Asia SGE | Hong Kong-Turkey IPPA Investment Pact: A New Layer of Security for Chinese Investors

As Chinese tourists enjoy the convenience of visa-free travel to Turkey, a significant development for business and investment is taking effect. The Investment Promotion and Protection Agreement (IPPA) between Hong Kong and Türkiye is set to enter into force on February 4, creating a powerful new legal framework for cross-border capital.

This agreement arrives at a strategic time. While a direct Bilateral Investment Treaty (BIT) between China and Turkey has been in place since 1994 and was updated in 2020, the Hong Kong-Türkiye IPPA offers Chinese investors, particularly those using Hong Kong as an international platform, an additional and robust channel for protected investments into the Turkish market.

Core Protections Under the New Hong Kong-Turkey IPPA

The IPPA is designed to give investors legal certainty and reduce non-commercial risks. It establishes a set of binding obligations that the Turkish government must uphold for investments originating from Hong Kong. Key protections that will benefit investors include:

• Fair and Equitable Treatment: Investments must be treated justly and without discrimination, providing a stable and predictable business environment.

• Protection Against Expropriation: The agreement guards against the nationalization or seizure of assets. If expropriation does occur for a genuine public purpose, it mandates the payment of prompt and effective compensation at market value.

• Free Transfer of Capital: Investors are guaranteed the right to freely transfer funds related to their investment—including profits, dividends, and proceeds from sale—out of Turkey, subject to the fulfilment of tax obligations.

• Full Protection and Security: The state is obligated to take reasonable measures to ensure the physical security and legal protection of investments.

  
  

Complementing the Existing China-Turkey BIT

Chinese investors already benefit from the protections of the China-Turkey BIT, which was modernized with an amending protocol that took effect in 2020. This treaty provides similar core guarantees, such as fair treatment, compensation for losses from strife, and protection from expropriation.

The new Hong Kong-Turkey IPPA does not replace this treaty but offers a parallel and strategic alternative. For Chinese enterprises that have established or plan to establish holding companies, regional headquarters, or financing vehicles in Hong Kong, their investments into Turkey can now be shielded under Hong Kong's treaty network. This allows for flexibility in corporate structuring and enables investors to potentially benefit from the specific procedural advantages offered by the Hong Kong agreement.

A Robust Mechanism for Dispute Resolution

A cornerstone of modern investment treaties is the mechanism for resolving disputes between an investor and the host state. Both the China-Turkey BIT and the Hong Kong-Türkiye IPPA provide for international arbitration, a critical feature that allows investors to seek neutral redress outside domestic court systems.

The Hong Kong agreement specifically provides for arbitration under UNCITRAL rules, a widely accepted international framework. Hong Kong’s legal system is a proven and supportive seat for international arbitration. It operates under the New York Convention for the enforcement of arbitral awards and has been designated by China to apply the ICSID Convention, solidifying its role as a premier hub for resolving international investment disputes.

Strategic Gateway for China's Global Investments

The significance of this IPPA extends beyond its legal text. It aligns perfectly with Hong Kong’s evolving role as the preferred "sailing point" for mainland Chinese companies "going global". The Hong Kong government has launched dedicated initiatives, such as the Task Force on Supporting Mainland Enterprises in Going Global, to facilitate this outward expansion.

For Turkish policymakers seeking high-value foreign investment, particularly in technology and infrastructure, this agreement makes Turkey more accessible and attractive to the vast pool of Chinese capital channeled through Hong Kong. Conversely, for Chinese investors, Turkey’s strategic location as a bridge between Europe and Asia becomes more investable with the enhanced security offered by this treaty.

Furthermore, the Hong Kong government has extended its Dedicated Fund on Branding, Upgrading and Domestic Sales (BUD Fund) to cover Turkey, providing financial support for Hong Kong (and by extension, Hong Kong-based mainland) enterprises to develop brands and upgrade operations there.

In a global economy marked by geopolitical shifts and supply chain reconfiguration, the Hong Kong-Türkiye IPPA is a pragmatic tool. It provides Chinese investors with enhanced options and legal resilience, strengthening economic ties along the Belt and Road and offering a trusted framework for long-term, mutually beneficial investment between China and Turkey.

Disclaimer: The content shared is for general informational purposes only and does not constitute legal, tax, financial, or investment advice. Asia Strategic Growth Enterprises Limited makes no guarantees about accuracy or completeness. Please verify information independently and seek professional advice for your specific situation. The views and opinions expressed are for informational purposes only and do not constitute professional advice or specific recommendations. Nothing herein should be construed as a solicitation, endorsement, or recommendation regarding any course of action.