China’s Political Risk Management Policy Development for Investment in Belt and Road Countries: A Content Analysis and Theoretical Examination

Political risk poses a severe threat to the Belt and Road Initiative (BRI), China’s most important foreign and economic policy. Proposed in 2013, the BRI aims to address a range of key challenges facing the Chinese Government and the world. By the end of 2022, the Chinese Government had invested approximately one trillion US dollars into projects in Belt and Road Countries (BRCs). Nevertheless, these projects face significant political risk. Many BRCs are developing countries with weak political institutions. Furthermore, the diverse historical and cultural milieus of these countries have resulted in long-standing conflicts domestically and abroad. Political risk management (PRM) is therefore vital to the success of the BRI. The literature, however, has two limitations. First, most researchers explain PRM activities for Chinese investment abroad from the perspective of firms. Hence, the literature limits our understanding of the Chinese Government’s activities, an entity with determinative influence on the country’s overseas investment. Second, researchers have not effectively theorised about the Chinese Government’s policy development process when facing uncertainties. Some argue that authoritarian logic dominates the Chinese Government’s policy process, and others have observed extensive policy experiments deployed in the process. Nevertheless, how the Chinese Government integrates these two seemingly contradictory sets of policy development logic remains unanswered. To deepen our understanding in these two areas, this thesis investigates how the Chinese Government—via policy development—manages political risk for Chinese investment in BRCs. Accordingly, I attempt to address the following research questions. First, how has the Chinese Government managed political risk for investment in BRCs through policy development? Second, how has the Chinese Government’s PRM policy for investment in BRCs evolved? Third, what patterns exist in the Chinese Government’s changing approaches to managing political risk for investment in BRCs? Lastly, what are the theoretical underpinnings of the PRM policy and its evolution? Based on the research questions, this thesis employed a mixed-methods design. I employ qualitative content analysis to investigate 118 China’s official policy documents published during 2013-2021. The analysis demonstrates that the PRM policy comprises five dimensions of approaches and has undergone four stages of evolution. The following represents the five dimensions of PRM approaches: institutional, legitimacy, power, resource, and adaptation. Additionally, the four stages of PRM policy development are as follows: emerging, experimentation and institution, legitimacy and adaptation, and power and legitimacy. An examination of how policy has evolved between these stages reveals that, although incremental most of the time, PRM policy experienced two dramatic shifts, first in 2015 and then in 2017. To validate the findings of the abovementioned qualitative research, this thesis also examines three most representative PRM approaches quantitatively. They are leveraging diplomatic relationship, hosting BRI Forums, and establishing the Confucius Institute. I find that these PRM approaches mitigate political risks’ impact on Chinese OFDI in BRCs. Based on the findings outlined, this thesis draws the following conclusions. First, the Chinese Government deploys a comprehensive set of PRM approaches. They target a broad array of entities, such as Chinese investors, Chinese Government agencies, and host country government. Second, to find out these stakeholders’ roles in the PRM for investment in BRCs, the Chinese Government broadly embraces policy experiments. The policy experiment generates incremental policy changes. Further, compared with other countries, China’s policy experiment is infused with more top-down development as it is initiated and endorsed by the central leadership. Lastly, through facilitating information exchange between members of the policy community, China’s dedicated BRI policy deliberation institutions alleviates the information disadvantage facing authoritarian regimes. This, in turn, generates more timely and controllable policy punctuations. This thesis makes important theoretical contributions. First, through integrating multiple international business and political science theories, this thesis offers a dynamic and government-centred lens for viewing China’s PRM policy for investment in BRCs. Second, this thesis contributes to punctuated equilibrium theory (PET) by borrowing from logical incrementalism. This incorporation remedies a critical weakness of PET—that is, its inability to effectively explain incremental policy changes. Third, this thesis challenges a widely adopted view about PET, i.e., in a more authoritarian environment, policy punctuations are more dramatic than those in democratic countries. This thesis, however, argues that, in an authoritarian environment, policy deliberation institutions can make policy punctuation more controllable and less dramatic. Lastly, this research attempts to reconcile incrementalism and stage-model for policy development. I demonstrate that the Chinese Government integrates policy experiments with their strong top-down government control in developing the PRM policy. This thesis carries important policy implications. The provision of an in-depth explanation of PRM approaches can help Chinese policymakers deepen their understanding of these approaches. Further, by clarifying how the Chinese Government utilises the PRM approaches, this thesis improves the transparency of the BRI. Additionally, the knowledge generated by this research can help identify opportunities for collaboration between BRI and other strategies, such as the Build Back Better World (B3W).