Some Chinese state-owned companies, backed by a key Chinese Government agency, claim they are protected from lawsuits in the United States because they enjoy sovereign immunity.

Key points: Aviation, building products and banking SOEs have argued sovereign immunity in courts

Aviation, building products and banking SOEs have argued sovereign immunity in courts US law firm that represent Chinese SOEs says protection enshrined in US law

US law firm that represent Chinese SOEs says protection enshrined in US law The claim of sovereign immunity is "alarming and disturbing", businessman says

China Foreign Ministry spokesman Lu Kang told reporters at a regular briefing: "We demand that the host country earnestly respect and safeguard Chinese companies' legal interests abroad".

Mr Lu said he was unclear about specific cases.

Aviation Industry Corporation of China (AVIC), China's largest state-owned aerospace and defence company, has used the strategy twice.

China National Building Materials Group (CNBM) successfully used it in a case alleging that Chinese-made drywall led to health problems in the US.

China's Foreign Ministry complained to the US Government about attempts by lawyers to serve the drywall lawsuit on China's state-owned Assets Supervision and Administration Commission (SASAC) in October

SASAC is responsible for 106 state-owned enterprises (SOEs) with nearly $US1 trillion in assets, including CNBM and AVIC.

The ministry argued in a diplomatic note that US courts have no jurisdiction in suits against a country's "state-owned properties".

The legal argument concerns whether companies controlled by the Chinese Government can be protected under the US Foreign Sovereign Immunities Act (FSIA), which was passed in 1976, even when their US subsidiaries are involved in commercial disputes.

Some legal experts say the sovereign immunity defence, intended under international law to shield governments from legal rulings made by a foreign power, is not a new or unexplored area of the law, but that it typically does not apply to commercial cases.

Other legal levers to pull

The use of sovereign immunity by Chinese SOEs is a reflection of how China's capitalist and legal regimes are increasingly running into conflict with Western regulation and jurisprudence, particularly as the country's overseas investment rapidly grows.

"I think there is a mentality in China that, 'hey, we are behind these big walls and nobody can touch us'," said Bill Perry, a Seattle-based trade litigator with law firm Harris Moure.

Chinese audit firms also have withheld working papers of Chinese firms listed on US stock markets during investigations by US regulators, stating that Chinese state secrecy law prohibited them from doing so.

A US judge held Bank of China in contempt in November for refusing to surrender account records on customers accused of selling counterfeit luxury goods.

The bank argued that providing the records would violate Chinese laws, but complied with the order after the judge imposed a daily fine of $68,000.

US firms unsure where they stand

The claim of sovereign immunity is "alarming and disturbing", said Greg Levesque, a senior adviser to Tang Energy Group, a Dallas-based clean energy company currently in arbitration with AVIC.

"Anyone working with AVIC or its subsidiaries has to wonder, if a dispute arises, whether they're going to claim immunity or act responsibly."

In the drywall case, China's Foreign Ministry called SASAC's inclusion in the lawsuit "extremely ridiculous".

"The US court's acceptance of the lawsuit and the attempt to serve on SASAC through various channels has seriously infringed on the national sovereignty and interests of China," its diplomatic note said.

James Stengel, a partner of the New York office of law firm Orrick which represented the drywall provider CNBM in the suit, said the sovereignty doctrine "is highly relevant" for Chinese SOEs.

"You can make the argument that a different economic and political system gives Chinese companies an advantage in some ways," Mr Stengel said.

"But that's US law, and the US Government has made a clear decision that we will recognise the sovereign immunity of appropriately structured enterprises."

Reuters