Not only do Chinese SOEs play a key role in China’s domestic economy, but they are also a major force in implementing the Government of China’s ambitious Belt and Road Initiative, a global infrastructure development strategy adopted by the Chinese government to invest in nearly 150 countries and international organizations. The expansion of Chinese SOEs’ global footprint has caused widespread concerns in host countries about their implications for national security, fair competition, transparency, and even the function of the free market at home. Since the multilateral trade and investment regimes that took shape in the post-war period did not anticipate many of the special features of Chinese SOEs, states have resorted to unilateral or bilateral measures to counteract Chinese SOEs’ competitive advantages in international investment and subject them to heightened national security scrutiny.

The objective of this Article is to critically examine the alleged challenges that the expansion of Chinese SOEs’ outbound foreign investment has posed to the liberal international investment order and to analyze whether the current international investment regime is resilient enough to accommodate the systemic friction between heterogeneous economic systems. It argues that international investment law is poorly designed to deal with Chinese SOEs because it is premised on some untenable assumptions, and these assumptions are not applicable to Chinese SOEs. The lack of effective international rules pushes nation states to become norm entrepreneurs in international investment law. However, the new SOE norms not only risk either overshooting or undershooting the Chinese SOE problem but also result in greater fragmentation of the international investment regime.

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