Protecting Foreign Direct Investment in the Belt and Road Countries

The Belt and Road Initiative (BRI) is increasing foreign direct investment (FDI) flows from China to BRI countries. Many BRI investments, especially in large infrastructure projects, face substantial risk, because they feature large up-front capital expenditures that require long time horizons in order to generate returns. BRI recipient countries are very heterogeneous, with different degrees of economic development and openness, and regulated by different legal regimes. Some suffer from high levels of corruption and poor governance, which undermine the trade, investment, and general business environment. The complexity of some projects and their geographic scope across more than one jurisdiction adds to the legal risk. In these circumstances, investments are affected not only by economic and financial risks but also face severe political and regulatory risks.