Report

China’s Overseas Investment Starts the Long Climb Back

By Derek Scissors

American Enterprise Institute

July 20, 2021

Key Points

  • The Chinese government continues to claim overseas investment and construction have seen little impact from the pandemic, but examining corporate disclosures indicates otherwise. While the China Global Investment Tracker shows investment jumping, it is jumping from a very small base. Construction deals are not being implemented.
  • Although recovery from the pandemic is uneven, it will continue, barring a COVID-19 resurgence. Investment and construction volumes in 2022 and beyond depend partly on Chinese policy. If Beijing’s priorities continue to be market dominance and technology extraction, the golden age of outward investment will remain in the rearview mirror. 
  • In that case, construction along the Belt and Road will become the main activity. Belt and Road countries easily outpace rich countries in drawing Chinese investors and builders during the pandemic.
  • There has been little Chinese investment in the US the past few years. Meanwhile, US investment in China has passed $1 trillion. Technology loss through outbound American investment and exports is more pressing than through inbound investment.

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The China Global Investment Tracker was created in 2005 because official Chinese government data were not informative. Both official data and the tracker improved in quality until the COVID-19 pandemic. Over the past 18 months, Chinese government claims about out-bound investment have stopped making sense. Tracker numbers are sensible but suffer from larger gaps than before. The balance of evidence says investment in 2020 and 2021 dropped far more than the Chinese government insists.

The China Global Investment Tracker (CGIT) from the American Enterprise Institute and Heritage Foundation is the most complete publicly available record of China’s investment and construction worldwide. Nearly 4,000 transactions from 2005 through the middle of 2021 are accessible.1 Until 2019, the CGIT approximated official Chinese investment figures while providing far more useful bilateral and sector breakdowns. In 2019, the investment stories split, with the government reporting a smaller drop.

The gap ballooned when COVID-19 hit. Because the CGIT excludes transactions below $95 million, it misses proportionally more deals during downturns. Nonetheless, it is impossible to document the amazing stability China claims for recent investment, globally and within the top historical recipients of Europe, the US, and Australia.2 While spending in Belt and Road Initiative (BRI) countries rose, government figures put it below 20 percent of the total, incapable of maintaining investment volumes.3

For the first half of 2021, the CGIT shows spending of just $21 billion. Nonetheless, this is a 60 percent jump from the even more depressed figure for the first half of 2020. The Netherlands and Brazil led, but in both cases on the strength of large individual transactions. Energy saw the most activity by sector, yet again. State-owned enterprises (SOEs) accounted for about three-fifths of investment.

Investment involves ownership of an asset and an indefinite presence in a host country. It is often conflated with construction of power plants, airports, and the like. The People’s Republic of China’s (PRC) construction and associated lending are not indefinite and do not imply ownership. The average construction deal is smaller than the average investment, but there have been more construction than investment transactions since 2005.

Construction activity was weak in the first half of 2021, but this is probably transient. Egypt topped the list of recipients, again due to one large transaction. Transport was the most popular sector. SOEs were responsible for nearly all activity. The pandemic has delayed the start of construction projects, which keeps them out of the CGIT. When the pandemic fades further, construction could see a quick leap.

Since its creation in late 2013, the BRI has accounted for the vast bulk of China’s global construction. The BRI is poorly defined: Recent official statistics include only 58 countries, yet 143 are listed at the government portal.4 Using the bigger group, to see the greatest possible extent of the BRI, shows over $300 billion invested and closing in on $500 billion in construction since inception.

In contrast to the BRI, Chinese investment and construction activity in the US is now minimal. It touched $50 billion in 2016. Since the pandemic began, however, cumulative outlays are only $2 billion. (A large Tencent investment often said to be made in the US was with a French parent.) Despite fears, there has been no pandemic-related spending surge.

American technology must be shielded from inbound Chinese investment, especially if a large research program passes in Congress.5 At the moment, though, the greater threat is money headed the other direction, to the PRC. The Department of the Treasury provides false figures for US portfolio investment in China, pretending offshore financial centers are final destinations.6 This obscures the Chinese industries being supported. Compounding the failure, the export-control tightening that Congress passed overwhelmingly in 2018 remains unimplemented.7 We cannot compete seriously with China when American money and technology are so easily available.

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Notes

  1. American Enterprise Institute and Heritage Foundation, China Global Investment Tracker, July 2021, https://www.aei.org/china-global-investment-tracker/.
  2. Grisons Peak, “China Outbound and Inbound Investments,” China Investment Research 47 (2021), http://www.chinainvestmentresearch.org/wp-content/uploads/2021/06/China-Outbound-Investments-Vol-49-%E2%80%93-Q1.pdf. An impressive figure of $24.6 billion in global mergers and acquisitions is given for the first quarter, but, of the largest transactions worth $13 billion, $6 billion occurred in China, $1.4 billion may not occur, and $800 million was an overstatement based on enterprise value. See also Agatha Kratz, Max J. Zenglein, and Gregor Sebastian, Chinese FDI in Europe: 2020 Update, Rhodium Group and Mercator Institute for China Studies, June 16, 2021, https://merics.org/en/report/chinese-fdi-europe-2020-update; and Australian National University, “Chinese Investment in Australia Plunges to Record Low,” March 1, 2021, https://www.anu.edu.au/news/all-news/chinese-investment-in-australia-plunges-to-record-low.
  3. Xinhua, “China’s Non-Financial ODI down 0.4 Pct in 2020,” press release, January 21, 2021, http://www.xinhuanet.com/english/2021-01/21/c_139687327.htm; and Xinhua, “China’s Investment into BRI Countries Expands in Jan.–May,” press release, June 17, 2021, http://www.xinhuanet.com/english/2021-06/17/c_1310013851.htm.
  4. People’s Republic of China, Belt and Road Portal, https://eng.yidaiyilu.gov.cn/info/iList.jsp?cat_id=10076&tm_id=80&cur_page=1.
  5. Thomas Franck, “Senate Passes $250 Billion Bipartisan Tech and Manufacturing Bill Aimed at Countering China,” CNBC, June 9, 2021, https://www.cnbc.com/2021/06/08/senate-passes-bipartisan-tech-and-manufacturing-bill-aimed-at-china.html.
  6. Derek Scissors, “American Funding of China Is Becoming Dangerous,” American Enterprise Institute, December 2, 2020, https://www.aei.org/research-products/report/american-funding-of-china-is-becoming-dangerous/.
  7. See US Department of Commerce, Bureau of Industry and Security, “Fiscal Year 2021 Congressional Budget Submission,” 5, https://www.commerce.gov/sites/default/files/2020-02/fy2021_bis_congressional_budget_justification.pdf.