There has been a lot of discussion in the news and online today about whether a Chinese state-owned enterprise can claim sovereign immunity from prosecution in the United States because they should be considered “an organ of the state.”
This is a legal question, and it is not cut and dried. Andrew Dickinson, Rae Lindsay, and Audley Sheppard of Clifford Chance in London did a superb write-up on the issue for the UN Special Representative on business and human rights, “State Immunity and State-Owned Enterprises.”
The conclusion they reach will not salve the anger of anyone outraged by what appears to be a Chinese attempt to claim extraterritoriality for their largest companies. The issue is less a matter of statute than it is one of precedent, and the fact is, the matter could go either way.
For that reason, any Chinese state-owned enterprise operating in the US and facing civil or criminal prosecution in US courts would be foolish not to try to get an immunity ruling. At the same time, common sense would suggest to any businessman that caution is warranted in dealing with a Chinese SOE: the courts may not offer you the protections that you might expect.
In the long run, this will undoubtedly hurt Chinese SOEs: if they operate above the law while their US partners are subject to it, the legal imbalance in any contractual arrangement makes it foolhardy to contract with an SOE, to buy their products, or to engage their services. Careful businesspeople may wish to steer clear of Chinese state-owned enterprises for this reason alone.