a Chinese [rival]. 153 Diane Bartz and Liana B. Baker, ‘Fairchild rejects Chinese offer on U.S. regulatory fears’ (Reuters, 12 February 2016) accessed 16 Feb 2016 providing that Fairchild Semiconductor International Inc FCS.O said on Tuesday it had rejected an acquisition offer from China Resources Microelectronics Ltd and Hua Capital Management Co Ltd, citing concerns over the U.S. approval process. 154 See Aaron Kirchfeld, David McLaughlin and Stefan Nicola (Bloomberg, 2 December 2016) discussing cfius’s recommendation to reject a transaction). See also Fontanella-Khan (n35) (‘Ant Financial’s $1.2bn takeover of MoneyGram has drawn fresh criticism from US lawmakers who say the acquisition of the US cash-transfer group by an affiliate of China’s Alibaba, in which Beijing holds an indirect minority stake, poses a national security threat’). 155 See Lawder and Thomas (n17), stating that in its annual report to Congress, the U.S.– China Economic and Security Review Commission said the Chinese Communist Party has used state-backed enterprises as the primary economic tool to advance and achieve its national security objectives. The report recommended Congress prohibit U.S. acquisitions by such entities by changing the mandate of cfius, the U.S. government body that conducts security reviews of proposed acquisitions by foreign firms. 156 Jacobs, Mohsin and Dlouhy (n 33).

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States is concerned that Westinghouse nuclear expertise could be given to the Chinese government if a Chinese buyer emerges. The Trump administration is so alarmed that Chinese investors may try to purchase nuclear business that U.S. officials are trying to find an American or allied buyer for the company instead, two people familiar with the matter said. Cabinet members including Energy Secretary Rick Perry and Treasury Secretary Steven Mnuchin have discussed preventing Westinghouse’s purchase by a Chinese-linked company, three U.S. officials said.157 However, not only the United States has signaled a reassessment of its vetting of incoming fdi is being considered. The UK is expected to overhaul its review to take into account national security.158 EU nations have also expressed concerns regarding China’s fdi into the EU and the associated national security risks of obor-driven investment. EU diplomats gave expressed ‘suspicions [] over China’s geopolitical intentions in Europe, particularly with its massive trade and infrastructure plan, the “Belt and Road Initiative”’.159 There are also worries over transparency, origins of financial flows, patent rights, jobs, unfair competition and the role of Chinese state-owned companies.160 In France, Germany,161 and Italy, there is heightened awareness of possible negative consequences on national security from fdi. 157 Ibid. 158 Charles Clover and Jim Pickard, ‘UK to tighten foreign investment reviews’ (Financial Times, 24 July 2017) accessed 7 August 2017 (‘The British government is pressing ahead with plans to tighten screening of foreign investments by China and other countries amid concerns that such flows could compromise national security.’). 159 See Cathereine Wong, ‘How a history of divisive tactics has made the European Union suspicious of China’ (South China Morning Post, 5 June 2017) accessed 6 August 2017, noting that obor is not the ‘liberal, market-oriented, rules-based globalisation that we would like to see’. 160 See Angela Stanzel, ‘Germany’s turnabout on Chinese takeovers’, accessed 21 March 2017. 161 Germany has already tightened its review. Gemma Acton, Germany ups barriers to ­foreign buyouts in bid to diminish Chinese appetites (cnbc, 13 July 2017) accessed 7 August 2017 (‘A new directive adopted on Wednesday broadens the remit of an existing law which currently enables the government to block a non-European Union (EU) buyer from acquiring more than 25 percent of a German company if such a move is deemed to threaten public order or national security. The expanded powers now allow ministers to investigate deals affecting companies that are considered to provide “critical infrastructure”, in particular, those producing software for utilities, payment, medical and transportation systems.’). See also Julien Chaisse, ‘Demystifying Public Security Exception and Limitations on Capital Movement – Hard Law, Soft Law and Sovereign Investments in the EU Internal Market’ (2015) 37(2) University of Pennsylvania Journal of International Law 583–646. 162 Jorge Valero, ‘The Proposal to block Chinese foreign investment faces uncertain future’ (Euractiv, 30 May 2017) accessed 7 August 2017. 163 See Stanzel (n160), mentioning that yet despite such public concerns, the German ministry of economic affairs saw no threat to national security and cleared the Kuka takeover. But see Acton (n161), (Germany institutes more intensive review). 164 See Agreement by the Government of the United Arab Emirates and the Government of the People’s Republic of China for the Promotion and Protection of Investments, preamble (28 Aug 1994) accessed 7 August 2017.

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that are contrary to the provisions of the treaty in a way to restrict Chinese investments.165 The uae–China bit provides for the most-favored-nation (mfn) principle, which is directed at avoiding discrimination between investments of third countries.166 The mfn principle applies to any measure affecting investments. Accordingly, any investment review mechanism established by uae government authorities should not violate the principles included in the uae– China bit particularly the mfn guarantee. The uae have enacted laws and instituted policies regulating foreign investment, often to address national security concerns. However, the uae has its own concept of national security that influences which particular investments may be restricted. As a result of the differing concepts, uae restrictions range from requiring informal approval of investments in a narrowly defined defense sector to broad restrictions on the basis of economic and demographic concerns. The uae has also introduced a list of strategic sectors in which foreign investment is prohibited. There are several laws that restrict foreign investment in the uae.167 In particular, the uae’s Companies Law and the Agencies Law limit foreign ownership to forty-nine percent and mandate that trade must be conducted through an Emirati agent.168 The restrictions could be designed to ensure that uae citizens are beneficiaries of the country’s economic growth because a majority of residents and private sector employees are not uae citizens.169 The uae’s labor 165 Of course, inherently, all states have the right to protect their national interest. The uae– China bit provides Chinese investors with guarantees that national security will be the sole test for any uae vetting architecture and an ‘economic benefit test’ will not be used. 166 Ibid. art 3. 167 For instance, the Government Tenders Law provides that government suppliers and contractors must be uae citizens or companies at least fifty-one percent owned by uae citizens. The Federal Industry Law also provides that industrial projects must be fifty-one percent owned by uae citizens, and that projects must be managed by a uae citizen or have a board of directors that has a majority of uae citizens. See wto Trade Policy Review Body, ‘Trade Policy Review of United Arab Emirates-Report of the Secretariat’ (28 June 2006) WT/TPR/S/162/Rev.1, 16–20. 168 See Federal Law No. 2 of 2015 on Commercial Companies, arts. 10, 151, and 353, Official Gazette No. 196 (April 1, 2005). See also Ministerial Decision No. 69 of 1989 Regarding Conditions and Procedures for Licensing Foreign Companies to Practice its Activities in the State, arts 404 and 505 (September 16, 1989). See Law for Organizing Commercial Agencies No. 18 of 1981 as amended by Federal Law No. 2 of 2010, art 2, Official Gazette No. 99 (August 11, 1981). 169 See Gawdat Bahgat, ‘The Silent Revolution: Education and Instability in the Gulf Monarchies’, (1998) 22(1) Fletcher Forum of World Affairs 103, 107, stating that the uae has presence of a huge number of expatriates. Foreign workers represented more than 80 percent of the labor force.

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market and societal structure is another national security concern.170 These are very broad definitions of national security compared to cifus. These restrictions can be used as platforms to protect the country’s national security interests. In addition to the above restrictions, the uae limits foreign ownership of land, with rules varying from emirate to emirate.171 The uae also has sector-by-sector limits on foreign ownership. Some sectors, like insurance, ­telecommunications, and travel agencies, are still mostly closed to foreigners.172 Traditionally, foreign investment in the uae’s oil and natural gas sectors has been limited to forty percent, divided among several foreign joint venture partners.173 The uae treats oil and natural gas production as a national security issue since these industries represent a major portion of the uae’s income. In all countries, Foreign Trade Zones (ftzs) are exempt from many local laws. These ftzs usually have lower labor and tax requirements, and allow foreign companies to own 100 percent of an enterprise in any ftz.174 This makes them attractive locations for foreigners to invest. The presence of ftzs in uae has created two separate and distinct economies in the uae – the ftz economy and the regular uae economy. There are many unique characteristics of the system employed by the uae to regulate foreign investment. In many ways, this system is different from the U.S. process under cfius.175 The uae does not specifically use the term ‘national security’ in its laws or define what is covered under this term. Further, the uae does not use a formal review process to review a transaction based on national security. Rather, uae review considers economic factors and cultural 170 See Amira Agarib, ‘Dhahi for Expat Quota to Preserve Identities,’ (Khaleej Times, 27 December 2010) accessed 7 August 2017 (Dubai Police Chief Lt General Dhahi Khalfan Tamim recommended a quota system for all nationalities in the uae to keep the expat population in the country in check. Expatriates may endanger the identity of the uae nationals in a way that they could influence the culture and the language of the local children, noting that e expatriates have brought with them many things that are today misunderstood to be the traditional elements of Emirati culture). 171 See wto Trade Policy Review Body (n 167), 46. 172 Ibid. 173 Ibid. 174 See William G. Kanellis , ‘Reining in the Foreign Trade Zones Board: Making Foreign Trade Zone Decisions Reflect the Legislative Intent of the Foreign Trade Zones Act of 1934’, (1995) 15 Northwestern Journal of International Law & Business 606, 612–617. 175 The uae should endeavour to establish a robust regulatory vetting mechanism. See Li and Xia (n 87) (‘If host countries want to increase foreign investment via acquisitions, they should build a more efficient system in evaluating fdi projects involving foreign soes.’).

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policy objectives. Foreign investors are informally notified of sensitivities associated with attempted investments. If a foreigner attempts to invest in an area deemed to be unacceptable, the investor will be privately redirected. Unlike the U.S. process, the uae system does not establish time frameworks for the review ranging for example from thirty days to six months. The uae’s reviews are not mandatory until the investment reaches certain dollar thresholds or if the buyer obtains a controlling or blocking share in the acquired company. Finally, the uae system does not allow review process decisions to be challenged in court or through administrative means for reconsideration. While the existing set of laws and informal rules has served the uae well, times are changing. Given the increasing cross-border investment and economic integration, the enormity of obor and the unique nature of Chinese soes, these factors militate strongly in favor of establishing a review process to screen foreign investment. It will be useful to briefly describe the United States process of review. In the U.S., cfius176 is the primary vetting mechanism177 and wields power to review a ‘covered transaction,’ defined as any ‘merger, acquisition or takeover … by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States.’178 The term ‘national security’ is not strictly defined and cfius focuses on certain strategic national security spheres such as energy, defense and technology.179 The U.S. President

176 See Malkawi (n6), describing the historical process leading to cfius; the 1988 passage of the ‘Exon-Florio’ amendments to the Defense Production Act of 1950, see 50 u.s.c. App. §2158, et seq. (as amended). 177 The two main controversies which led to cfiuss increased profile were: a Chinese soe’s attempted take-over of unocal. See Anne Salladin, Amelia Schmidt, ‘cfius post-Ralls Ramifications for Sovereign Wealth Funds’ (2015) (4) International Review of Law 1 (‘state-owned China National Offshore Oil Corporation (cnooc) announced in June of 2005 its intent to bid $18.5 billion for the US-based company Unocal. Numerous members of Congress publicly attacked the transaction, holding hearings and proposing legislation designed to prevent it from occurring. Then President George W. Bush’s administration did not respond to requests from members of Congress to review the transaction under cfius, but ultimately congressional pressure forced cnooc to withdraw its bid’) and DP Ports’ attempted investment in the United States. See Malkawi (n6). 178 50 u.s.c. App. §2170(a)(3). 179 See accessed 7 August 2017 (noting the list of factors cfius will consider include defense, energy and technology. Note there are calls to expand the list of areas. See https://www.agriculture.senate.gov/newsroom/ dem/press/release/senators-stabenow-and-grassley-introduce-bipartisan-legislationto-protect-american-agricultural-interests-in-foreign-acquisitions (proposal to add food security to list).

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is specifically empowered to ‘suspend or prohibit any covered transaction that threatens to impair the national security of the United States.’180 Pursuant to cfius there is an obligation to file a mandatory filing to cfius if the transaction implicates national security181 and cfius can investigate within 30 days after receiving the filing.182 cfius then has 45 days to review the transaction and make recommendations, comments and/or objections.183 While the Presidential decisions are not appealable, one buyer successfully filed a due process claim arguing a deprivation of rights in connection with the cfius process.184 The uae government should establish a similar vetting architecture vesting authority at the federal level to review and act upon foreign takeovers, mergers, and acquisitions which threaten national security. The uae should create a separate federal governmental entity to oversee inward foreign investment. This federal body could consist of several ministries such as foreign affairs, trade, economy, treasury, and defense.185 The term ‘national security’ can be interpreted broadly without limitations.186 Although leaving the term ‘­national 180 50 u.s.c. App. §2170(d)(1). See e.g., David McLaughlin, ‘Obama Blocks Chinese Takeover of Aixtron as U.S. Security Risk’ (Bloomberg, 3 December 2016) accessed 7 August 2017 (‘The president upheld a recommendation by the Committee on Foreign Investment in the U.S. that the sale of the semiconductorequipment supplier to Grand Chip Investment GmbH should be stopped, according to a statement Friday by the Treasury Department.’). 181 50 u.s.c. App. §2170(b)(1)(C)(i). 182 50 u.s.c. App. §2170(b). 183 50 u.s.c. App. §2170(b)(2)(C). 184 See Salladin and Schmidt (n 177), providing excellent discussion of Ralls and due process. 185 The Committee on Foreign Investment in the United States (cfius) is an inter-agency committee of the U.S. government that reviews the national security implications of foreign investment in U.S. companies or operations. The cfius was established in 1975 by Executive Order 11858. The Committee is chaired by the Secretary of the Treasury and is comprised of the Secretaries of Commerce, Defense, Homeland Security, and State, along with the Attorney General and six White House officials. The six White House officials in the cfius are the Director of the Office of Science and Technology Policy, the Assistant to the President for National Security Affairs, the Assistant to the President for Economic Policy, the Director of the Office of Management and Budget, the U.S. Trade Representative, and the Chairman of the Council of Economic Advisers. See Executive Order No. 12661,’ (1989) 3 Code of Federal Regulation 618. 186 This is similar to cfius wherein the concept of national security is not fixed thereby vesting the review mechanism with flexibility. See Li and Xia (n87) (‘For example, cfius can question whether foreign control over a US business, especially by foreign soes, presents national security concerns. Here, the concept of “national security” is vaguely defined, leaving room for regulatory discretion.’).

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security’ undefined may be somewhat problematic for investors, the ability to provide for flexibility is an important method of protecting uae national interest. Indeed, what once may have been considered non-strategic may very well become strategic over the long-term financial, defense and technological strategic context.187 To promote uniformity and provide stability to investors, the concerned government authority in the uae should offer guidance identifying the critical sectors that could be the subject of review. These critical sectors could include land, real estate, technology, and oil. Any foreign investment transaction would potentially be the subject of review. However, the uae should keep flexibility to listing those sectors subject to review so that the list can be amended as the uae economy develops. The review process would consist of a voluntary filing by one or more parties to the transaction, review of the transaction, and issuing a detailed report.188 There would be repercussions for not filing including but not limited to unwinding a transaction. Upon completing this process, the government can make a decision to permit, deny the acquisition, or seek divesture after an ex post facto review. In principle, the filing is voluntary. However, filing can become mandatory in cases of foreign direct investment by firms ‘controlled’ directly or indirectly by a foreign government. Filing by one party can start the review process, i.e., no need for joint filing. The concept of ‘control’ can be left undefined although this may lead to regulators being manipulated into political pressure. Yet affording flexibility is important given financial engineering and the potential opaqueness of buyers.189 Parameters can be established to forgo review for ‘control’ when minority stakes are involved. 187 See John Cobau, ‘Legal Developments in U.S. National Security Reviews of Foreign Direct Investment (2006–2008)’ in: Jose E. Alvarez, Karl P. Sauvant (eds.), The Evolving International Investment Regime: Expectations, Realities, Options (Oxford University Press, 2011) 104, 116–119 (discussing changing perceptions of national security and the importance of retaining flexibility with respect to defining national security in the cfius review process). 188 The filing may contain background concerning the parties and a detailed description of the transaction including timelines and assets to be acquired. 189 Sometimes, even a private business may be subject to government control. See Chen, Weitseng, Screening the ‘Dragon’s Gift’? National Security Review of China’s Foreign Direct Investment (April 1, 2015). Book chapter for ‘China’s Socialist Rule of Law Reforms under Xi Jinping’ p. 197 (John Garrick & Yan Bennett eds., Routledge, 2016). Available at ssrn: https://ssrn.com/abstract=2916071 (‘Milhaupt and Zheng argue that in the Chinese context the dichotomy between soes and privately owned enterprises (poes) is false, and that there is less state control over soes, and greater state control over poes.

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The focus of the uae investment review would concentrate on the transaction itself as well as the nationality of the parties involved. The uae review should provide a timeframe for the review and making of decisions. The process – balanced – should not be overly time-consuming to deter fdi but with enough time to achieve meaningful review. uae government authorities may contact the parties for further information or to discuss steps that would mitigate any national security concerns that the transaction raises. At the end of the review period, authorities have the option to either to clear the transaction or deny it. Any decision concerning the investment review should not be appealable to courts. The overriding context of the uae’s approach should thus be to welcome fdi while simultaneously strengthening national security review. Blanket protectionism must be avoided as it incentivizes retaliatory measures and poses threats of undermining relations and economic benefits arising from vigorous fdi and the trans-national movement of capital. Overzealous review will also negate the promotion of openness and free markets and cross-border investment. Doing so risks reversing prior economic gains and future development. Reviews should be on a transaction-specific basis. Yet the uae should be legitimately concerned about fdi from companies that may have deep and non-transparent connections to a foreign government particularly if the investor is an soe.190 The uae should demand more transparency and carefully investigate each potentially problematic transaction. Another important consideration is the ability of uae investors to access markets and takeover companies in the nation that is seeking to invest in the uae – reciprocity.191 Moreover, it may be worthwhile for gcc nations to A similar observation is offered by Musacchio and Lazzarini in their cross-country study of state capitalism. Empirical evidence shows that Chinese state capitalism institutions have developed a hybrid of majority and minority shareholding in various forms of business entities, which is a variant of earlier version of state capitalism in Asia. As a result, the ownership-based approach may improperly constrain, even distract, regulators from their original purpose.’). 190 Jing Li and Jun Xia, ‘State-owned enterprises face challenges in foreign acquisitions’, Columbia fdi Perspectives, No. 205, July 31, 2017. Reprinted with permission from the Columbia Center on Sustainable Investment, [2017] http://ccsi.columbia.edu/files/2016/10/ No-205-Li-and-Xia-FINAL.pdf (‘When target firms participate in more research and development (R&D) alliances in the host country, implying the centrality of target firms in the country’s innovation system, soe acquirers are less likely to complete their acquisitions than private foreign firms. Regulatory agencies may find it difficult to justify such deals because of political and strategic considerations that stem from the fear of losing proprietary knowledge to foreign governments.’). 191 Chen, Weitseng, Screening the ‘Dragon’s Gift’? National Security Review of China’s Foreign Direct Investment (April 1, 2015). Book chapter for ‘China’s Socialist Rule of Law R ­ eforms

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share investigative results with other gcc members. This could help identify a broader pattern in foreign acquisitions of gcc businesses. Moreover, a collaborative approach will deter a foreign government from ‘jurisdiction shopping’ by which strategic objectives could be achieved by buying in ‘low-risk of review’ jurisdictions. A brief comparison of the Chinese review of fdi provides a useful comparative context. China has established a cfius style system to review incoming fdi.192 Interestingly, China’s review is stricter than cfius.193 [T]he nsrc enjoys greater power than the cfius … the mofcom makes it clear in the fia that the nsrc’s decisions are immune from any judicial review via administrative reconsideration and litigation. As such, the nsrc will not face the potential of an embarrassing outcome as the cfius faced in Ralls’ case. Furthermore, the nsrc is granted more time to investigate and contemplate cases. Unlike the cfius review procedure, the fia designed a two-stage procedure consisting of a ‘normal’ and a ‘special’ review. The difference between two stages, albeit unclear in the draft fia, seems to involve the level of scrutiny and scope of other agencies under Xi Jinping’ p. 197 (John Garrick & Yan Bennett eds., Routledge, 2016). Available at ssrn: https://ssrn.com/abstract=2916071 (‘Recently, for example, the National People’s Congress published the draft legislation of China’s first anti-terror law. According to the bill, Chinese regulators are entitled, in the name of national security, to require technology firms selling computer equipment in China to hand over encryption keys and install security “backdoors.” This legislation would have serious implications for market competition, as it raises the market-entry threshold for foreign firms and facilitates the increase of local firms’ market share.’). 192 See Weitseng Chen, ‘Screening the ‘Dragon’s Gift’’? National Security Review of China’s Foreign Direct Investment [book chapter in: John Garrick and Yan Bennett (eds.) China’s Socialist Rule of Law Reforms under Xi Jinping (Routledge 2016) 197] accessed 7 August 2017. (‘[S]imilarities exist between the nsrc and cfius, such as pre-filing communication, negotiation procedure, conditional approval, and re-investigation due to omitted disclosure. The fia also encourages any public agency, market participant, or competitor in the industry in question to submit a request to the nsrc in order to initiate an investigation.’). 193 Chen (n192) (‘The nsrc makes its recommendation to the State Council about cases that may constitute threats to national security. It is the State Council that makes the final decision as to whether to block an investment project. With respect to factors that the nsrc needs to scrutinize, the fia provides a very broad list which, like the vaguely defined “national security” in the finsa, delegates enormous discretion to the reviewers. In addition to factors such as “key technology”, “critical infrastructure”, “foreign control”, or “Internet security”, the fia also provides a catch-all provision – “any other factor the nsrc deems necessary.”’)

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involved…. An additional sixty days is allowed for the special review to recommend whether the case should be blocked by the State Council. Compared to the 45 days granted to the cfius, this total 90-day procedure provides the nsrc with more leeway and bargaining time for negotiating with the foreign firms in question. It is notable that the draft fia currently excludes foreign investment in the financial and banking industry.194 While we do not advocate the uae embrace China’s apparently more restrictive mechanism, it is important to note that China has in place a robust vetting procedure which adds impetus to the uae expeditiously establishing a review mechanism. 4.3 Specific Recommendations for the uae (1) The uae should expeditiously establish an inter-governmental ministry agency composed of the Ministers of Treasury, Economy, Defense, Trade and Foreign Affairs, to identify and comprehend the potential advantages and risks of fdi into the uae. This agency will be tasked with analyzing the impact of evaluating the national security issues of fdi into the uae with respect to defense, economic and technology national interests. The agency should be charged with issuing a comprehensive report and recommendations to create a review mechanism. Particular attention should be given to review of companies located in an ftz. (2) Based upon the report of the inter-governmental agency, the uae should establish a vetting system similar to cfius along the lines preliminarily outlined in this paper taking into account the uae’s domestic governmental structures and taking into account the local legal and governance frameworks. The process should be led by the political leadership in consultation with uae business leaders and academic experts to formulate a balanced vetting mechanism. The overarching aims are: (a) to create an effective monitoring procedure to screen out the potential for politically and/or non-commercially driven investment and (b) simultaneously avoiding protectionism thereby encouraging legitimate investment and economic partnership. (3) On a broad domestic and international level, the uae should endeavor to ensure that foreign investors – particularly soes – adhere to uae law and are amenable to uae jurisdiction should commercial disputes arise. The uae should also endeavor to ensure reciprocity exists – i.e., that uae business are fully enabled to invest and buy foreign companies and are 194 Chen (n192) (emphasis added).

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not blocked from overseas investments. The uae should also consider leading a gcc effort at coordinating investment reviews, exchanging information, sharing investigative reports and ensuring gcc investors the reciprocal rights to invest. 5 Conclusion Chinese obor-driven fdi presents immense opportunity – and potential risk – to host states including the uae. While both China and the uae stand to gain tremendously from vigorous profit-motivated cross-border investment, national security factors cannot – and should not – be ignored. Particularly in the context of the China–U.S. rivalry, it is not unreasonable to presume that Chinese soes will seek to obtain non-financial benefits in the context of the broad China–U.S. competition. These concerns over state-owned investors are heightened since the ccp has extensive control over the soes who will be investing in the uae. While the present uae informal review process has served the uae well, the enormity of obor as well as a changing world requires that a new approach be considered. The uae needs to establish an internal regulatory mechanism that encompasses a realistic approach. We suggest that the uae balance the crucial need for strengthened cross-border capital flow and investment with a realization that risks do exists – at least potentially – and that the uae must undertake measures to advance its own national interest. A cfius style review mechanism is an option that should be examined as a potential solution to the upcoming challenges of increasing Chinese investment in the uae.

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