BITs typically protect investments of investors from one signatory state in the territory of the other signatory state (the host state). An important characteristic of many of these treaties is that they entitle a foreign investor to conduct arbitration - often administered by the World Bank's International Centre for Settlement of Investment Disputes (ICSID) - directly against the state hosting their investment, for violations of the substantive protections. Conspicuously absent from China's arsenal of BITs (including with major trading partners such as the UK, Germany and Japan) is a treaty with the United States. China and the United States have held several rounds of negotiations, but the process was on hold for the last few years while the Obama administration reviewed the United States BIT programme. That review has recently concluded.

The United States negotiates BITs on the basis of a model treaty. Following a public review of the 2004 US model BIT led by the Department of State and the Office of the United States Trade Representative, the Obama administration in May 2012 released a new model BIT (see Legal update, 2012 US Model BIT released). Despite robust dialogue about the advantages and disadvantages of investor-state arbitration, the changes in the 2012 model BIT are relatively minor. A cornerstone of the 2012 model BIT remains investor-state arbitration under the ICSID Convention or the UNCITRAL Rules. Amendments have been introduced to allow for more public participation and greater transparency in arbitration proceedings.

Negotiations between China and the United States can now resume. A China-US BIT obviously could have enormous impact on cross-border investments. As the chances of achieving a BIT, and the timing, are uncertain, a watching brief is important.

China is a major trading partner of both Japan and South Korea, and all three have had BITs with each other since 2007. After years of effort, China, Japan and South Korea recently entered into a Trilateral Agreement for the Promotion, Facilitation and Protection of Investment (Trilateral Agreement). The Trilateral Agreement has been cited by China's Ministry of Commerce (MOFCOM) as "a milestone in trilateral economic and trade cooperation between China, Japan and South Korea, as it is the first legal agreement and mechanism to enhance and protect investment between the three nations". The Trilateral Agreement consists of 27 articles and one additional protocol, covering the core aspects of international investment, including the definition of investment, taxation issues and general exceptions. The dispute resolution provisions allow for a number of options, including investor-state arbitration in accordance with the ICSID Convention, the ICSID Additional Facility Rules and the UNCITRAL Rules (parties are also free to agree to arbitration in accordance with other arbitration rules).

The Trilateral Agreement is expected to be the foundation for the establishment of a free-trade area between China, Japan and South Korea, as discussed below.

FTAs, unlike BITs, cover more than investment protection. According to MOFCOM, China has entered into nine FTAs, and several others are under negotiation. One of the most significant is the 2010 ASEAN-China Free Trade Area. As part of the process of establishing a free-trade area, China and the ASEAN member states signed various agreements, including the 2009 ASEAN-China Investment Agreement, which provides for investor-state arbitration under ICSID or UNCITRAL Rules.

Recently, China, Japan and South Korea issued a joint statement setting out their intention to establish an FTA, which would provide "a comprehensive and institutional framework in which a wide range of trilateral cooperation would evolve". Reaching agreement on an FTA typically involves an arduous negotiation process - China, for example, has been in free-trade talks with Australia since 2005. Again, the potential China-Japan-South Korea FTA merits a watching brief.