From AI to Arbitration:
Legal Measures to Attract Foreign Businesses to China and, Potentially, Central Asia†
Long before the emergence of artificial intelligence (“AI”) chatbots, China had set policy goals to prioritize the development of AI, resulting in the recent promulgation of pioneering legislation aimed at bringing foreign businesses to this burgeoning sector in the country.
“Xi’an’s recent hosting of the China-Central Asia Summit […] has signaled this ancient city’s potential to facilitate again the economic development in this region and serve as the region’s dispute resolution center.”
Applying similar long-term planning skills, China began years ago to revive the glory of Xi’an, the eastern terminus of the ancient Silk Road, by, among other initiatives, enhancing the city’s capacity to resolve legal disputes arising from growing economic activities along the new “Silk Road Economic Belt”. Xi’an’s recent hosting of the China—Central Asia Summit, which was concluded with the signing of the Xi’an Declaration, has signaled this ancient city’s potential to facilitate again the economic development in this region and serve as the region’s dispute resolution center.
These achievements are quite remarkable. How did China get here and where will this likely lead to?
China’s pursuit of AI became particularly clear in March 2021, when the country identified in its 14th Five-Year Plan for the National Economic and Social Development that AI industries are among the core industries driving China’s digital economy. To accomplish the goal of having the added value of these industries account for 10% of China’s GDP by 2025, the “14th Five-Year” Digital Economy Development Plan issued by China’s State Council pledges to “[e]nhance the capability to innovate key technologies [by] aiming at strategic and forward-looking fields such as […] big data, artificial intelligence, blockchain, and new materials [emphasis added]”.
Because of these policy goals, Guangzhou, Shenzhen, and Shanghai, three major cities in Eastern China, took the lead in 2022 to introduce local regulations and policies promoting foreign investment in this fiercely competitive area. In an article titled AI Industries in China: National Policies & Three Major Cities’ Competition for Foreign Investment, Peining Wang and Ruoyu Ren compare these three cities’ regulations and policies and discuss the special characteristics of their development of AI industries.
The legislative measures taken by Guangzhou, Shenzhen, and Shanghai to attract foreign investment to their AI sector will likely inspire other Chinese cities to follow suit, leading to further increase of such investment opportunities.
These opportunities may also spread to Central Asia. In the Xi’an Declaration signed by President XI Jinping and presidents of five Central Asian countries, namely, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, the parties specify that they “encourage the expansion of cooperation in high-tech areas such as artificial intelligence, smart city, big data, and cloud computing [emphasis added]”. The fact that foreign AI businesses may, at a future date, be able to leverage the amicable China-Central Asia relationship to move beyond the Chinese market into the developing economies of Central Asia could motivate these businesses to establish their presence in China now.
Arbitration & Commercial Disputes
In 2018, five years after China rolled out the Belt and Road Initiative, the Supreme People’s Court established the First International Commercial Court in Shenzhen and the Second International Commercial Court in Xi’an to, among other goals, “impartially and promptly adjudicate international commercial cases in accordance with law” and “serve and safeguard the construction of the ‘Belt and Road’”. Shenzhen and Xi’an were selected as the homes of these two courts largely because of their strategic locations on the “21st Century Maritime Silk Road” (i.e., the “Road”) and “Silk Road Economic Belt” (i.e., the “Belt”)—together they form the Belt and Road—respectively.
In December 2022, the Supreme People’s Court released Guiding Case No. 196 (“GC196”), which is based on a ruling rendered by the First International Commercial Court. GC196 has established this important principle, as stated in its “Main Points of the Adjudication” section:
An arbitration clause exists independently; its formation and validity are independent of and separable from other clauses of the contract. Where, in the course of entering into a contract, the parties negotiated for an arbitration clause and agreed to submit [disputes] to arbitration, the formation and validity of the arbitration clause are not affected by whether or not the contract has been formed.
In an article titled Guiding Case No. 196: Supreme People’s Court Adopts a Liberal Approach to Arbitration While Leaving Room for Unexplored Situations, Tyler Atkinson, a Partner at McManis Faulkner, compares GC196 with U.S. law. He further explains why GC196 shows that Chinese law is arguably more favorable to arbitration than the law of the United States, a jurisdiction that, itself, strongly favors arbitration.
“The Chinese judiciary’s strong support for arbitration is likely to give foreign businesses more confidence […]. This confidence will also help foreign businesses weigh their opportunities in Central Asia.”
Since Guiding Cases are China’s de facto binding precedents, courts across the country are expected to follow the Supreme People’s Court’s liberal approach to arbitration stated in GC196. The Chinese judiciary’s strong support for arbitration is likely to give foreign businesses more confidence that their China-related commercial disputes can be handled in a more informal, efficient, and cost-effective manner.
This confidence will also help foreign businesses weigh their opportunities in Central Asia. In the Xi’an Declaration, China and the five Central Asian countries expressed their readiness to develop cooperation in a wide range of areas, including traditional and digital trade, electronic commerce, the green economy, infrastructure construction, and engineering construction. Business opportunities arising from such cooperation are likely to look more attractive to foreign businesses as, given GC196’s principle, these businesses know that should their commercial disputes go to the Second International Commercial Court in Xi’an, the court is expected to follow GC196’s principle to favor arbitration.
Ultimately, the impact of the above-mentioned legal and judicial measures related to AI and arbitration on economic activities in Central Asia will become clearer in 2025, when the next China-Central Asia Summit is scheduled to be held in Kazakhstan, and every two years afterwards, when China and these Central Asian countries will continue to take turns to host the biennial summit. Such mechanism is a welcome development that can allow more transparency and improvement.
† The citation of this article is: Dr. Mei Gechlik, From AI to Arbitration: Legal Measures to Attract Foreign Businesses to China and, Potentially, Central Asia, SINOTALKS.COM®, In Brief No. 32, May 31, 2023, https://sinotalks.com/inbrief/202305-english-china-ai-arbitration-foreign-investment.
The original, English version of this article was edited by Nathan Harpainter. The information and views set out in this article are the responsibility of the author and do not necessarily reflect the work or views of SINOTALKS®.
Consultation, Training, & Speaking Engagements
If you need strategic solutions to problems affecting your business/professional activities in China and/or beyond, contact us at firstname.lastname@example.org. We will be delighted to offer our assistance through consultation, customized training, and/or speaking engagements.