The “Debt Trap” or the “Benefit Pie” View of China’s Belt and Road Initiative on Host Countries: Evidence from Chinese Enterprises’ Outward Foreign Direct Investment

ABSTRACT

The Belt and Road Initiative (BRI) attracts many Chinese multinational enterprises (MNEs) to invest abroad, but China’s intention behind this policy has raised heated disputes. Drawing on an institution-based view and theories of emerging market multinational enterprises (EMNEs), we analyze whether the initiative undermines host countries’ financial conditions through outward foreign direct investment (OFDI). Using the time-varying Difference-in-Differences model based on Chinese enterprises’ investment data from 2009 to 2020, we find the BRI facilitates Chinese OFDI to host countries but with no significant increase in distressed debt. Chinese OFDI eschews heavily indebted countries and shows little relevance to the growth of the BRI countries’ non-repayable debt, which contradicts the “debt-trap” argument.

KEYWORDS:

• Belt and Road Initiative
• Chinese OFDI
• debt trap
• emerging market MNEs
• institution-based view

JEL:

• F21
• O19
• F34

Acknowledgments

We would like to thank the editor and anonymous reviewers for their useful feedback that has improved this paper.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Supplementary Material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/1540496X.2023.2172317

Notes

1. In May 2017, the Office of the Leading Group for the Belt and Road Initiative reported the title “Building the Belt and Road:Concept, Practice and China’s contribution” (see https://www.yidaiyilu.gov.cn/).

2. https://baijiahao.baidu.com/s?id=1719361802366069251&wfr=spider&for=pc.

3. MOFCOM represents the Ministry of Commerce of the People’s Republic of China (see http://english.mofcom.gov.cn/index.shtml).

4. On Mar 14, 2018, Morgan Stanley reported the title “Inside China’s Plan to Create a Modern Silk Road.” (see https://www.morganstanley.com/ideas/china-belt-and-road).

5. Sourced from the Chinese official website of the Belt and Road Initiative (see https://www.yidaiyilu.gov.cn/zchj/qwfb/86697.htm).

6. http://www.mofcom.gov.cn/article/xwfb/xwbldhd/202110/20211003204795.shtml.

7. Considering the impact of the financial crisis in 2008, we collect 3,261 samples of large-scale investments (over US$ 100 million) and 277 samples of troubled investments made by Chinese enterprises across 14 industries from 2009 to 2020 in the CGIT database.

8. We distinguish the treated and control groups based on whether the host countries responded to the BRI and signed cooperation agreements. Given the availability of the CGIT database and the BRI official website descriptions, we chose 113 BRI countries as the treated groups and 40 countries and regions as control groups and a detailed explanation is listed in the supplementary documents. All the collected Chinese OFDI data are over US$ 100 million.

9. We choose the high dimensional fixed-effect models to estimate the impact of the BRI on Chinese enterprises’ OFDI.

10. To avoid multicollinearity, we remove some control variables (vae, pve, gee, rqe) related to the host country institutions in Model (2).

Additional information

Funding

This work was supported by the [National Natural Science Foundation of China #1] under Grant [number 71972104].