Does China dominate global investment?
Overseas investment offers China an opportunity to not just bolster its own economy, but also leverage its economic strength to increase its influence abroad. Driven in part by Beijing’s “Going Global” strategy that encourages investment in foreign markets, Chinese firms have actively expanded their overseas footprint in recent years and explored investment opportunities in a range of sectors.
Calculations in the subsequent sections are derived from data provided by the American Enterprise Institute and the Heritage Foundation’s China Global Investment Tracker (CGIT), which monitors China’s construction activities and global investments valued at least $100 million.
The CGIT breaks down China’s overseas investment into foreign direct investment (FDI) and construction contracts. Unlike investments, which go mostly to more developed economies, construction contracts are concentrated in developing parts of the world. From 2005 to 2017, low and middle-income economies received 83.9 percent of the $734 billion spent by China on construction projects across the globe. In contrast, high-income countries – mainly those in North America and Europe – attracted 65.6 percent of Chinese FDI outflows.
Latin America and Caribbean
Annual Chinese FDI into Latin America and the Caribbean (LAC) was valued at less than $5 billion prior to 2010, when it jumped to $25.3 billion. Over the past seven years, investment outflows have totaled $72.5 billion. While the United States and other European countries have historically been the main sources of FDI, China leads in the world in mergers and acquisitions in region. According to the Economic Commission for LAC (ECLAC), the US and European countries together accounted for more than 65 percent of total inflows in 2017, with the US responsible for 28.1 percent of the investments. In terms of mergers and acquisitions completed in 2017, however, China was the biggest investor in LAC with deals totaling $18 billion (42 percent of the total).
Abundant natural resources make LAC a highly desirable investment destination for China, with around 57.6 percent ($62.7 billion) of China’s FDI into LAC since 2005 flowing into the energy sector. While totaling just $1.85 billion between 2005 and 2009, Chinese energy investment into South America surged to $18.97 billion in 2010, with 57 percent of the increase flowing into Brazil. Major acquisitions, such as Sinopec’s $7.1 billion stake purchase of Repsol’s Brazilian arm, constitute a significant portion of this inflow.
| China FDI Top Destinations in Latin America and the Caribbean (2005 - 2017) | |||
|---|---|---|---|
| Country | Volume in $ billions | Global Ranking | Economic Development Level |
| Brazil | 54.56 | 5 | Upper middle-income |
| Peru | 19.95 | 12 | Upper middle-income |
| Argentina | 11.14 | 19 | Upper middle-income |
| Ecuador | 7.72 | 29 | Upper middle-income |
| Venezuela | 4.37 | 47 | Upper middle-income |
In recent years, China’s slowing economic growth has driven down domestic demand for foreign commodities. This has contributed to investment in the South American energy sector dropping from $18.97 billion in 2010 to $7.21 billion in 2017. Chinese companies are also now exploring sectors other than resource extraction. Auto companies have investedin countries including Brazil, Argentina, and Colombia since 2011. Chinese electronics company ZTE Corporation announced a $200 million investment in a research and development facility in Brazil in 2011.
Over 61 percent of all construction contracts in Latin America and the Caribbean since 2010 have been in the energy sector.
In addition to investments, construction contracts provide further insight into China’s involvement in LAC. Over 61 percent of China’s construction contract expenditures in LAC since 2010 have been in the energy sector. Argentina, Venezuela, and Ecuador received the most high-value construction contracts from 2005 to 2017, taking in $16.79 billion, $16.37 billion, and $6.64 billion respectively. China has signed contracts to build hydroelectric power plants in all three countries, inked deals on a variety of transportation and agriculture projects with Venezuelan and Argentinian companies, and in 2015 became involved in real estate construction transactions in Ecuador.
Chinese banks have also provided loans toward LAC infrastructure. The two primary Chinese lenders to LAC – China Development Bank and the Export-Import Bank of China (Chexim) – have issued 85 loans amounting to $150.4 billion from 2005 to 2017 for energy, transportation, and infrastructure projects. In 2010, China’s loan commitments in the region surpassed those of the World Bank, Inter-American Development Bank, and the United States EXIM Bank combined.
Africa
Chinese investment in Africa fluctuated considerably between 2006 and 2017. There was a small downturn in 2009 and 2010, likely a result of the global financial crisis, and a spike to $22.4 billion in 2013. During this 12-year span, Western Africa received 28.6 percent of Chinese investment in the continent, followed by Middle Africa with 25.3 percent.
According to the 2018 UNCTAD World Investment Report, China held the fourth largest FDI stock in Africa in 2016 at $40 billion, behind the US at $57 billion, the UK at $55 billion, and France at $49 billion. If including Hong Kong, China’s investment stock in Africa rises to $53 billion. This is a dramatic improvement from 2011, when China’s investment stock in Africa was only $16 billion, placing it at the same level as Singapore and India.
| China FDI Top Destinations in Africa (2005 - 2017) | |||
|---|---|---|---|
| Country | Volume in $ billions | Global Ranking | Economic Development Level |
| DRC | 11.74 | 16 | Lower middle-income |
| South Africa | 10.83 | 20 | Upper middle-income |
| Nigeria | 7.64 | 30 | Low-income |
| Egypt | 5.39 | 38 | Lower middle-income |
| Niger | 5.18 | 39 | Low-income |
Notably, global investment flows into Africa fell from $59.4 billion in 2016 to $42 billion in 2017. Southern Africa was particularly affected by this drop, seeing a 66 percent decline in investment in 2017. Investment in Africa from China was no exception. Its input into the continent fell across the board, dropping from the peak of $8.12 billion invested in 2016 to $980 million in 2017. China’s FDI into Middle Africa experienced the largest decline, with a year-on-year decrease from $5.04 billion to $250 million.
The IMF classifies 20 African states as resource-rich, with energy and mineral resources comprising large portions of their respective exports. With China projected to account for 25 percent of global energy consumption by 2035, Beijing’s investment in Africa is unsurprisingly motivated by resource extraction.
In 2016, China was the largest investor in Africa, making up 39 percent of global investment inflows.
Of the total $83.01 billion China invested in Africa between 2005 and 2017, 40.3 percent was invested in metals and 33.4 percent into energy. The Democratic Republic of Congo, South Africa, Nigeria, Egypt and Niger were the five largest recipients of these investments, making up 49.1 percent of China’s total regional FDI. Natural resource contracts made up four out of the five largest investment deals — $4.9 and $4.21 billion deals in Niger and Mozambique in 2008 and 2013 by CNPC1, respectively, a $3.1 billion deal in Egypt in 2013 signed by Sinopec, and a $2.7 billion deal in Tanzania signed by Sichuan Hanlong in 2015.
China’s investment in Africa has grown dramatically in comparison to other investor countries. As detailed in the 2018 World Investment Report, China invested a total of $45.1 billion in greenfield projects between 2016 and 2017, a jump of nearly $40 billion from the total between 2013 and 2014. Comparatively, China’s investment also surpassed that of the EU at $34.57 billion and the US at $7.54 billion over the 2016-2017 period. China’s greenfield investments suggest that Chinese firms are diversifying their interests in Africa, as there has been a marked increase in manufacturing projects and construction contracts.2 The number of private investment projects in Africa registered with the Chinese government climbed from 52 in 2005 to 923 in 2012.
In addition to direct investments, China has emerged as one of the world’s largest providers of development finance. Learn more about the nature of China's development assistance.
Development assistance is critical to furthering Beijing’s interests, and a considerable portion of Chexim’s operations entail the financing of Chinese projects in Africa. From 2000 to 2014, China funded 2,390 projects across Africa. Combined, these projects totaled $121.6 billion and made up 34.3 percent of China’s total development finance over that period. Roughly 94 percent of this financing was loaned by Chexim, with countries like Angola, Ethiopia, Nigeria, and Sudan having consistently received infrastructure loans since 1994. By comparison, the total amount of aid offered by the US to Africa between 2000 and 2014 was roughly $100 billion.
Some Chinese investments are partially funded through infrastructure-for-loan arrangements. In these transactions, Chinese companies offer loans for resource-development projects to prospective African partners in exchange for resources. As of 2018, China has loaned some $60 billion dollars to Angola since the two countries established diplomatic relations in 1983; much of this debt is serviced with oil. China has also pursued similar financing schemes with Ethiopia, Eritrea, and Tanzania for sugar cane, gold, and iron ore.
North America and Europe
Europe and North America (excluding Mexico) have become major destinations for Chinese foreign direct investment, receiving 52.1 percent ($544.5 billion) of China’s total global FDI outflows from 2005 to 2017. Notwithstanding this considerable investment, China’s share of foreign investment in North America and Europe between 2005 and 2017 was less than 5.4 percent of the total stock held by all countries.
The US is the largest destination for Chinese FDI in the world, drawing in $171.04 billion or 16.4 percent of China’s total outflows since 2005. However, the US Bureau of Economic Analysis estimates that China accounted for 7.4 percent in 2016, falling short of those from Canada and the UK in 2016, at 15.7 and 14.5 percent, respectively. China’s investments into the US may see further declines as trade tensions rise between the two biggest economies in the world. According to the Rhodium Group, Chinese investment into the US fell to $1.8 billion in the first half of 2018, a 92 percent drop compared to the same period in 2017.
| China FDI Top Destinations in North America and Europe (2005 - 2017) | |||
|---|---|---|---|
| Country | Volume in $ billions | Global Ranking | Economic Development Level |
| United States | 171.04 | 1 | High income OECD member |
| United Kingdom | 72.39 | 3 | High income OECD member |
| Switzerland | 60.01 | 4 | High income OECD member |
| Canada | 49.42 | 6 | Upper middle-income |
| Russia | 38.15 | 7 | High income OECD member |
China’s North American and European investment is driven by both the demand for energy security and the acquisition of strategic assets and expanded market shares. From 2005 to 2017, Chinese firms invested $324 billion into Europe, which constitutes 31.03 percent of China’s global outbound FDI. Over 43 percent ($238.2 billion) of these investments were concentrated in the UK, Switzerland, Russia, Italy, France, and Germany.
The energy sector received 26.4 percent ($76.62 billion) of China’s European investments from 2005 to 2017, but falling commodity prices and political insecurity in Europe resulted in considerable year-on-year fluctuations over this period. Large agreements such as the Sino-Russian $400 million Gazprom deal in 2014, for instance, created opportunities for Russia to counter the economic consequences of European sanctions while providing China greater access to energy resources.
The US is the largest destination for Chinese FDI in the world, drawing in $171.04 billion or 16.4 percent of all Chinese investment since 2005.
Likewise, the energy sector in the US and Canada attracts a considerable amount of investment from China. Notably, when Chinese investment in the European energy sector dropped in 2012, it surged in both Canada (from $4.4 billion in 2011 to $20.79 billion in 2012) and the US (from $200 million to $3.38 billion). Some Chinese firms have taken an interest in the North American energy sector due to the application of innovative unconventional resource extraction techniques that could in time be applied to China’s largely untapped shale gas reserves.
In recent years, China has expanded its investment focus from resources and raw materials to strategic acquisitions intended to increase the market competitiveness of Chinese products and companies. From 2012 to 2017, Chinese firms invested $50.81 billion in the European and North American transportation sectors, marking an almost five times increase from the preceding five-year period.
Diversification of Chinese investment is especially evident in countries facing economic difficulties that have opted to open up previously state-controlled industries. Chinese firms have invested significant capital into Eastern European countries such as Hungary, focusing on the chemicals and technology industries. Wanhua Industrial Group purchased a majority share of Hungarian chemicals company BorsodChem for $1.6 billion in early 2011, and Chinese technology giant Huawei invested $1.5 billion in a Hungarian research center in May of 2012.
In 2017, China National Chemical Corporation (ChemChina) acquired Swiss agrichemical company Syngenta, marking China’s single largest investment since 2005. The $43.1 billion deal is expected to enable China to glean technological and practices that in turn could be used to bolster China’s food security. Such investments indicate that Chinese firms are navigating overseas investment with the intent to bolster China’s transition to an innovation-based economy.
Asia and Oceania
Chinese investment in Asia and Oceania has risen steadily from $5.68 billion in 2005 to $38.01 billion in 2017. Of the total $307.7 billion invested in the region, $90.9 billion (29.6 percent) poured into Australia and $90.9 billion (29.5 percent) into Southeast Asia.
From 2005 to 2017, Australia has been the second largest recipient country of Chinese FDI after the US. Although China has invested heavily in the Australian metals and energy industries, the Australian Department of Foreign Affairs and Trade reports that China’s investment stock constitutes a mere 2 percent of Australia’s total inward FDI. In 2017, the European Union and the US made up 22.3 and 22.4 percent of global inward FDI stock in Australia, respectively.
China’s need for energy fuels Chinese investment across the region. Energy investments constitute significant portions of outbound Chinese FDI for Southeast Asia (38.4 percent), Western Asia (60.4 percent), Central Asia (93.8 percent), and Southern Asia (47.3 percent). The largest of these investments are concentrated in Southeast and Western Asia. Notable examples include China General Nuclear’s acquisition of Malaysian power company, Edra, for $5.96 billion in 2015 and CNPC’s 2009 deal to service the Rumaila oil field in Iraq for $5.59 billion.3
| China FDI Top Destinations in Asia and Oceania (2005 - 2017) | |||
|---|---|---|---|
| Country | Volume in $ billions | Global Ranking | Economic Development Level |
| Australia | 90.95 | 2 | High income OECD member |
| Singapore | 30.84 | 8 | High income |
| Kazakhstan | 18.35 | 13 | Upper middle-income |
| Malaysia | 17.28 | 14 | Upper middle-income |
| Indonesia | 13.33 | 15 | Lower middle-income |
China’s outbound investment is at times intertwined with its political objectives. For instance, Cambodia—a provider of cheap energy—received $600 million in developmental aid and loans from China after calling for ASEAN to retract a statement on the South China Sea dispute. In Western Asia, China has prioritized its own energy security and practicednon-interference, as evidenced by its rejection of American and European efforts to halt Iran’s nuclear program.
Although energy has remained China’s primary sector for investment in the region, Chinese capital has gradually diversified into sectors such as transportation, real estate, technology and tourism. Zhuhai Port Holdings’ $1.62 billion investment in the Gwadar port in Pakistan is especially notable, as it is the first foreign port investment in the Belt and Road Initiative. This strategic asset at the mouth of the Persian Gulf is close to critical sea lanes and could be utilized to link Western provinces in China with countries in South Asia and the Middle East. In Southeast Asia, Chinese investment has begun to flow into real estate and finance.
Despite strong trade relations with Japan and South Korea, China has invested only a modest amount in East Asia, likely due to its lack of natural resources. Chinese firms have, however, invested in the finance, technology, real estate, tourism, and entertainment sectors in both Japan and South Korea. For instance, Shanghai Greenland Group injected$3.22 billion into the South Korean real estate market in 2015.
Over the last decade, roughly 31 percent of Chinese FDI in Asia and Oceania flowed into Australia.
China’s construction contracts in Asia have grown substantially since 2005, totaling nearly $350 billion through 2017. While energy remains the dominant sector for investment, contracts have begun to gravitate toward transportation and real estate. In transportation, Chinese firms contracted $16.2 billion from 2006 to 2011, an amount that increased almost four-fold to $62.03 billion from 2012 to 2017. In real estate, contracts more than doubled from $9.2 billion between 2006 and 2011 to $21.1 billion from 2012 to 2017.
China has strengthened its bilateral relations across the region through development aid. In addition to policy banks such as Chexim, China has set up development funds for projects such as the China-Pakistan Economic Corridor. This project is backed by Chexim and the Silk Road Fund, and its overall value is expected to eclipse the development assistance given by the US to Pakistan between 2005 and 2015. Moreover, China’s leadership in the Asian Infrastructure Investment Bank (AIIB) demonstrates Beijing’s desire to create its own development lending platform. 
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