China's Foreign Investment Trends Toward Diversification

The Central Business District project in Egypt's new administrative capital, undertaken by a Chinese enterprise, is a key cooperation project in the China-Egypt joint construction of the "Belt and Road" initiative. The photo shows the Central Business District of Egypt's new administrative capital.

Building R&D centers in Europe, selling milk tea in the Middle East, repairing railways in Africa, and constructing bridges in South America... China's foreign investment has seen a continuous expansion in scale and optimization in structure in recent years.

Recently, the Ministry of Commerce, the National Bureau of Statistics, and the State Administration of Foreign Exchange jointly released the "2023 Statistical Bulletin on China's Outward Direct Investment" (hereinafter referred to as the "Bulletin"), which shows that at present, China's foreign investment is developing steadily and healthily, showing a trend of diversification in investment fields. Overseas enterprises cover more than 80% of countries and regions worldwide, covering 18 industry categories of the national economy.

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Both investment flow and stock rank in the top three globally

Zhang Li, Director of the Department of Outward Investment and Economic Cooperation of the Ministry of Commerce, introduced that this year marks the 10th anniversary of the implementation of the current "Administrative Measures for Outward Investment" by the Ministry of Commerce. Over the past 10 years, China's foreign investment management service system has been further improved, the total scale of foreign investment has ranked in the top three in the world, the country and industry structure has been continuously optimized, and the quality and benefits have continued to improve.

Looking at the total scale of foreign investment—

In 2023, China's outward direct investment flow was $177.29 billion, a year-on-year increase of 8.7%, accounting for 11.4% of the global share, an increase of 0.5 percentage points over the previous year, and has been in the top three globally for 12 consecutive years. At the end of 2023, China's outward direct investment stock was $2.96 trillion, ranking in the top three globally for 7 consecutive years.

"In 2023, against the backdrop of a 2% decline in global foreign direct investment (FDI) and the lowest scale of cross-border mergers and acquisitions in the past 10 years, China's outward direct investment increased by 8.7%, achieving steady and healthy development," said Zhang Li.

Looking at the establishment of overseas enterprises—

Overseas enterprises cover more than 80% of countries and regions worldwide. As of the end of 2023, Chinese domestic investors have established 48,000 overseas enterprises in 189 countries and regions worldwide. In 2023, most overseas enterprises were profitable or broke even.Among them, the number of overseas enterprises established in Asia exceeds 29,000, accounting for 60.8%; the number of overseas enterprises established in North America exceeds 5,700, accounting for 11.8%, mainly distributed in the United States and Canada; 17,000 overseas enterprises are established in countries participating in the joint construction of the "Belt and Road" initiative.

Looking at the distribution of local enterprises -

At the end of 2023, the stock of local enterprises' non-financial direct investment abroad reached 1009.98 billion US dollars, accounting for 38.4% of the national non-financial stock. Among them: the eastern region accounted for 82.7% of the local enterprises' non-financial direct investment stock abroad, the central region accounted for 7.9%, the western region accounted for 7.6%, and the three northeastern provinces accounted for 1.8%.

Specifically, Guangdong Province topped the list of local direct investment abroad with 195.05 billion US dollars; among the 5 single-plan cities, Shenzhen topped the list with 111.61 billion US dollars, accounting for 57.2% of Guangdong Province's direct investment abroad.

Li Dawei, a researcher at the Institute of Foreign Economic Research of the China Macroeconomic Research Institute, said to the reporter that China's scale of direct investment abroad has been at the forefront of the world, mainly for the following reasons: on the one hand, the international operation ability of Chinese enterprises has significantly improved, and the effectiveness of allocating resources and developing markets at a high level globally has become increasingly significant, continuously expanding overseas markets and growing into world-class enterprises. On the other hand, "going global" is one of the important channels for the effective docking of international factor resources with the domestic market. Chinese enterprises have effectively promoted the mutual connection between international factor resources and the domestic market through the establishment of overseas R&D centers, vertical or horizontal mergers and acquisitions, and greenfield investment in deep processing bases, achieving mutual promotion.

Investment fields continue to diversify

What are the main areas of China's foreign investment?

The bulletin shows that the investment fields continue to diversify, with nearly 80% invested in four major fields.

In 2023, China's direct investment abroad covered 18 industrial categories of the national economy. Looking at the total amount, investment flowing into leasing and business services, wholesale and retail, manufacturing, and finance accounted for nearly 80% of the annual total. Looking at the growth rate, investment in the construction industry, information transmission/software and information technology services industry grew faster, with growth rates of 97.2% and 34.9%, respectively.

Leasing and business services stand out in China's foreign investment. Yu Bingbin, deputy director of the Trade and Foreign Economic Statistics Department of the National Bureau of Statistics, said: "At present, leasing and business services are the largest industries in China's foreign investment. From the composition, the leasing industry accounts for 1%, and the business service industry is the main field. The business service industry in China's foreign investment mainly involves investment management, overseas headquarters of enterprises, market management, supply chain management, and other fields. For example, mainland enterprises establish overseas companies in the Hong Kong region or Singapore as overseas headquarters, and carry out global investment and business management activities through overseas headquarters, which are classified as the business service industry field."The foreign investment in the wholesale and retail sector has seen rapid growth. According to the "Bulletin," in 2023, the foreign investment in the wholesale and retail sector reached $38.82 billion, an increase of 83.4% compared to the previous year, accounting for 21.9% of the total investment flow for that year. Among this, the reinvestment of new earnings for that year was $18.73 billion, which accounted for 48.2% of the investment flow in this field, with a growth of 125.1%.

Looking at the manufacturing industry, in 2023, the foreign investment in manufacturing was $27.34 billion, an increase of 0.7% compared to the previous year, accounting for 15.4% of the total investment flow for that year. The main investment directions included automobile manufacturing, other manufacturing, computer/communication and other electronic equipment manufacturing, general equipment manufacturing, non-ferrous metal smelting and processing, non-metallic mineral products, rubber and plastic products, pharmaceutical manufacturing, electrical machinery and equipment manufacturing, chemical raw materials and chemical products, metal products, and specialized equipment manufacturing.

The financial sector also performed well. In 2023, Chinese financial sector investors made direct investments of $17.42 billion in foreign financial enterprises, and Chinese non-financial sector investors directed $800 million towards foreign financial enterprises.

According to Jia Ning, Director of the Balance of Payments Department of the State Administration of Foreign Exchange, by the end of March 2024, the scale of China's financial institutions' foreign direct investment assets was $413.1 billion, accounting for a stable 14% of the total foreign direct investment. The investment areas covered China's main trade and investment partners, which is in line with the overall development of foreign investment. "The foreign direct investment of financial institutions not only directly serves domestic enterprises 'going global,' but also provides localized financial services for host country enterprises, and at the same time, serves as a bridge for host country enterprises to understand and enter the Chinese market," said Jia Ning.

Foreign direct investment is an important component of China's foreign assets. By the end of 2023, the scale of China's foreign assets was $9.6 trillion, with asset holders including official reserves as well as enterprises and financial institutions, and asset types including direct investment, securities investment, loans and trade financing, and other investments. By the end of 2023, China's foreign direct investment assets were $2.96 trillion, accounting for 31% of the total foreign assets.

The trend towards diversification is also reflected in the direction of foreign investment.

Investment in Asia has grown rapidly. The "Bulletin" shows that in 2023, nearly 80% of China's foreign direct investment flowed to Asia, an increase of 13.9% compared to the previous year, with investment in ASEAN reaching $25.12 billion, an increase of 34.7%.

Investment in Africa has become a new highlight. The "Bulletin" shows that in 2023, China's investment in Africa was $3.96 billion, an increase of 118.8% compared to the previous year. Li Dawei said that Africa and China's factor endowments are highly complementary. China's expansion of investment in Africa is not only beneficial for creating tax revenue and employment for African countries but also plays an important role in stabilizing China's supply of key mineral resources and expanding emerging markets.

Direct investment in countries participating in the "Belt and Road" initiative increased by 30%. In 2023, direct investment in countries participating in the "Belt and Road" initiative was $40.71 billion, an increase of 31.5% compared to the previous year, accounting for 23% of the foreign direct investment flow for that year.

Promoting local economic developmentIn Vang Vieng, Laos, the diverse stalactites, peculiar caves, and beautiful ancient legends captivate tourists from around the world. In the first half of this year, Vang Vieng welcomed 600,000 international visitors, with over 100,000 from China.

To help Vang Vieng attract more international tourists, China State Construction Engineering Corporation (CSCEC) undertook the construction of the Vang Vieng Cultural Tourism Economic Demonstration Zone project in Laos. The project covers an area of approximately 540,000 square meters and includes major constructions such as shopping centers, leisure and entertainment areas, and tropical rainforest viewing areas, along with surrounding landscape projects. The goal is to create a comprehensive cultural tourism complex that integrates "food, accommodation, transportation, sightseeing, and shopping." The project has already been inaugurated.

China's outward foreign direct investment (FDI) has demonstrated significant mutual benefits and win-win outcomes, with its role in boosting local economic development becoming increasingly prominent. For instance, in Egypt, Chinese companies have constructed the Central Business District project in the new administrative capital of Egypt, utilizing and promoting advanced management models and construction techniques, driving local employment, and promoting Egypt's industrial development. In Thailand, Chinese automotive companies have established an electric vehicle industry chain in Thailand, promoting the local automotive industry's transition to green and low-carbon.

From transportation and energy to electricity and housing, Chinese companies have implemented a batch of major landmark projects and numerous "small and beautiful" livelihood projects in "Belt and Road" countries, effectively promoting local economic and social development and improving people's livelihoods. In 2023, Chinese companies signed contracting engineering contracts worth $227.16 billion in "Belt and Road" countries, with a completed turnover of $132.05 billion, accounting for 85.9% and 82.1% of the total amount during the same period, respectively, with 70% being infrastructure projects.

In addition to contracting projects, Chinese companies have also cooperated with "Belt and Road" countries to build a number of overseas economic and trade cooperation zones. By the end of 2023, they had invested nearly $73 billion, creating 530,000 jobs locally.

Globally, China's outward FDI is increasingly contributing to the world economy. In 2023, outward investment drove China's import and export of goods to $273.1 billion, a growth of 6.4%, accounting for 4.6% of China's total import and export value during the same period. Overseas enterprises achieved sales revenue of $3.5 trillion, paid $75.3 billion in taxes to the host countries, and by the end of the year, the total number of employees in overseas enterprises was nearly 4.3 million, with 60% being local employees.

"The growth of our country's outward FDI not only reflects the positive results of domestic entities fully utilizing both domestic and international markets and resources but also provides strong support for the economic development of host countries, promoting the integration and sustainable development of global trade and investment," said Jia Ning.

According to recent revelations by the Ministry of Commerce, China has established more than 70 overseas investment cooperation working groups globally, fully leveraging the role of multilateral and bilateral economic and trade cooperation mechanisms and investment cooperation working groups. It strengthens communication and coordination with host countries, promotes the improvement of the investment environment in relevant countries, and creates a favorable external environment for enterprises to "go global."

Experts say that with increased policy support, the quality and benefits of China's outward FDI are expected to continue to improve, achieving high-quality development.