Green finance for soft power: An analysis of China's green policy signals and investments in the Belt and Road Initiative

Abstract In this paper, I study why and how China uses green overseas finance in its Belt and Road Initiative (BRI) to build soft power. I apply Miskimmon et al.’s framework, which postulates that soft power is built on ‘signals' and ‘action’: I study eleven relevant Chinese BRI government and sector‐led signals in green BRI development and analyze Chinese green versus non‐green energy investments as actions. I find that Chinese regulators and financial institutions have provided multiple signals for greening finance in the BRI, while green finance action is insufficient with continued sponsoring of non‐green investments. The paper concludes that green finance is a tool for China to build soft power in the BRI, but it is applied insufficiently due to a lack of green finance action. The paper also finds that insufficient strength of soft power signals can lead to a dichotomy between soft power signals and action with possible negative consequences for soft power.