Virtual Presentation (in English) on May 26, 2026: Prof. TU Guangjian on China’s Shift on Foreign State Immunity and Its Legal Implications for ‘One Country, Two Systems

Key Takeaways

• China adopts restrictive foreign‑state immunity law
• Law aligns China with international immunity standards
• Hong Kong and Macau face legal implementation questions
• Potential friction between Central Authority and SARs
• Shift may affect foreign investment dispute strategies

Pulse Analysis

The People’s Republic of China’s recent enactment of the Law on Foreign State Immunity marks a decisive departure from the long‑standing doctrine of absolute immunity that governed mainland courts. By embracing a restrictive approach—where sovereign states retain immunity only for sovereign acts but can be sued for commercial activities—China signals a willingness to converge with the practice of most major jurisdictions, including the United States and the European Union. This legislative pivot reflects both domestic economic imperatives and a strategic desire to present a more predictable legal environment for foreign creditors and investors.

Within the ‘One Country, Two Systems’ framework, the new law raises immediate questions for Hong Kong and Macau, whose courts have traditionally applied the absolute immunity model inherited from mainland precedent. Lawyers in the SARs must now interpret how the restrictive regime interacts with existing local statutes and the Basic Law, potentially creating a patchwork of divergent standards. The uncertainty could complicate cross‑border litigation involving state‑owned enterprises, affect the pricing of sovereign risk, and prompt multinational firms to reassess dispute‑resolution clauses in contracts that involve Chinese governmental entities.

Internationally, China’s alignment with restrictive immunity norms may ease diplomatic tensions and bolster its credibility in multilateral trade and investment forums. However, the practical rollout will be watched closely by foreign governments, who may leverage the change to pursue claims previously barred by absolute immunity. For Beijing, the challenge lies in balancing sovereign protection with the desire for greater integration into the global financial system. Observers anticipate that future amendments will fine‑tune the law’s scope, shaping the next chapter of Sino‑foreign legal relations.