A Study About Bilateral Political Relations Affecting China's Investment And Exports To Countries Along The Belt And Road

With increasing uncertainties in the current international syste m,it is much more necessary for countries to conduct policy communication and cooperation to create a more stable external environment for their own development.Turning the political advantages of interstate relations into tangible results of cooperation has become an important way for countries to gain new development impetus.As a major policy of China's opening-up in the new era,the Belt and Road Initiative is committed to deepening the convergence of interests by promoting political mutual trust betw een China and countries along the Belt and Road.Currently,the COVID-19 pandemic,which is spreading around the world,has seriously hammered the world economy and international trade as well as investment.Therefore,it is of greater significance to continue to promote the Belt and Road Initiative and deepen the strategic cooperation between China and the vast number of countries in Asia,Europe and Africa.This paper mainly investigates the following questions.First,how to accurately measure the bilateral political relations between China and the countries along the Belt and Road?What are the historical characteristics and trends of political relations between China and the countries along the routes? Second,do bilateral political relations have significant impacts on China's direct investment in countries along the Belt and Road?How long does the effect last? What are the influence mechanisms? Third,do bilateral political relations have significant impacts on China's export s with countries along the Belt and Road? What are the effects of bilateral political relations on traditional binary margins of exports and export frequency?With the above problems,we first propose an improved quantitative method for bilateral political relation,and establish a high-frequency monthly database of bilateral political relations between China and countries along the Belt and Road.Bas ed on this database,we analyze the characteristics of bilateral political relations between China and countries along the Belt and Road with the ensemble empirical mode decomposition method.We find that the political relations between China and countries along the Belt and Road are on the rise in general,and the long-term development trend has been rising at present.Meanwhile,short-term uncertainties are also increasing.Moreover,we analyze the characteristics of China's direct investment and exports to countries along the Belt and Road in recent years,from the perspectives of the whole region and sub-regions.Next,we investigate the influence of political relations between China and countries along the Belt and Road on China's outward direct investment.We find that good bilateral political relations significantly promote China's direct investment in countries along the Belt and Road.The impact of political shocks on enterprises' OFDI reaches its maximum in the current month,and then gradually diminishes to disappear in the 12 th month.Therefore,the impact of bilateral political relation shocks on OFDI lasts for about 11 months.The heterogeneity tests show that the influence of political relations between China and countries along t he Belt and Road on enterprises' OFDI is obviously different in different geotectonic plates.Good bilateral political relations,in particular,have significant promoting effects on Chinese enterprises' direct investment in the energy sector of countries along the Belt and Road.Moreover,after the Belt and Road Initiative was put forward,interstate bilateral political relations have stronger driving effects on Chinese enterprises' OFDI.The mechanism analysis shows that good bilateral political relations can effectively hedge the negative impacts of political risk,economic risk and cultural shock risk of countries along the Belt and Road,so as to promote the enterprises' direct investment in host countries.Then,we analyze whether China's export scale to countries along the Belt and Road is affected by bilateral political relations by using the monthly firm-productdestination data and the expanded trade gravity model.The results show that there is no significant correlation between bilateral political relations and China's export scale to the countries along the routes.In a series of robustness tests,such as considering endogeneity,changing the measure method of political relation,changing the estimation method or observing samples,the basic resea rch conclusions are still valid.The research also shows that bilateral political relations have no significant influence on the traditional binary margins of export.To reveal the reasons behind the decoupling phenomenon,we further explore from perspecti ves of producers and consumers,and then find that foreign-owned enterprises,as the absolutely main body of China's exports to countries along the Belt and Road,less sensitive to bilateral political relations,and buying habits of consumers in partner co untries,weaken or even completely absorb the impact of bilateral political relations on export scale.In order to explore the deep relationship between bilateral political relations and China's exports to countries along the Belt and Road,we decomposes e xport value marginally from the perspective of export frequency.As an important margin of trade,export frequency plays an important role in understanding the trade behavior of micro enterprises.From the perspective of fixed transportation cost,we inves tigate the influence of bilateral political relations on the frequency of Chinese enterprises exporting to countries along the routes for the first time.Under the framework of Melitz(2003),we construct a theoretical model with export frequency as the en dogenous choice variable of enterprises,and then illustrate the mechanism of bilateral political relations affecting the export frequency of enterprises.The results indicate that the improvement of bilateral political relations is conducive to increasing the export frequency,and this effect may have a greater role in countries with a presidential regime.The impact of bilateral political relation shocks on the export frequency lasts for about 4 months.Bilateral political relations have significant influ ence on the export frequency of foreign and private enterprises,while not on the export frequency of state-owned enterprises.The results also show that adjusting transport frequency is a more flexible strategic choice for exporters in the face of changin g political relations.In conclusion,this paper scientifically quantifies the bilateral political relations between China and countries along the Belt and Road,and analyzes the influence of bilateral political relations on China's direct investment and e xports to countries along the Belt and Road.In the end,we provide beneficial policy inspiration s for the better development of the Belt and Road construction and promoting the internationalization of Chinese enterprises.