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

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.