The impact of infrastructure investment under the Belt and Road Initiative

Abstract

The Chinese economic program, the Belt and Road Initiative (BRI), is considered as one of the most ambitious infrastructural imitative of the 21 st century, having involved over 70 countries. Obviously, such a large-scale umbrella of projects has been requiring substantial funds. It is also well-known that financing is often used to exercise foreign politics, which may have ambiguous impact on the economy of borrowing countries. This study aims to determine the sources of the BRI financing and assess its economic effects on the borrowing countries. The literature review relied on the publications in English and had the primary aim of discovering the type of financing, the types of institutions participating in financing (banks, funds, etc), standard contract terms and the other relevant characteristics of the funding mechanism rather than the Chinese economic and political influence because it was difficult to assess the political independence of the papers. The key findings are that most BRI projects are funded by the Chinese policy banks and the largest fund amounts are also sourced from the Chinese policy banks. The research design had focused on the discovery on the economic impact of the BRI financing. The analysis contained the historical data on 34 countries, which borrowed a funding for their domestic projects under BRI financing. The results suggest that the involvement in BRI financing have a negative economic impact on the borrowing country by increasing its dependence on Chinese imports, slowing down its economic growth and weakening the country’s currency. The positive impact of BRI financing on borrowing country’s economy may be stated the decrease in inflation rates and increase in trade balance.