Policy Article

Belt and Road Projects Direct Chinese Investment to All Corners of the Globe. What Are the Local Impacts?

Cover Kiel Focus Road building


  • Andreas Fuchs
  • Bradley Parks
  • Richard Bluhm
  • Axel Dreher
  • Austin M. Strange
  • Michael J. Tierney
Publication Date

US and European policymakers are no longer taking a “wait and see” position on China’s trillion-dollar Belt and Road Initiative (BRI). Late last year, US Defense Secretary Jim Mattis challenged the fundamental premise of BRI, noting that “there are many belts and many roads, and no one nation should put itself into a position of dictating ‘one belt, one road.’ ” The Pentagon recently went a step further, submitting a report to Congress that questions the rationale for the BRI—and whether China may have ulterior motives for making these investments in Asia, Africa, and the Middle East.

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But what are the economic benefits—and costs—for host countries? As the BRI enters its fifth year of implementation, questions are swirling about whether these infrastructure investments provide good value for money.

Critics of the BRI claim that the vast global network of new road, rail, and pipeline projects will benefit primarily China. Securing sea lanes, ports, and refueling stations will help China’s exporters reach overseas markets and give China uninterrupted access to energy imports. Establishing overland connections to the Indian Ocean will open new trade routes and make Chinese military and commercial vessels less vulnerable to strategic choke points such as the straits of Malacca and Hormuz.

But will BRI also benefit the people living in host countries?

In his keynote address at the 2017 Belt and Road Forum for International Cooperation, Chinese President Xi Jinping indicated that the central objective of BRI is to build “land, maritime, air, and cyberspace connectivity” and create “networks of highways, railways, and sea ports.”

We recently provided evidence that many of these types of Chinese development projects accelerate economic growth in host countries. But it is unclear who benefits the most from such projects. By building connective infrastructure that helps local residents and businesses reach more distant markets, these investments could spread economic activity to rural, remote and disadvantaged areas. However, if ruling elites in host countries are able to control these projects and steer them to politically privileged areas, it is also possible that Chinese investments could widen preexisting economic disparities.

In a new AidData working paper, we put these competing arguments to the test. We start by pinpointing the locations of 3,485 Chinese government-financed projects implemented in 138 countries around the world from 2000 to 2014. Our data set mostly captures projects that predate the BRI (see map), but it is global in scope and includes many of the same types of infrastructure projects that are now being financed under the auspices of the BRI.

We then use an innovative measure of local economic output—satellite data on nighttime light—to construct a measure of inequality that can be tracked from year to year in more than 32,000 subnational localities around the world.

To isolate the impact of Chinese government-financed projects, we employ statistical analysis to account for other factors that could have affected levels of economic inequality between 2000 and 2014.

Chinese-financed connective infrastructure reduces inequality

There’s some good news to report. Chinese development projects—in particular, investments in connective infrastructure, such as roads, bridges, railways, and ports—create a more equal distribution of economic activity within the provinces and districts where they are implemented. We also estimate the impact of these investments on inequalities between subnational jurisdictions and find that Chinese projects narrow rather than widen economic disparities.

These findings have potentially far-reaching implications. Left unchecked, inequality can undermine social cohesion, increase political polarization, slow the pace of economic development, and elevate the risk of violent conflict and terrorism.

Many countries that stand to benefit from BRI investment also suffer from high levels of inequality, making them vulnerable to these knock-on effects. Therefore, to the extent that China can help these countries increase economic activity in rural areas that have traditionally suffered from neglect or discrimination, US and other Western powers may see a diminished need to engage in costly and complex humanitarian, peacekeeping and state-building activities in distant lands.

The conventional wisdom among Western pundits and politicians is that Beijing is a reckless, self-serving or sinister actor creating problems that others eventually will have to fix. But our findings suggest that, in at least one important respect, the opposite is true: By narrowing spatial inequalities within countries, Beijing’s investments address one of the root causes of instability around the globe and potentially reduce the number of global threats and crises that Western powers need to tackle.

China’s motivations and impacts are more complex than they seem

At the same time, it would be a mistake to think that Chinese development finance is always compatible with the interests and objectives of Western powers. Beijing uses its aid to influence the way that countries vote in the UN General Assembly, which could weaken Western influence in international decision-making. Chinese development projects also can fuel local corruption, degrade the environment, weaken trade union participation, and saddle host governments with unsustainable debt burdens.

This complex portrait of China’s motivations and impacts is difficult to reconcile with the simple narrative about the BRI that has taken hold in Western capitals. Those who make and shape policy in the United States and Europe have quickly coalesced around the notion that BRI is a thinly veiled attempt to position China at the center of the global trading network; a charm offensive to buy the allegiance of world leaders; and a strategic bid to challenge US hegemony in Asia and the wider world.

All of these claims deserve careful empirical scrutiny. But if BRI projects play out the way that Chinese development projects have in the past, we will probably learn that this simple narrative belies a more complex reality—especially after accounting for the economic benefits and costs that accrue to host countries.

Bradley Parks is AidData’s executive director at the College of William & Mary.

Richard Bluhm is an assistant professor at Leibniz University Hannover’s Institute of Macroeconomics.

Axel Dreher is a professor of international and development politics at Heidelberg University.

Andreas Fuchs is a professor of environmental, climate and development economics at the Helmut Schmidt University Hamburg and the Kiel Institute for the World Economy.

Austin Strange is a PhD candidate in Harvard University’s Department of Government. Follow @austinmstrange.

Michael Tierney is the George and Mary Hylton Professor of Government and co-director of the Institute for the Theory and Practice of International Relations at William & Mary. Follow @MikeTierneyIR

They are the co-authors of “Connective Financing: Chinese Infrastructure Projects and the Diffusion of Economic Activity in Developing Countries,” a recent study published as part of the AidData Working Paper series. The views expressed are those of the authors and should not be attributed to AidData or funders of AidData’s work.

(The article first was published by the Washington Post on September 11, 2018.)

Coverphoto: © pulpitis – iStockphoto

The Kiel Focus series presents papers on current economic policy topics. Their authors are solely responsible for their content and their views or any policy recommendations they may make do not necessarily represent the views or recommendations of the Institute.