The Chinese government has launched the Belt and Road Initiative in 2013. The initiative has increasingly influenced the world economy. There are a total of 83 countries and international institutions that joined the initiative so far. The second Belt and Road Forum for International Cooperation held in Beijing, on April 27, 2019, with the theme “Building the Belt and Road and Creating a Better Future” had in-depth discussions on issues such as promoting connectivity, enhancing policy coherence, and promoting green and sustainable development. Countries along the Belt and Road have conducted exchanges in political, economic, and cultural fields as part of the implementation of the Belt and Road Initiative, which further have promoted the development of all nations involved. It has also triggered research on its economic benefits.
To promote research for trade, investment, and finance in emerging economies along the Silk Road, the School of Finance at Central University of Finance and Economics organized this special issue related to several aspects of the Belt and Road Initiative, including its contribution to economic growth and financial development, factors influencing foreign direct investment (FDI), spillover, and linkage effects between the Chinese stock market and the global stock market, financing needs of the Belt and Road countries and their potential of financial cooperation with China, the structure of complex network in aviation E-service, the evolution of trade network and its determinant factors, and the impact of enterprises’ shadow banking activities on business performance.
Since its establishment, the Belt and Road countries have benefited from economic development and infrastructure development through its connectivity. The first set of articles in this special issue analyzes the role of the Belt and Road Initiative in promoting economic development from three several perspectives. In the first article, Chen, Zhang, Fan, and Mo construct the connectivity index between China and each Belt and Road country and find that Russia and Singapore had the highest level of connectivity with China. The authors demonstrate that the connectivity index has significant positive effects on GDP growth rate of the Belt and Road countries. In the second article, Tian and Li find that infrastructure construction can promote economic growth while improving the income distribution of the residents along the Belt and Road as well. The latter is mainly achieved through increased FDI. The third article by Aibai, Huang, and Peng shows that FDI has played a significant role in further promoting the financial development of the host country via two channels: financial deepening and financial function. A host country’s financial development increases by about 0.1% with a 1% increase of FDI/GDP, and the effect is more apparent in countries with higher quality institutions and better legal system.
The development of the Belt and Road has increased the flow of capital across countries. It is important to understand the factors affecting FDI since FDI is one of the main channels to promote the economic development of countries along the route. In the second part of the special issue, several articles study related issues. In the fourth article, Wang, Li, and Zhong report that social trust significantly increases bilateral trade and FDI between China and its partners, and this effect is much stronger in non-OECD (Organization for Economic Co-operation and Development) member countries than those of OECD. Such heterogeneity could be explained by the substitution relationship between social trust and the rule of law. Besides, the impact of FDI is weaker in countries that have greater language similarity to China or are adjacent to China. In the fifth article, Li, Huang, and Dong demonstrate that economic freedom, bilateral trade, GDP, and patent have positive effects on outward direct investment (ODI), while institutional distance plays a negative effect on ODI. In addition, the institutional distance can weaken the positive effect of economic freedom and the level of economic development, exerting an inverted-U effect on ODI. In the sixth article, Tan, Wang, Yang, and Chang find that the improvement of financial competitiveness and financial openness significantly increases both FDI assets in the home country and FDI liabilities in the host country, and their impact is especially significant both on intensive and extensive margin.
The construction of the Belt and Road has promoted financial integration among countries along the Belt and Road. This interaction has brought spillovers and linkage effects between China’s stock market and that of other countries through positive or negative news. The next set of articles investigates related issues. In the seventh article, Huang, Huang, and Wang study the extreme co-movement (booms or crash) between the Chinese stock market and major stock markets in the world. They find the co-movement is featured along with asymmetric properties and there is a higher probability of joint crash than booming. Moreover, the extreme co-movement probability between the Chinese market and “Belt and Road Initiative” markets is higher than that of developed markets at both tails due to bilateral trade openness, financial integration, and economic policy uncertainty. In the eight article, Lu, Gao, and Huang find bilateral linkages of volatility between the stock market of China and those of other Belt and Road countries. The financial crisis intensified this spillover effect, and a stronger contagion is observed from China’s market to the Belt and Road countries’ equity markets. Moreover, the Belt and Road countries exhibited significant sensitivity to negative news from the Chinese market during the crisis period.
The next set of articles investigates the financing needs of the Belt and Road countries. In the ninth article, Chen, Jiang, Lin, and Zhao build a comprehensive measure that gauges the financing needs of firms across six dimensions using financial data of firms in the Belt and Road countries. Their result shows that indigenous firms in Iraq have the highest financing needs, followed by Afghanistan and the United Arab Emirates. In addition, the authors suggest that the differences in financing needs can be eased through improving institutional structures and the business environment. In the tenth article, Wu and Pan analyze the investment demand in China and the financing needs of the Belt and Road countries. They divide the Belt and Road countries into four groups, including countries with two-way matching of investment and financing funds (Mongolia and Indonesia), countries that lack capital demand but are attractive investment targets for China (Russia and Thailand), countries with strong capital demand but are unattractive to China as investment targets (Singapore and Philippines), and countries with two-way capital mismatching (the Czech Republic). The authors also document that countries with higher financial cooperative potential have closer economic ties with China, and they are mostly low-income or middle-income countries with shortage of infrastructure investment.
The next article by Huo, Ouyang, Hung, and Wang analyzes network in aviation service at the Belt and Road countries. The aviation E-service system is important in future support to business communications for regions on the Belt and Road. The authors study the aviation E-service system using block modeling. They find that airline companies have developed interconnections by offering bridges to dispersed airline E-service.
In the twelfth article, Chong, Qin, and Pan study trade network and its determinants. Employing network analysis methods, they find that the Belt and Road Initiative has improved trade network’s connectivity significantly. The density of the Belt and Road trade network increased by 15.55% and 34.51% in 2014 and 2016, respectively, compared to 2012. They also divide the role of different countries in the trade network according to the block model. Furthermore, the authors conclude that China is in the core position in the trade network and plays a leading role in the development of the trade network based on some central indicators. They also find that the spatial proximity, cultural differences, trade agreements, economic distance, and trade facilitation have significant impacts on the formation of the trade network.
In recent years, China’s financial sector has gradually been alienated from the real sector. The typical example is the shadow banking activities of nonfinancial companies. The final article by Han, Hus, and Li finds that enterprises’ shadow banking activity improves operating performance, but it has a negative effect on their operating income. Further results show that enterprises engaged in the shadow banking activities affect the operating income through the two intermediary variables, namely, investment scale and investment efficiency. However, the negative effect of investment in crowding out operating income is higher than that of the efficiency-improving impact on operating income.
In summary, since its implementation, the Belt and Road countries have established significant connectivity networks, including aviation E-service network and trade network systems, and had connectivity in other various areas. The initiative has promoted economic and financial development of the countries along the route in terms of infrastructure construction, connectivity, and capital flow of FDI. FDI has played a significant role, and it is affected by many factors, including social trust, institutional distance and economic freedom, financial competitiveness, and financial openness. The interconnection across the countries has brought about spillover effects between China’s stock market and the global stock market. The extreme co-movement probability of China’s stock market with that of the Belt and Road countries has been higher than that of the developed markets, and the Belt and Road countries have been more sensitive to negative news arising from the Chinese market during the crisis. In addition, there have been different financing needs for all enterprises along the route. China has cooperated with the Belt and Road countries in various ways to implement the strategic layout of overseas investment according to their investment needs. Finally, while the shadow banking activities of enterprises have improved the performance of enterprises, they have also harmed business income through changes in investment scale and efficiency.