Sino–US Competition: The Context for China's OFDI in BRI countries

Abstract: In recent years, the Belt and Road Initiative (BRI), due to its increasing scale and impressive results, has significantly influenced China's outward foreign direct investment (OFDI). While existing literature focuses primarily on economic factors and natural resource endowments as the main influences on China's OFDI, these factors alone do not explain China's varying investment across different countries. OFDI is essentially a two-way issue, entailing China's choice to invest and prospective recipients' decision to accept the investment. On the one hand, Sino–US competition significantly impacts China's investment choices. China is more inclined to invest in BRI countries when Sino–US relations deteriorate in order to seek more international support. On the other hand, in the context of power transition, US pressure affects the target country's decision to accept China's OFDI. Countries with close economic interactions with the United States tend to adopt hedging strategies, balancing interests on both sides and diversifying funding sources and are thus likely to accept China's OFDI. The authors, therefore, propose that an analysis derived from a perspective of the interaction between China, BRI countries and the United States helps to enhance our understanding of the political and economic factors affecting China's OFDI in BRI countries. The authors utilise panel data of China's direct investment in BRI partner countries from 2011 to 2019, and employ fixed effects and differential system GMM models to verify the significant roles that bilateral relations, BRI countries' political and economic dependence on the United States, and Sino–US relations play in shaping China's OFDI.