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This research presents a full picture of the rationale behind China's infrastructure investment under the Belt and Road Initiative (BRI), which was formally initiated in 2013. In this paper, we argue that the main reason for China to conduct infrastructure investment under BRI is to strategically respond to the emergence of the "New Normal," which pushes the country to sustain economic growth through further structural transformation. We come up with three relevant factors for why infrastructure projects under BRI could be conducive to structural transformation in China's economy, as it (1) provides a much better alternative to the existing poor logistic conditions and can create accessibility among regions, (2) enables the smooth flow of factor endowments of production that significantly reduce production costs, and (3) indirectly strengthens the influence of the debt provider's home currency. This paper also provides three theoretical pillars: the comparative advantage following (CAF) and defying (CAD) development strategies, the late development theory with antineoliberalism characteristics, and the new international division of labor, from which these three factors might potentially explain how BRI could enhance the structural transformation of this second-largest economy in the world.

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This research proposes a new theory called bilateral rent‐seeking to explain the dramatic growth of foreign direct investment (FDI) inflow into China over the past several decades. We construct a Nash bargaining model to illustrate the relevance of how the reciprocal relationship between the local state and foreign investors leads to the greater incentives for the latter to invest in the local market, thus resulting into the huge FDI inflows into the domestic market in China in the past several decades. The empirically evidence presented in the end is broadly consistent with the theories proposed in this paper (JEL D21, D72, L52)

The dichotomy in the economics of transition literature with regard to the reform speed (Gradualist vs Radical Approach) and reform strategy (incremental reform vs structural reform) fails to capture the essence of the transitional process of a transitional economy that was ever under the control of planned economic system. In this paper, we construct a system dynamics model to provide a unified theoretical framework to illustrate that reform speed and reform strategy are inherently intertwined. We propose 4 optimal reforming combinations between reform speed and reform strategy to track the transitional trajectories of different transitional economies since 1980s. These 4 optimal reforming combinations are: (1) Incremental reform in radical speed. (2) Incremental reform in gradualist speed. (3) Structural reform in radical speed. (4) Structural reform in gradualist speed. In this paper, we demonstrate that a transitional economy would adopt one of the aforementioned 4 optimal reforming combination if and only if it minimizes the reforming cost incurred during the shock period of radical reform as well as the dual track period of gradualist reforms. Several factors in our model affecting these 4 optimal reforming combinations are also discussed. These factors include the spillover effect (both vertical and horizontal) of a newly established reforming promotion sector on other old sectors in a transitional economy, the endogenous reform damping coefficient determined by one transitional economy"s initial conditions and the reform damping coefficient determined by the dual track system during the gradualist reform process.

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