Better but Not Well: China’s Global Investment Needs More Fuel

Key Points

• In 2023, China’s documented global investment grew strongly off a poor 2022. The electric vehicle supply chain, starting with nickel mining in Indonesia, attracted the most funds. China’s global construction was flat, but implementation of construction takes longer.
• A surge after the end of “zero-COVID” policies makes sense. But official Chinese outbound investment remains exaggerated because the Ministry of Commerce claims COVID-19 was good for outbound investment in 2020–21. Overwhelming evidence says otherwise.
• Chinese investment in the US in 2023 was low. In contrast, American investment in China in 2023 is unknown, and American investment in Chinese technology in any year is unknown. This lack of information is more pressing than China’s current global spending.

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Introduction

China’s outward investment and construction in 2023 mirrored its economy at home. Last year was certainly better than 2022, but not as good as hoped. The world is different than it was before COVID-19, and it will be difficult for China to re-craft authentic overseas investment and construction levels matching the middle 2010s.

China’s Ministry of Commerce (MOFCOM) insists COVID and “zero-COVID” policies were good for the country’s outward investment, with a 20 percent increase in annual spending from 2019 to 2022.¹ This is not credible. The ministry claims the majority was sent to Hong Kong (population 7.5 million), followed by offshore financial centers like the British Virgin Islands, which obscures capital flows. The next leading recipients were rich countries such as the US, but these report weak inbound Chinese investment. There are other pockets of strength, but not nearly enough to justify Beijing’s portrait.²

The obvious conclusion is China’s recent outward investment data have been altered, no longer representing what they did when activity was more robust. Verification is challenging because MOFCOM does not document individual transactions. The China Global Investment Tracker (CGIT) does, using disclosures from the companies involved. The CGIT is the most complete public record of China’s investment and construction overseas, with 4,300 transactions from 2005 through 2023.³ Through 2019, it roughly matched MOFCOM’s outbound investment figures.

The CGIT does not include transactions smaller than $95 million, hence missing more if average transaction size falls. It understates the People’s Republic of China’s (PRC) activity when small deals are more appealing. But large deals should be visible in corporate statements, and starting in 2020, they are not. Unlike MOFCOM, the CGIT shows an unsurprising sharp drop in investment in 2020–22 versus 2017–19. The CGIT’s results fit those published by the PRC’s partners.

In 2023, zero COVID ended, yet MOFCOM shows an investment rise similar to 2020 and 2021. The CGIT’s 2023 spending climbed far quicker—more than 40 percent to $56 billion. Leading countries were Indonesia and Hungary, two participants in the battery supply chain for electric vehicles. This is also reflected in transportation and metals, which were the top sectors.⁴ Now important, the battery chain is not by itself big enough to continue the surge. The 2010s saw large state-sponsored transactions that richer countries may no longer permit and poorer countries may fear on debt grounds. To sustain the 2023 pace in 2024, another hot sector or the return of investment in Russia would be required.

The same is true for the PRC’s outward construction. Investment brings ownership and an indefinite presence in the host country, but it’s often confused with construction of power plants, ports, and the like. China’s overseas building and associated lending neither ensure ownership nor last indefinitely. The average investment transaction is larger than recorded for construction, but the CGIT records about the same number of deals of each type since 2005 (even while missing early construction contracts).

The PRC’s many COVID-related restrictions hit construction as they hit investment. And the construction recovery is necessarily slower because projects take longer to verify. Construction activity was flat compared to 2022, but this will change as more 2023 transactions are confirmed this year. For the moment, the leading country was Saudi Arabia, and not coincidentally, the leading sector was energy.

Though huge investment numbers are tossed around, the Belt and Road Initiative (BRI) is primarily construction. Official statistics typically count 60-odd countries, yet 152 are listed on the government portal.⁵ The CGIT uses the latter to see the BRI’s maximum extent and finds $390 billion invested and $570 billion built since the BRI’s inception in late 2013. This broad version of the BRI dominates Chinese construction globally and could become more important in investment, if rich countries remain suspicious of the PRC.

One of the suspicious rich countries is the US. Peaking above $50 billion in 2016 (excluding bonds), Chinese investment in the US during 2020–23 totaled only $9.7 billion. The PRC is not buying much American land—or anything else. Since 2017, changes in the amount of money headed from the US to the PRC have been more important.

The Committee on Foreign Investment in the United States (CFIUS) prevents foreign acquisition of sensitive technology at home. On paper, American technology exports are controlled.⁶ Yet American investment supporting technology in China goes unmonitored. At the end of 2022, US portfolio investment in the PRC, including Hong Kong, totaled $910 billion, an unknown amount in technology because American policymakers have chosen not to know.⁷ From the BRI to American investment in China, good policy is impossible without good information.

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Notes

1. Chinese Ministry of Commerce, National Bureau of Statistics, and State Administration of Foreign Exchange, “2022 Statistical Bulletin of China’s Outward Foreign Direct Investment,” September 2023.
2. US Bureau of Economic Analysis, “Foreign Direct Investment in the U.S.: Balance of Payments and Direct Investment Position Data,” July 20, 2023, https://www.bea.gov/international/di1fdibal; Agatha Kratz et al., “Chinese FDI in Europe: 2022 Update,” Rhodium Group, May 9, 2023, https://rhg.com/research/chinese-fdi-in-europe-2022-update; KPMG and University of Sydney, Demystifying Chinese Investment in Australia, April 2023, https://kpmg.com/au/en/home/insights/2023/04/demystifying-chinese-investment-in-australia-april-2023.html; Global SWF, 2024 Annual Report: State-Owned Investors Powering Through Crises, January 1, 2024, https://globalswf.com/reports/2024annual; Boston University, Global Development Policy Center, “At a Crossroads: Chinese Development Finance to Latin America and the Caribbean, 2022,” March 21, 2023, https://www.bu.edu/gdp/2023/03/21/at-a-crossroads-chinese-development-finance-to-latin-america-and-the-caribbean-2022; and ASEAN Statistics Division, “Indicators,” https://data.aseanstats.org.
3. American Enterprise Institute and Heritage Foundation, China Global Investment Tracker, January 2024, https://www.aei.org/china-global-investment-tracker.
4. The China Global Investment Tracker’s (CGIT) regions and sectors were identified in 2009 based on transaction patterns then. Work by others using these regions and sectors is derivative and qualifies as commentary, not research.
5. Chinese Belt and Road Portal, “Guobie” [Countries], https://www.yidaiyilu.gov.cn/country.
6. US Department of the Treasury, “The Committee on Foreign Investment in the United States (CFIUS),” https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius. The Department of Commerce has refused to properly implement export controls for the sake of protecting technology sales. See US Department of Commerce, Bureau of Industry and Security, “Commerce Control List: Controls on Certain Marine Toxins,” Federal Register 87, no. 99 (May 23, 2022): 31195–203, https://www.federalregister.gov/documents/2022/05/23/2022-10907/commerce-control-list-controls-on-certain-marine-toxins.
7. Carol C. Bertaut, Beau Bressler, and Stephanie Curcuru, “Globalization and the Geography of Capital Flows,” Federal Reserve, Board of Governors, December 15, 2023, https://www.federalreserve.gov/econres/notes/feds-notes/globalization-and-the-geography-of-capital-flows-20190906.html.