Navigating the Belt and Road Initiative: Why host-country agency is the key to success

The priorities of the Belt and Road Initiative, China’s flagship international infrastructure and economic development program, are shifting. To make the most of this new phase of investment, to ensure alignment with national development objectives, host countries should place public participation, transparency, and robust pre-investment assessments at the forefront of their approach.

Chinese policy-makers will soon gather for the 2026 "Two Sessions"—the annual meetings of the National People’s Congress and the Chinese People’s Political Consultative Conference (CPPCC)—where they will review early progress under China's 15th Five-Year Economic Plan, covering 2026-2030. Against the backdrop of new data showing record-high Belt and Road Initiative engagement in 2025 (engagement defined as both investments by Chinese companies and the value of contracts awarded to them), the sessions are set to reaffirm China’s commitment to the Belt and Road Initiative, while also signalling a clear evolution in priorities.

Since its launch in 2013, the Belt and Road Initiative has been synonymous with large, debt-heavy infrastructure projects. Today, China is diversifying its overseas investment, increasingly focusing on renewables, technology, and manufacturing, as well as more small-scale projects.

This shift places greater responsibility on host countries because the new “small and beautiful” projects rely far more on domestic regulatory quality—covering areas such as permitting; environmental, social, and governance (ESG) standards; land governance; and technology integration—than the earlier state‑to‑state megaprojects, where the primary host obligation was debt repayment. Host countries should pay attention to these shifts and adapt their investment governance and institutional frameworks accordingly to make the most of this new phase of Chinese investment.

As with all foreign investment, the benefits of these projects are never automatic. Project success depends on the strength, clarity, and coherence of domestic legal and policy frameworks, including those that take account of the distinctive features of Chinese financing and project delivery. Our message to host country policy-makers is clear: the real leverage point lies within their own systems, institutions, and regulatory choices.

From Megaprojects to Future Industries

For years, Chinese overseas investment was defined by multi-billion-dollar bridges, railways, and ports. A prominent example is the Addis Ababa–Djibouti Railway, a USD 4.5‑billion project financed largely by the Export–Import Bank of China and constructed by Chinese state‑owned enterprises. This project became emblematic of the early Belt and Road Initiative model: large, capital intensive, and heavily reliant on sovereign lending.

However, rising concerns about debt sustainability among partner countries—as well as changes in China’s economic priorities, with more onus on energy, advanced manufacturing, and green technologies (“modern productive forces” in Chinese policy speak)—have prompted a strategic diversification of the program. The new Belt and Road Initiative prioritizes

• digital infrastructure, including building the "Digital Silk Road" through telecommunications and data centres;
• renewable energy, with a shift away from coal toward wind, solar, and hydro projects; however, oil and gas investment under the Belt and Road Initiative remains significant; and
• "small yet smart" projects, such as smaller-scale, high-impact livelihood projects that are commercially viable and provide immediate social benefits.

Project success depends on the strength, clarity, and coherence of domestic legal and policy frameworks.

 

The Gap Between Opportunity and Reality

As the world’s largest sovereign creditor for around a decade, China’s footprint across Africa, Southeast Asia, Latin America, and Central Asia remains unmatched. The Belt and Road Initiative has the potential to break infrastructure bottlenecks, drive green energy access, and accelerate the United Nations Sustainable Development Goals. China’s shift toward smaller, greener, and more commercially viable projects also creates opportunities for host countries to advance priorities such as renewable energy, digital connectivity, local manufacturing, and regional integration—areas that often align more closely with national development plans than earlier megaprojects.

However, this scale and ambition alone also bring challenges that require more than just diplomatic goodwill to manage; they demand strong domestic governance and regulatory oversight. In short, host countries can only maximize the potential of these projects when they are anchored in legal frameworks that are transparent, inclusive, and aligned with national priorities.

When governance frameworks are poorly enforced, the costs of large-scale infrastructure projects can create tensions, and the results can be costly. The Mombasa–Nairobi Standard Gauge Railway is a case in point: while it is an engineering feat that is transformative for transport, the project faced hurdles due to weak environmental safeguards, resettlement controversies, and limited public participation. These challenges were not inevitable; they stemmed from a mismatch between ambitious economic goals and the domestic capacity to oversee them.

It Is Not the Investment—It Is the Governance

The "governance challenges" often associated with Chinese overseas investment, including confidentiality clauses, ESG risks, and debt vulnerabilities, are frequently cited as typically associated with Chinese lending and outward investment.

Part of an upcoming series looking at key aspects of the Belt and Road Initiative, this article argues otherwise: these risks are most acute where domestic systems are fragmented, opaque, or under-resourced. Opaque contracts and limited public oversight do not just hide debt; they erode the social licence needed for a project to succeed in the long term. Strengthening domestic governance, rather than focusing solely on the identity of the investor, is the most effective way to mitigate risk. By improving pre-investment assessments and contract negotiation, host countries can transform Chinese overseas investment into a genuine engine for sustainable growth.

In short, to get the most out of their engagement with the Belt and Road Initiative as the project develops, investment policy-makers in host countries should

• strengthen domestic pre-investment assessments to ensure that Belt and Road Initiative Phase II projects align with national development priorities, avoiding the misalignment and feasibility challenges seen in some earlier projects.
• improve transparency and public participation in Belt and Road Initiative investor–state contracts, especially for large infrastructure projects.
• build negotiation capacity—including through regional cooperation and peer learning—across project terms, financing arrangements, risk allocation, and ESG safeguards, so that host countries can secure balanced investor-state contracts, treaties, Memoranda of Understanding, and other instruments within the Belt and Road Initiative’s legal architecture.
• integrate ESG safeguards into domestic law and strengthen enforcement capacity so that all investors—Chinese or otherwise—operate under clear, predictable, and consistently applied rules rather than voluntary standards.

These approaches are not prescriptive. They are tools that countries can adapt to their own political, economic, and institutional contexts.

Unpacking the Belt and Road Initiative

Over the coming months, IISD will further explore key aspects of China’s overseas investment and how host country policy-makers can best navigate them, including the Belt and Road Initiative’s unique legal architecture, dispute settlement system, and the greening of the scheme.  

Each article will conclude with a forward-looking analysis of how developing countries can strategically engage with the Belt and Road Initiative to ensure the investments genuinely drive a greener, more transparent, and prosperous future.

IISD works closely with the developing-country investment policy-making community, including through our Investment Policy Forum community. IISD hosts the Secretariat International Support Office (SISO) of the China Council for International Cooperation on Environment and Development (CCICED). If you want to support more extensive independent research and policy development on Chinese overseas investment and its impact in host countries, we would be delighted to engage. Please reach out to [email protected] or [email protected].