As China expands its Belt and Road initiative, Hong Kong is becoming the go-to centre for disputes related to it. By Alfred Romann 

For more than three years, Hong Kong has been looking to capitalise on its role as a “super connector” for China’s President Xi Jinping’s Belt and Road Initiative. Emerging as the premier arbitration centre is part and parcel of this role.

The Belt and Road initiative aims to boost trade and improve infrastructure links among more than 60 countries. Chinese investments in the tens of billions of dollars are certain to generate disputes and more demand for dispute resolution.

“The consumers of dispute resolution are becoming more sophisticated,” says Chiann Bao, Asia Pacific Counsel at Skadden, Arps, Slate, Meagher & Flom and former secretary-general of the Hong Kong International Arbitration Centre (HKIAC). “Our sense is that there is a strong shift in terms of using arbitration.”

“Hong Kong sits at the centre of Asia and ticks all the boxes one might wish in an arbitration center,” she adds.

HONG KONG’S STRENGTHS

President Xi Jinping launched the Belt and Road initiative in 2013 and by the end of 2015, Chinese investment along the route had reached almost $19 billion, 13 percent of which was overseas direct investment. The China Development Bank has promised to invest $890 billion, a Silk Road Fund has $40 billion and the Asian Infrastructure Investment Bank (AIIB) a further $100 billion. China’s State Council has pointed out that “demand for dispute resolution services, including arbitration, is bound to increase.”

Hong Kong is well positioned to benefit. “You have geographical proximity. You have expertise in finance, infrastructure, insurance, shipping, trade and logistics. You have bilingual lawyers who are familiar with Chinese law,” says Caroline Thomas, a partner at Laracy & Co, a Hong Kong law firm that works in association with Hill Dickinson Hong Kong. “You can say that it is in a unique position to be the designated arbitration forum for disputes arising under One Belt One Road.” 

“There is clearly a very strong government initiative to push arbitration including by keeping arbitration laws in line with global best practices,” she adds. Hong Kong is a member of the New York Convention and has a reciprocal agreement with China. “If you get a Hong Kong arbitration award it is enforceable both abroad and in over 150 New York Convention countries as well as in China. That is actually quite an important consideration for parties engaging in One Belt One Road projects,” Thomas notes.

DRIVING GROWTH

Hong Kong has legislation that is modern and user-friendly, providing one regime which applies to both foreign and domestic disputes, explains Bao. The Hong Kong government has been proactive in building infrastructure that facilitates arbitration.

“In recent years, there is increased confidence within Chinese parties as (they) are more discerning about their dispute resolution options,” says Bao. There are clear benefits to arbitration, and “the biggest benefit of arbitration is enforcement.”

“The supply of disputes in Asia is also helping,” she adds. Hong Kong’s strengths as a financial center are also beneficial along with the several strong arbitration institutions that are present such as the International Court of Arbitration, the China International Economic and Trade Arbitration Commission (CIETAC) and the HKIAC. In 2015, the HKIAC handled 520 cases, up from 477 in 2014. The HKIAC recently appointed as Secretary General Sarah Grimmer, who previously worked with the Permanent Court of Justice in The Hague.

CHICKEN OR EGG

The constant improvements to the infrastructure for arbitration in Hong Kong are happening as demand grows. And the Belt and Road could super-charge that demand, regardless of whether it is leading to more investments or if it has emerged as a convenient vehicle for trade. More Chinese companies are investing abroad and more are involved in arbitration proceedings.

“Hong Kong is an immensely popular seat and that speaks volumes,” says Rory McAlpine, a litigation and international arbitration partner at Skadden. “More parties are earmarking Hong Kong as the center for arbitration. We see a landscape of onwards and upwards for arbitration.”