ORIGINAL

Abstract

Announced by Xi Jinping in late 2013, the Belt and Road Initiative is a policy aimed at financing infrastructure projects in developing countries. Encompassing over 130 countries containing over two-thirds of the world’s population, the BRI is one of the largest spending initiatives ever undertaken and a potentially defining policy for the 21st century. However, Chinese motivations behind the initiative and its impact on recipient countries remains unclear. I use difference-in-difference analysis and original research interviews to test three prevailing theories on the BRI: (1) that it is a form of debt-trap diplomacy; (2) that it is a positive force for development in recipient countries; (3) that it is primarily concerned with increasing Beijing’s global influence. I find no evidence to support any of the three theories. I show that the Belt and Road Initiative is fundamentally an economic policy designed to redeploy excess capacity and capital account surplus. While it contains a significant security-focused component, the BRI is primarily designed to address these two weaknesses in the Chinese economy. By first understanding China’s motivations behind the BRI, I also offer a new view on the role of recipient countries in relation to the initiative. The importance of the BRI to the Chinese economy means that recipient countries have significantly more power in negotiations over BRI projects than has previously been assumed. By using a sequential bargaining game model, I illustrate the leverage that recipient countries have to demand minimum standards for BRI investments. To make the BRI an effective development tool, recipient countries must ensure that the minimum standards stipulate the involvement of local workers and companies to create positive spillovers to the local economy.