Chinese investment protection in Latin America: Navigating regulatory risks through strategic arbitration

I. The current landscape of Chinese investments in Latin America

Over the past two decades, China has significantly increased its presence in Latin America, becoming South America's largest trading partner and the second largest, behind the United States, for Latin America as a whole. China has become a major player in sectors such as energy, infrastructure, and natural resources.¹

High-profile Chinese investments made in Latin America include large-scale infrastructure projects like the US$3.5 billion Chancay Port in Peru,² managed by the Chinese shipping giant COSCO Shipping Ports Chancay Perú, S.A., which aims to enhance trade routes between South America and Asia. Additionally, Chinese hydropower investments represent another major category of infrastructure spending, with Chinese companies funding 308 dams across 70 countries since 1999.³ From 2019 to 2022, Chinese companies have allocated around US$4.5 billion in lithium projects across Mexico and South America.⁴ In Brazil, the China National Petroleum Corporation (CNPC) has acquired a stake in the massive sub-sat deepwater Libra offshore oil field led by Petrobras.⁵ And, in 2022, the Government of Argentina awarded a US$1.1 billion contract to China Electric Power Equipment and Technology (CET), a subsidiary of the State Grid Corporation of China (SGCC), to design, supply, and build infrastructure to upgrade the 500 kV power grid in the Buenos Aires Metropolitan Area.⁶

China has also strengthened its position through its Belt and Road Initiative (BRI), a global infrastructure development and investment strategy aimed at improving trade routes and economic ties between China and other countries, including throughout Latin America.⁷ Twenty-two Latin American and Caribbean countries have already joined China’s BRI, the most recent being Colombia in May 2025. Brazil, however, has opted not to take part.⁸

This infrastructure investment strategy extends beyond individual projects to encompass comprehensive development programs. In 2025, President Xi Jinping announced a US$9.2 billion credit line to promote Latin America’s development in infrastructure, clean energy, artificial intelligence, and digital connectivity.⁹

Not surprisingly, Chinese investment in Latin America represents one of the most significant shifts in global economic relationships of the 21^st century. China’s investment portfolio in the region spans critical minerals, energy infrastructure, ports, telecommunications, and traditional natural resource extraction, creating an integrated approach to economic engagement that serves both China’s strategic interests and Latin America’s development priorities. As trade relationships continue expanding, China is likely to remain a dominant force shaping Latin America’s economic development.

That is not to say, however, that Chinese businesses do not face existing and potential headwinds for their operations in Latin America.

Major infrastructure projects frequently deal with various critical risks, including environmental and external risks due to natural disasters, regulatory changes, and force majeure events. In Latin America, the proximity to Indigenous communities may also create additional risks related to indigenous consultations.

In addition, ongoing trade tensions and the impact of tariffs between, in particular, China and USA can result in export restrictions and logistical disruptions which raise costs and reduce competitiveness for Chinese businesses as local states and businesses seek to strengthen their own position.

Moreover, legal and contractual risks frequently emerge from disagreements over the project scope, commercial relationship strain, compliance issues, and inadequate risk allocation between the parties.

II. Investment treaties mitigate challenges faced by Chinese investors in Latin America

A. Commercial and investment arbitration allows Chinese investors to allocate risk

Commercial arbitration of concessions and other state contracts, especially those executed with state enterprises, grant Chinese investors the opportunity to manage risk allocation. Notably, investors can reduce political risk as arbitration limits undue influence of local governmental authorities that would be present in State courts or other forums.

In addition to commercial arbitration, investment treaties create an additional layer of protection for Chinese investors in Latin America. China has Bilateral Investment Treaties (BITs) in force with Argentina, Colombia, Costa Rica, Cuba, Guyana, Mexico, Peru, Uruguay, and Venezuela; and Free Trade Agreements (FTAs) with an investment chapter in force with Chile, Nicaragua, and Peru.¹⁰

These BITs and FTAs typically offer an array of substantive protections and standards such as fair and equitable treatment, protections against indirect expropriation, protection against discrimination, full protection and security, and umbrella clauses which elevate private agreements to matters of international law, amongst others.

B. Fair and Equitable Treatment (FET)

In interpreting the FET standard, tribunals have identified the following elements: “procedural fairness and due process; action in good faith requiring absence of coercion and harassment; lack of discrimination and arbitrariness; reasonableness, proportionality, transparency, stability, and predictability; as well as the protection of the legitimate expectations of investors, and the legality of host State action.”¹¹

In CMS vs. Argentina, the tribunal found that “a stable legal and business environment is an essential element” of FET.¹² In addition, the existence of various treaties that have incorporated this standard “unequivocally shows that fair and equitable treatment is inseparable from stability and predictability.”¹³

In Cervin and Rhone v. Costa Rica, the tribunal found that the following elements should be considered in determining whether there has been a violation of FET: legitimate expectations, good faith, procedural propriety and due process, coherence and consistency of State conduct, transparency, and arbitrary acts.¹⁴

C. Nondiscrimination: National Treatment (NT) and Most Favored Nation Treatment (MFN)

Under the NT standard, the host State must treat foreign investors and investments no less favorably than domestic investors and investments. Thus, the NT standard is designed to ensure equality and prohibits discriminatory treatment between domestic and foreign investors and investments.¹⁵ The prohibited “treatment” is understood to not only cover regulatory measures but also “the manner in which a State concludes an investment contract or exercises its rights.”¹⁶

Similarly, MFN clauses are designed to ensure equality and non-discrimination in the treatment of protected investors compared to other foreign investors in the host State. The Bayindir tribunal ruled that MFN clauses are designed to “provide a level playing field (…) between foreign investors from different countries.”¹⁷ Likewise, the National Grid tribunal also determined that MFN clauses are “an important element to ensure that foreign investors are treated on a basis of parity with other foreign investors and with national investors when they invest abroad.”¹⁸

D. Indirect expropriation

Treaties normally protect investors against unlawful expropriation. This includes “covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property.”¹⁹ Expropriations can also be indirect, meaning there doesn’t need to be a transfer of a legal title and/or physical seizure of investor’s property for an action by the host State to be considered expropriation. Governmental measures which deprive an investment of its economic value thus constitute an indirect expropriation. “[D]e facto expropriations or indirect expropriations, i.e., measures that do not involve an overt taking but that effectively neutralize the benefit of the property of the foreign owner, are subject to expropriation claims.”²⁰

E. Investment arbitration

Chinese investors impacted by violation of these provisions from Latin American States may enforce the above standards through investment arbitration as provided in the controlling BIT or the investment chapter of the FTA. Investment arbitration offers Chinese investors the opportunity to challenge States’ measures before an impartial and neutral tribunal that will review whether the challenged measure breaches the treaty’s standards.

III. Analysis of relevant arbitration cases involving Chinese investments in Latin America

A. Bacanora Lithium and Others v. Mexico (ICSID Case No. ARB/24/21)

Ganfeng International Trading and its UK-based affiliates, Bacanora Lithium and Sonora Lithium, initiated arbitration proceedings against the Government of Mexico, invoking the country’s bilateral investment treaties with China and the UK.²¹ The controversy arises from Mexico’s nationalization of its lithium resources.²² The dispute involves the Sonora Lithium Project, one of the largest lithium projects globally, where Ganfeng held several concessions. In 2022 and 2023, Mexico amended its Mining Law declaring lithium a “strategic mineral” and granted Litio para Mexico (LitioMX), a state agency, exclusive mining rights consequently leading to the cancellation of Ganfeng’s nine concessions in the project. Ganfeng argues that these actions violated Mexican and international law, claiming the cancellations are arbitrary, unsubstantiated, and in breach of due process.²³ This case remains pending.

B. Tza Yap Shum v. Peru (ICSID Case No. ARB/07/6)

In Tza Yap Shum v. Peru, the claimant, a Chinese investor, challenged the interim seizure of his company's assets by Peru’s tax authorities. The primary issue at hand was whether the seizure amounted to an indirect expropriation in violation of the China-Peru BIT. The tribunal ruled in favor of the Chinese investor, stating that the asset seizure constituted an indirect expropriation, as it significantly impacted the company’s ability to operate. The tribunal further rejected the application of the police powers doctrine, finding the seizure arbitrary.²⁴ Ultimately, the tribunal held that Peru violated the controlling BIT and ordered compensation for the claimant.²⁵ Unsatisfied with the result, Peru submitted an application for annulment, but an ad hoc committee ultimately dismissed that application in its entirety.²⁶

C. Junefield v. Ecuador (PCA Case No. 2023-35)

In Junefield Gold v. Ecuador, a Chinese mining company, Junefield, filed an investment treaty claim under the China-Ecuador BIT on October 2020, seeking US$480 million in damages.²⁷ The dispute arose when the company's subsidiary, Ecuagoldmining, was unable to regain control of the Río Blanco mine in Azuay Province, Ecuador, following an occupation by anti-mining activists. Junefield claims that the Ecuadorian government withdrew its armed forces, allowing activists to destroy the mine’s facilities and engage in illegal mining activities. Despite its efforts to resume operations, Junefield has been unable to recover possession of the mine since 2018. In its claim, Junefield argued that Ecuador’s actions, including its absence from legal proceedings against the activists, effectively resulted in the de facto cancellation of its mining rights.²⁸ The company sought compensation based on the projected production value of the mine, damages for the harm caused by the take-over, and the ongoing loss of control over its investment. This case remains pending.

IV. Looking forward: Practical recommendations

Chinese investors seeking to invest in Latin America should safeguard and strengthen their investments by taking into account available treaty protections and undertaking regular audits of their contractual dispute resolution mechanisms. In this regard, corporate restructuring is an essential part of protecting existing and future Chinese investments. Moreover, Chinese companies in Latin America can structure their investments through third countries to improve protections, particularly if the Chinese BITs in place do not offer robust standards of protection. See our past client alert: https://www.hoganlovells.com/en/publications/foreign-investors-should-consider-treaty-protections-when-structuring-their-investments-abroad.

Additionally, local companies affected by Latin American States’ actions should review their corporate structures to ensure that they are covered by strong investment treaty protections. If subjected to harmful government measures, they may assess the suitability of bringing an investment claim against the State based on the facts, evidence, and the pertinent statute of limitations.

V. How Hogan Lovells can help

Hogan Lovells’ leading international commercial arbitration, international investment arbitration, and public international law practices based across Greater China and the Americas bring extensive knowledge and decades of experience in assisting Chinese investors to structure their investments in Latin America and in representing their interests in any potential commercial and investment arbitration proceedings.

Authored by Omar Guerrero, Byron Philips, Orlando Cabrera, and Coline Desveaux.