Belt & Road: Chinese Firms Face Hurdles in Democracies
Chinese construction and engineering contractors working as part of the country’s Belt and Road initiative face greater challenges in democratic countries, a new study shows.
Closer ties with the United States and the presence of institutions that allow groups to show their opposition limits the business of Chinese contractors in less authoritarian nations.
The research, by Andrea Ghiselli, from the University of Exeter, and Pippa Morgan from Duke Kunshan University, shows how is particularly important because these same firms are often responsible for building the infrastructure at the core of the Belt and Road Initiative (BRI), Xi Jingping’s flagship foreign policy initiative.
This negative effect becomes even stronger when the host government joins the BRI. The experts argue that this is because joining the BRI by signing a BRI Memorandum of Understanding (MoUs) is an important and highly visible event that attracts that attention and trigger the negative reaction by parts of the public, the elites, and international actors, like the United States, that oppose Chinese involvement.
The study, published in International Studies Quarterly shows Chinese contractors win significantly more contracts in countries that have more natural resources, bigger populations, trade more with China, are more stable, and receive more official finance from China.
Chinese infrastructure contractors do significantly less business in countries that are further geographically from China, and which are less similar to China in UN voting behavior. Chinese contractors also appear to do less business in countries that borrow more from the World Bank. There is also a negative association between NATO membership and contract values,
Experts found no evidence that the BRI is helpful for mitigating the challenges faced by Chinese contractors in democracies.
Dr Ghiselli said: “The aim of China’s Belt and Road initiative is to increase China’s diplomatic clout and expand the presence of Chinese companies overseas. We found these goals conflict when the partner country is a democracy.
“Chinese contractors may be more likely to penetrate the markets of non-democratic countries, thereby increasing the stake of the Chinese government in those countries’ stability by increasing the presence of Chinese citizens and assets.”
Dr Morgan said: “There is a negative relationship between host state democratic institutions and infrastructure contracts won by Chinese firms overseas. Democratic institutions allow a mix of domestic and international forces to limit business opportunities for Chinese contractors.”
Commenting on the negative effects of signing a BRI MoU, Dr Morgan said: “This is the result of blowback against the BRI within democracies as the joining of the initiative triggers pressure on the executive to limit Chinese involvement in the economy, with unanticipated negative consequences for Chinese contractors. Beijing faces an important and unexpected trade-off between diplomatic and economic goals when it comes to persuading a democratic country to join the BRI.
“Even successful diplomatic attempts to foster political and diplomatic alignment cannot offset the negative effects caused by differences in the regime type of the two trading partners.”
The results show a significant negative relationship between the presence of democratic institutions in host countries and the values of contracts won by Chinese engineering and construction companies in those countries.
Researchers found the interaction between liberal democracy and the BRI is negative and statistically significant, suggesting that the more a host country has democratic institutions, the more negative the relationship between participation in the BRI and contract volumes.
For a host country with the lowest possible level of democracy, the results point towards a positive association between MoUs and infrastructure contracts, whereas for more democratic host states the relationship between MoUs and contracts is negative.
The study says the BRI paradoxically appears to be the victim of its own importance and visibility. the analysis points to lower-key (or simply less) BRI diplomacy if China wants its companies to succeed in democratic countries.
Limitations on China’s involvement in infrastructure in democratic but less well-off countries might delay economic development or make it more expensive. This blowback might also limit the amount of Chinese development finance that a country in need might receive.
https://academic.oup.com/isq/article/69/1/sqaf014/8052140?searchresult=1