Naimeh Masumy, Research Fellow, Swiss International Law School


On 9 January 2021, the Ministry of Commerce of the People’s Republic of China issued order No. 1 of 2021 on Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and other Measures, commonly known as the “Chinese Blocking Statute”. The Blocking Statute establishes China’s first legal regime to safeguard Chinese entities from the impact of extraterritorial application of foreign legislation.

As per Article 1 of the Chinese Blocking Statute, the purpose of this legislative measure is to “[…] protect the legitimate rights and interests of Chinese citizens, legal persons or other organizations” from the extraterritorial application of foreign sanctions.

The Chinese Blocking Statute imposes reporting obligations on Chinese persons and entities. Under the statute, they are required to report matters impacted by exterritorial foreign regulations. Failure to comply with this provision may lead to government warnings or fines. In addition, this statute provides a private right of action for Chinese persons or entities to seek recourse in Chinese courts. Under this legal framework, a Chinese person may seek an exemption from compliance, provided certain requirements are met.

In addition to Chinese citizens, the bill seems to provide legislative support to foreign enterprises that may be threatened by sanctions imposed by the U.S. Some observers have said that the Chinese Blocking Statute is a clear step towards protecting the EU-China Comprehensive Agreement on investment, which offers extensive protection to EU investors and enterprises seeking to invest in China.

Even though the purpose of the Chinese Blocking Statute is no prima facie for the promotion of foreign investments, it may ultimately encourage foreign investment by eliminating regulatory constraints applicable to inbound investments in China. Prior to the implementation of the Blocking Statute, foreign investors (European companies included) were exposed to the extraterritorial application of the U.S. sanctions against China.

In this respect, the applicable legal system (including the risk of sanctions) is a primary factor that foreign investors analyse when considering investments in a foreign country. In fact, the laws prevailing in a country at the time of the investment decision shape investors’ expectations and significantly influence their decision to proceed with investments.

Thus, foreign investors looking to invest in China will now assess the extent to which the new rules embodied in the Chinese Blocking Statute provide a stable and predictable investment landscape – one that offers effective protection against extraterritorial sanctions. This leads to the thorny question of whether the Chinese Blocking Statute may serve as a potent protection tool for foreign investors by creating legitimate expectations.

After a brief overview of the legitimate expectations concept, this post will examine the new Chinese legal statute to see if it offers legitimate expectations from the perspective of foreign investors

Overview of the Legitimate Expectations Concept

In recent years, the principle of legitimate expectations has gained significant traction as a basis for investment arbitrations. In fact, arbitral tribunals consistently assert that this principle is now “firmly rooted in arbitral practice”. The legitimate expectations concept is a core component of the principle of fair and equitable treatment.

Despite extensive use of the legitimate expectation doctrine, arbitral tribunals have done little to delineate the exact contour of this concept, making its scope of application vague. Tribunals usually determine if an investor is entitled to claim protection due to the existence of legitimate expectation, on a case-by-case basis. Thus its scope of application varies according to context, text, and the factual record of the case.

Conventionally, legitimate expectations refer to providing investors with recourse when government or administrative body acts in a manner inconsistent with its projected image. This leads to investors being deprived of substantive and procedural benefits. Despite the lack of clear benchmarks, a perusal of arbitral awards reveals that certain conditions must be met for an investor to successfully claim that its legitimate expectations were violated. Several government conducts and indicators have been identified by tribunals as potentially creating legitimate expectations. These include:

  • Specificity and Clarity – Tribunals place weight on the wording of the assurance made by government representatives on behalf of the state. Administrations may create legitimate expectations through specific and precise assurances. This was confirmed by the tribunal in Antaris GmbH and Doctor Michael Göde v. the Czech Republic , which held that in, order to succeed, a claimant must establish that “clear and explicit (or implicit) representation was made by or is attributable to the state.” Similarly, in Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, the arbitral tribunal stressed that specific assurance granted to investors would engender legitimate expectation. The Tribunal observed that “… the investors would not be attracted to participate in the privatization process unless specific assurances were provided”. Thus the unambiguous assurances that the legal scheme will remain unchanged plays a key role in giving rise to such expectations.
  • Intention and Inducement – In deciding whether states have upset an investors’ legitimate expectations, Tribunals often consider whether the government’s representations, assurances, and policies were intended to promote, enhance, and induce investment. For instance, inPSEG Global Inc. v. Republic of Turkey,the tribunal ruled that the host state’s policy to encourage and welcome investment did not qualify as legitimate expectations. The Tribunal found that “the whole BOT policy was built on the promise that foreign investments would be needed, encouraged and welcome, but this was a matter of general policy that did not entail a promise made specifically to Claimants…”. This ruling confirmed that a mere declaration of intention or the preparation of a draft law that creates no enforceable right, is insufficient grounds for legitimate expectations. The same understanding was found in Sempra Energy International v. The Argentine Republic, in which the tribunal held that host states may be held accountable for an active inducement of investment through specific assurances and representations, noting that “this requirement becomes particularly meaningful when the investment has been attracted and induced by means of assurances”. Moreover, in El Paso Energy International Company v. The Argentine Republic, the Tribunal held that a specific representation could result from two types of commitments directed towards foreign investors, namely, “those specific as to their addressee and those specific regarding their object and purpose”.
  • Reasonableness and reliance – In addition to clear and explicit (or implicit) representations made by or attributable to the state to induce the investment, a finding of breach of legitimate expectations requires proof that the investor reasonably relied upon these representations. The notion of reasonable reliance finds an echo in a number of awards, including Antaris Solar GmbH and Dr. Michael Göde v. Czech Republic andDuke Energy Electroquil Partners & Electroquil SA v. Republic of Ecuador.
  • Socio-economic and Commercial Considerations – Since the Parkerings v. Lithuaniaaward was issued, arbitral tribunals have allotted greater significance to the socio-economic situation prevailing in the host state at the time the investment was made. In this award, tribunal introduced another prong that contributes to the narrow interpretation of legitimate expectations, further delineating the parameters of this concept. For instance, inDuke Energy Electroquil Partners & Electroquil SA v. Republic of Ecuador, the tribunal considered Ecuador’s existing socioeconomic circumstances to determine whether the investor had legitimate expectations. The tribunal noted that “[…] the assessment of the reasonableness or legitimacy must take into account all circumstances, including not only the facts surrounding the investment, but also the political, socioeconomic, cultural and historical conditions prevailing in the host state.”

Despite the lack of general definition of legitimate expectations, the recent consolidated cases, reveal that tribunals exhibit a narrower and empathetic interpretation of the host state obligations, and are discernibly moving away from more expansive interpretations that lend themselves to investor interests. Against this background, it is evident that Tribunals have adopted a holistic approach by considering a diverse range of factors when deciding if investors’ legitimate expectations ought to be protected.

Does the Chinese Blocking Statute Create Legitimate Expectations for Foreign Investors?

Will investors be entitled to claim that the new Chinese Blocking Statute generates legitimate expectations? 

The following textual analysis reveals that this regulatory framework is devoid of the important requirements necessary for the creation of legitimate expectations, namely, specificity, clarity, reliance, and intention to effectively create a basis of legitimate expectations for foreign investors.

Scope of application of the Chinese Blocking Statute

First, Article 1 of this statute has laid out the scope of application of this regulation. According to the literal reading of this article, the provision applies to Chinese citizens, legal persons, and organizations. There is no indication whether this provision applies to non-Chinese foreign enterprises. Thus it has the potential to cause confusion if understood exclusively to refer to Chinese entities. It is important to note that this regulation has neither been heavily enforced nor tested thus far, so it remains unclear whether non-Chinese entities will fall within the purview of this provision. Further, another noticeable uncertainty surrounding this statute relates to Article 2, which aims to protect against “specific extraterritorial measures that violate international law”. This Article failed to explicitly specify which extraterritorial measures are being targeted by the Chinese Blocking Statute. Despite the implementation of the “extraterritorial” law to which China applies restrictions to U.S. citizens, this leaves the door open for additional international measures being added in the future. The law sets out an open-ended and largely undefined list of foreign measures, signifying the desire to eventually target more foreign laws and measures. This ambiguity contributes to greater uncertainty concerning the nature and extent of the protection, leading to the risk that this instrument is generic and vague, since it is unclear to what extent the protection has been offered.

The discretionary power of Working Mechanism

In addition, under Article 4, a broad mandate has been given to various national Ministries (known as Working Mechanism) to implement the provisions found in this law. The Working Mechanism is tasked with making assessments regarding the violation of the underlying rules. Following Article 7 of this Statute, if “unjustified application” is revealed or in the event of a breach, they will direct the state council to order other parties to not recognize, enforce or abide by the relevant foreign legislation. However, the Chinese Blocking Statute did not define the behaviour that would trigger an assessment. The threshold of compliance with the foreign law is not set out clearly, nor whether the prohibition order is also applicable to third parties. More importantly, the standard for reviewing this assessment is not clearly defined. According to Article 8, the Working Mechanism has a relatively wide discretion and can suspend or modify countermeasures if determined to be in violation of said objective.

Similarly, it remains conjecture whether the right to private action (such as claiming damages or seeking injunctive relief as stipulated in Articles 10 and 11) can be extended to non-Chinese entities when their interests have been gravely affected by non-compliance. In a similar vein, this regulatory statute failed to specify if the foreign entities who violate the prohibition order can be held accountable. It can be argued the ambiguity within the fabric of these regulations, especially with respect to who would be held accountable in the event of breach, will render the scope of their application largely arbitrary and non-definitive.

Finally, this statute provides authorization or exemption for those entities that would like to remain immune from the negative implications of extraterritorial sanctions. However, the format for applying authorization is not clear. The law does not stipulate if one can comply fully or partially with the laws specified, so there is no clear indication of the range of authorization. Furthermore, it is unclear whether they can seek exemption from the Blocking Regulations in it’s entirely or fore specific transactions. Additionally, it is not clear whether the application of an exemption under Article 8 can be initiated only by Chinese subsidiaries or even by non-Chinese enterprises.


Legitimate expectations will only be granted protection when specific, unambiguous commitments are granted to investors. The Chinese Blocking Statute has proven to be less potent as it is still operating with a high degree of abstraction and is unlikely to be regarded as giving rise to legitimate expectations because it lacks the necessary specificity. Significant issues must be addressed, e.g., do non-Chinese companies qualify for protection under the statute? Also, can the statute prohibit third parties from complying with foreign legislation, thus protecting the investment scheme made by virtue of this legal framework? These ambiguities as well as others, suggest that the Chinese Blocking Statute cannot be deemed capable of generating legitimate expectations.

The author would like to thank Shaparak Saleh for her valuable comments and suggestions.