Chinese investment in Europe: An analysis of the Belt and Road Initiative

The Belt and Road Initiative (BRI) is an initiative launched by the Chinese government in 2013 that aims to enhance the global supply chain through large-scale infrastructure investments along a modern “silk road” that connects Asia, Africa, and Europe, where the BRI trade routes end. We observed divergent opinions from various parties regarding BRI’s investment in Europe. For instance, while commercial banks and financial institutions in Europe are taking a proactive stance by acting as founding members of BRI financing entities, and numerous European local businesses are embracing the economic opportunities offered by BRI infrastructure projects, it is evident that various European institutions have expressed concerns regarding BRI investment in the EU, which arguably led to the introduction of screening mechanisms for foreign direct investment at the EU level. Despite the mixed views, can Europe benefit from the BRI? This thesis examines the impact of Chinese investment under the BRI on China, Europe, and the rest of the world using mixed methods. We collected secondary data and employed a structural gravity model with general equilibrium analysis to examine the trade and welfare effects of BRI-resulted trade cost reductions on countries at aggregated and sectoral level. We subsequently conducted two simulation exercises using two scenarios under the assumption that all EU member states had signed up to the BRI and additional investments made in three specific EU countries, Spain, Italy, and Greece. Our findings suggest that, overall, the BRI has a positive impact on the EU. On a national level, our results show that a reduction in transport costs for each pair of countries would lead to both trade gains and welfare gains for China and the EU. On a sectoral level, we found that most industries would benefit from a reduction in trade costs. On a micro (or BRI project) level, we found evidence of growth in container traffic and local employment. That said, our study, which includes data collected through semi-structured interviews, also highlighted substantial differences in the workplace regimes on a BRI project level.