Chinese outbound foreign investment is shifting away from such advanced economies as the US and Europe to emerging markets and are increasingly focused on greenfield projects, a new database from Rhodium Group shows, posing new challenges for governments eager to counter China’s economic influence.
Outflows have rebounded after the Covid-19 pandemic in the past two years. There was USD 103 billion worth of announced investment in 2023, but investment levels remain much lower than previous highs.
Chinese companies are looking closer to home, with Asia becoming the largest recipient of Chinese outbound foreign direct investment (FDI) since 2017, according to Rhodium Group, a New York-based independent economic analysis group. In 2023, 72% of announced Chinese outbound investment transactions happened in countries that were not advanced economies as defined by the International Monetary Fund, with such developing economies as Vietnam, Malaysia and Indonesia logging at least USD 1 billion in investment from China in 2023 and 2024.
Chinese capital has also been deployed more in other regions, such as Africa, Latin America, and the Middle East. The combined share of North America and Europe dropped to less than half of total annual investment last year.
Various factors play into the change, including tighter capital controls in China on overseas investments—in July 2023, China announced export curbs on critical minerals. Furthermore, outbound investment has been impacted by anti-corruption campaigns as well as the property market slump that has seen the fall of real estate giants Evergrande and Country Garden.
Worsening relations between the US and China have fueled heightened scrutiny in American states of Chinese inbound investment. Citing national security concerns, the US has intensified its scrutiny of Chinese investments with the use of the Committee on Foreign Investment in the United States.
A survey of Chinese businesses in the US published in June by the China General Chamber of Commerce-USA found that more than half of respondents noted a decline in the market environment.
Europe has also drawn up new tools, such as its anti-subsidy instrument, to address economic security and level playing field concerns.
Nearly 70% of total announced investments went to economies such as Europe and North America in 2016, Rhodium Group said, based on its new “China Cross-Border Monitor” database, which tracks Chinese outbound investment.
“During the decade of booming Chinese outbound FDI, more than half of investment was destined for Europe and North America, which are safe haven economies with a mature asset base and also China’s largest export markets,” wrote Rhodium’s Thilo Hanemann, Armand Meyer, and Danielle Goh.
The new database also found that Chinese investors began shifting toward greenfield projects over the past eight years, with mergers and acquisitions declining significantly since 2016.
That shift is a departure from the Chinese global shopping spree of acquisitions in the mid-2010s, when Chinese outbound investment peaked with property and entertainment giant Dalian Wanda Group acquiring Legendary Entertainment and Tencent Holdings buying Finish mobile game developer Supercell.
Greenfield projects are a type of investment that starts from scratch, such as construction of a facility on an undeveloped site. With growing trade barriers in such places as the US on Chinese goods, investors have been diversifying their supply chains. Rhodium Group also cites the rising competitiveness of Chinese companies in industries like electric vehicles that have seen investors pump money into building plants for new energy vehicles and batteries overseas.
Chinese outbound investment in battery materials production and battery manufacturing make up the lion’s share of EV supply chain transactions.
“While M&A activity may recover in coming years, greenfield FDI will remain a more important driver of China’s overall outbound investment than in the previous decade,” the authors wrote.
“Many of the newly announced projects—such as manufacturing facilities in the electric vehicle industry—will take years to be completed and their trajectory hinges in part on how local political dynamics play out,” they wrote.
Rhodium noted that only two-thirds of the initially announced investment value throughout the past two decades eventually materialized. But, it said, this shift in Chinese investment behavior will allow China to have more economic influence in the Global South.
“In the past, China’s presence in emerging economies often took the form of Chinese policy banks financing infrastructure built with Chinese workers,” the authors wrote. “Now Chinese companies like BYD are building ‘sticky’ FDI operations that create local employment, pay local taxes, and offer attractive products at attractive prices in local markets.”
“As a result, governments that are eager to counter China’s economic influence in emerging economies face a tougher challenge,” according to Rhodium. “They now must compete with not only state-backed financing from Beijing, but also with a new crop of mature Chinese multinationals promising a broader set of local economic benefits.”