Credit rating agencies’ views on China’s Belt and Road Initiative

Abstract

How do credit rating agencies (CRAs) view China’s Belt and Road Initiative (BRI)? Our analysis of 132 countries in 2000–17 demonstrates that Chinese foreign investment adversely affects sovereign ratings of recipient countries when these countries participate officially in the BRI but is otherwise insignificant. These results indicate that rather than being a generic China bias, the BRI bias is a geopolitical bias, based on CRA’s expectation that BRI recipients become more dependent economically and politically on China. The main implication of our findings in financial terms is that CRAs limit the supply of international capital to BRI recipients. In broader terms of international political economy, this indicates a feedback loop whereby BRI funding repels Western funding and increases dependence on more BRI financing. Put differently, CRAs exacerbate the structural shift in the world political economy toward a decoupling between the US and Chinese financial spheres of influence.