Chinese outbound greenfield foreign direct investment (FDI) reached a new high in 2023. Announced outward capital investment by China-based companies was propelled to an estimated $162.7bn last year, according to fDi Markets. This is the highest amount tracked by China in a single year since our records began in 2003.

The last time Chinese outbound FDI exceeded $100bn was in 2016, when China-based multinational enterprises (MNEs) recorded their second-largest total of outward FDI, investing an estimated $108.3bn in overseas operations, according to fDi Markets data, which tracks cross-border investment in new physical projects, or expansions of an existing investment that create new jobs and capital investment.

Strategic shift to capital exporter

The single largest outbound Chinese project tracked by fDi Markets in 2023 was a $10bn investment by automotive giant Zhejiang Geely, which announced plans in July last year to establish a hub in Tanjung Malim, Malaysia. Sinopec Group, China’s state-owned energy conglomerate, was also amongst the largest investors, announcing a $4.5bn refinery in Hambantota, Sri Lanka and a $7.7bn chemicals facility in  Atyrau, Kazakhstan.

China’s FDI profile thus appears to be undergoing a significant shift, from capital importer to capital exporter. For decades, China’s economic growth strategy relied heavily on attracting inward FDI to leverage foreign capital and technology. As the Chinese economy evolves and develops its own national champions, its need for FDI — particularly in manufacturing — eases down. Meanwhile, attracting FDI into high-added-value services, which has been prioritised by the government, is proving harder than expected. 

Other sources confirmed the trend too. Based on the balance-of-payments statistics released by the State Administration of Foreign Exchange, net direct investments posted a deficit of $142.6bn in 2023 — the second time China has ever recorded a deficit in direct investment since records began. Direct investment includes unpaid and unremitted profits, retained earnings, shareholders’ loans, foreign capital utilised by financial institutions, and real-estate purchases by non-residents. This underscores a pivotal shift in China’s position within the global investment landscape, indicating that, for this period, the outflows of Chinese investments abroad have substantially exceeded the inflows of FDI into China.

Geopolitical arbitrage and market access

Chinese companies entered 2023 faced with a challenging local and global outlook. Confronted by overcapacity across several sectors at home,Chinese multinationals have increasingly started to deploy their amassed capital abroad, spurred by a government push to expand internationally and the easing of pandemic restrictions. 

“Chinese enterprises have entered a new phase of global expansion, with China’s technology and brands accelerating expanding their presence overseas and delving into fresh growth opportunities,” says Loletta Chow, global leader of EY China Overseas Investment Network. 

This transition is further influenced by China’s apparent strategy of geopolitical arbitrage, which aims to leverage investments in allied countries to navigate global trade patterns and secure sustainable value chains.

Data from fDi Markets indicates a large chunk of outbound greenfield FDI from China in 2023 was spread across multiple manufacturing destinations. Saudi Arabia was the largest recipient of Chinese FDI in 2023, with a 10% share capital investment. In Asia, 8.4% of outflows were directed towards Malaysia, 7.5% in Vietnam, 5.2% in Kazakhstan and 5% in Indonesia. In Africa, Morocco and Egypt attracted 6% and 5.1% respectively. In Latin America, China invested 4.8% of its global outflows in Argentina and 3.7% in Mexico. Meanwhile in Europe, Serbia was the main beneficiary with a 4% market share of outward China FDI.

The global spread of Chinese investment across a selection of regions and countries may indicate a strategy of geopolitical arbitrage to leverage trade diversion, where trade is diverted from a more efficient exporter towards a less efficient one to allow Chinese MNEs to circumvent tariffs and sanctions. With government support from Beijing, some Chinese firms are looking to foreign markets, making strategic crossborder investments in critical minerals, energy transition technologies and electric vehicles (EVs).

Chinese FDI in Mexico has been on an upward trajectory in recent years, seeing a 57% increase from 2022 to a record $6bn in 2023. This aligns with Mexico overtaking China as the leading source of goods imported by the US last year — the first time that it has happened in more than two decades. 

Beiqi Foton Motor, a China-based automobile manufacturer, is one such company seeking to leverage Mexico’s strategic position in the North American market. The company has earmarked a $1bn investment for a new EV manufacturing facility in the country, with potential sites being considered in the states of Jalisco and Aguascalientes.

Vietnam also saw record levels of Chinese FDI in 2023, and stands out for its trade relationship with both the US and the EU. A $400m announcement by photovoltaic (PV) module supplier Trina Solar, which plans to open a third manufacturing plant in the province of Thai Nguyen, is one of the most noteworthy in Vietnam. According to Reuters, the plant will support the company’s efforts to increase its exports to the US while at the same time circumventing tariffs.  

Roger Luo, director of Alibaba in Asia-Pacific, said that the company announced plans to launch teams across Vietnam’s emerging manufacturing centres because “compared to China, Vietnamese-made goods have an advantage … the US–China trade war has a big influence on Chinese goods, while Vietnamese goods are not affected”, the Vietnamese press reported him as saying in July. 

In 2023, outward greenfield FDI from China in the metals and minerals sectors reached $37.8bn, representing the largest combined total of any year on record and more than twice the previous largest total tracked in 2018, data from fDi Markets shows. It is significant that China has stepped up its commitment to securing vital resources, given its strategic position in the global supply chain for essential metals and minerals and the importance of these sectors to the development of technologies behind EVs, PVs, wind energy technologies and energy storage. 

Chinese outbound greenfield FDI in the electronic components, renewable energy, automotive original equipment manufacturers and chemicals sectors also peaked last year, worth a combined $78.3bn. This aligns with China’s broader strategy to leverage natural resources and energy transition technologies for economic growth and international influence.

China’s growing global presence

While companies operating in these sectors make up the vast majority of outbound Chinese FDI capital investment, online Chinese brands such as Alibaba, TikTok, and JD.com are also going global to tap into new markets and audiences. 

Bytedance, TikTok’s parent company, was the fifth-most active Chinese investor last year, announcing nine FDI projects. Among them were the announcement of new offices in Argentina, Colombia, Denmark and Kenya; a research and development centre in Sydney Australia; and a $1.3bn pledge to build three new data hubs in the EU to comply with EU data transfer laws. The digital platform’s international expansion is another indicator of China’s ambition to assert its influence on the global economic landscape. 

As China’s outbound China FDI enters a new cycle, the far-reaching effects on foreign countries, governments, and economies are becoming clearer. The country’s transition from net inflows to a surge in outflows of capital marks a pivotal moment in China’s economic history which will impact global trade, diplomacy and economic development strategies. On one hand, Chinese MNEs are making strategic investments in allied countries and resource-focused sectors, as a means of not only circumventing trade barriers but also securing resources crucial for manufacturing and technological advancements. On the other hand, the international expansion of Chinese digital brands represents a softer, more cultural and technological approach to growing China’s international influence.

The article first appeared in 'The FDI Report 2024'. You can download the full report at this link.  

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