China’s overseas infrastructure investment: The impact of host country sovereign risk post-covid-19

• Our dataset represents 110 countries over the period 2013–2024. • High sovereign risk countries receive lower infrastructure investment from China post Covid-19. • Results apply to both the intensive and extensive margins of China’s overseas infrastructure investment. • Host country natural resources and geopolitical alignment with China mitigate the negative effect of sovereign risk. We investigate the impact of host country sovereign risk on China’s overseas infrastructure investment (OII) based on 110 host countries over the period 2013–2024. We treat the Covid-19 pandemic as a significant event that carries both common shock effects for host countries and an idiosyncratic shock effect for China’s OII. The Difference-in-Differences (DID) results show that countries with higher sovereign risk receive lower infrastructure investment from China post-Covid-19 compared with lower sovereign risk countries. Moreover, both the average size and the number of China’s new infrastructure projects are lower in higher sovereign risk countries post-Covid-19. We also find that host country natural resources and geopolitical alignment with China mitigate the negative impact of host country sovereign risk on China’s OII. Our results suggest that risk management has become an important concern for Chinese infrastructure investors post-Covid-19, but China’s OII is still driven by a combination of economic and non-economic considerations.