Report

China’s Global Activity: Building Grabs the Spotlight from Owning

By Derek Scissors

American Enterprise Institute

July 22, 2024

Key Points

  • China’s documented global investment shrank modestly in the first half of 2024. Auto and parts production led. However, the dollar value of construction activity surged year over year, topped by building power plants and refineries.
  • The Chinese Ministry of Commerce reports only good news for investment. Its post-COVID numbers are nearing the 2015–16 peak, which saw controversy around the world. There is no new controversy, suggesting investment is different now—likely stuck in offshore financial centers.
  • Chinese investment in the US was tiny in the first half of 2024. There are no equivalent figures for American investment in China and no sense of how much money supported Chinese technology or supply chains. Without this knowledge, the US cannot properly compete.

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Introduction

On one view, China’s post-pandemic global investment and construction are developing exactly as expected. Investment surged in early 2023, from low levels, after “zero COVID” policies were rescinded. Then investment flattened in what may be the new normal. Construction did not immediately respond to zero COVID’s end because building requires more time to be confirmed. In the first half of 2024, construction volume jumped. It remains to be seen whether construction follows investment in stalling or investment moves higher. Even if it does not, the China Global Investment Tracker (CGIT) shows accumulated investment around the world is approaching $1.5 trillion, while documented construction approaches $1 trillion.

Another view is quite odd. China’s Ministry of Commerce (MOFCOM) insists COVID-19 and zero-COVID policies boosted outbound investment, with a 20 percent increase in annual spending from 2019 to 2022.1 This is especially hard to believe since the ministry claims the majority was sent to just Hong Kong and offshore havens like the British Virgin Islands. The most transparent of the true national recipients, such as Australia, distantly trailed and show historically weak inbound Chinese investment, with the US reporting a fall in stock each year in 2020–23.2

The easy conclusion is China’s official data do not represent what they did before the pandemic. It’s hard to be sure, because MOFCOM does not present individual transactions. The CGIT does, using corporate disclosures. The CGIT is the most complete public record of China’s investment and construction overseas, with close to 4,500 transactions from 2005 through June 2024.3 Through 2019, it roughly matched MOFCOM’s annual totals, making the divergence point the ministry’s remarkable view of the pandemic.

The CGIT excludes transactions smaller than $95 million, hence missing more if average size falls. It thus understates the People’s Republic of China’s (PRC) activity when smaller deals predominate. But large deals should be especially visible in corporate statements, and starting in 2020, they are not. Unlike MOFCOM, the CGIT documents a sharp drop in investment in 2020 and only a limited recovery. CGIT results better match those published by PRC partners.

In late 2022, zero COVID ended, yet MOFCOM showed no immediate gain. The CGIT’s 2023 spending spiked 44 percent. Indonesia edged Hungary among recipients, and energy edged transport among targeted sectors,4 as the electric-vehicle supply chain moved outward in response to rich countries contemplating tariffs. Rich countries are more hostile to the PRC’s industrial policies, encouraging its production to move overseas.

For the first half of 2024, the CGIT is again something of an auto show: Transport was the top sector for investment, while Britain led a balanced group of partners, thanks to the new Geely-Renault power train venture. Autos are the obvious candidate for ongoing investment highlights, since China has many companies looking for willing countries to host their factories.

Investment brings ownership and an indefinite presence in the host country, which is often confused with construction of power plants, ports, and the like. The PRC’s international building and associated lending neither ensure ownership nor last indefinitely. The average construction deal is smaller than what is recorded for investment, but the CGIT documents about the same number of transactions of each type since 2005 (despite missing early construction).

COVID-related restrictions hit construction as well as investment. In 2023, construction did not show the burst investment initially did; 2024 has seen large projects return, at least tentatively. Saudi Arabia can pay for large projects and led in construction, with energy unsurprisingly the dominant sector. Because construction transactions take longer to verify, the 2024 burst could turn out to be even more striking, if debt and political worries can be overcome.

The Belt and Road Initiative (BRI) is primarily construction, even though huge numbers are floated as investment. Official statistics have typically included 60-odd countries, yet more than 150 are listed at the government portal.5 The CGIT uses the latter to see the BRI’s maximum extent and finds $620 billion built and $410 billion invested since the initiative’s inception, in late 2013. This broad version of the BRI could become increasingly important if nonmembers remain suspicious of China’s investment. The BRI dominates China’s global construction.

One suspicious country outside the BRI is the US. Excluding bonds, the CGIT shows the PRC’s COVID-era investment in the US (2020 through the first half of 2024) is short of $11 billion, after exceeding that total each year from 2013 through 2017. China is not buying much of anything, including land. Since 2017, changes in the amount of money headed from the US to the PRC have been more important.6

In theory, the US controls technology exports. It reviews the foreign acquisition of domestic technology.7 Yet investment supporting competitiveness or technology in the PRC is untouched. At the end of 2022—the latest year for which there are data available—American portfolio investment in China totaled $910 billion,8 with no assessment of supply-chain or technological effects, because decision makers choose not to know. From China’s BRI to America’s outbound investment, good policy requires good information.

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Notes

  1. Chinese Ministry of Commerce, National Bureau of Statistics, and State Administration of Foreign Exchange, “2022 Statistical Bulletin of China’s Outward Foreign Direct Investment,” September 2023.
  2. US Bureau of Economic Analysis, “Foreign Direct Investment in the U.S.: Balance of Payments and Direct Investment Position Data,” June 24, 2024, https://www.bea.gov/international/di1fdibal; Agatha Kratz et al., Dwindling Investments Become More Concentrated—Chinese FDI in Europe: 2023 Update, Rhodium Group and Mercator Institute for China Studies, June 6, 2024,
    https://www.merics.org/en/report/dwindling-investments-become-more-concentrated-chinese-fdi-europe-2023-update; KPMG and University of Sydney, Demystifying Chinese Investment in Australia, April 2024, https://kpmg.com/au/en/home/insights/2023/12/demystifying-chinese-investment-in-australia.html; and Global SWF, 2024 Annual Report: State-Owned Investors Powering Through Crises, January 1, 2024, https://globalswf.com/reports/2024annual.
  3. American Enterprise Institute and Heritage Foundation, China Global Investment Tracker, July 2024, https://www.aei.org/china-global-investment-tracker.
  4. China Global Investment Tracker (CGIT) regions and sectors were identified in 2009 using transaction patterns at that time. Work by others using these regions and sectors is derivative.
  5. Chinese Belt and Road Portal, “Guobie” [Countries], https://www.yidaiyilu.gov.cn/country.
  6. Derek Scissors, “Funding Your Opponent’s Technology Is Not Competing,” testimony before the US-China Economic and Security Review Commission, May 23, 2024, https://www.uscc.gov/sites/default/files/2024-05/Derek_Scissors_Testimony.pdf.
  7. US Department of the Treasury, “The Committee on Foreign Investment in the United States (CFIUS),” https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius. The US Department of Commerce has refused to properly implement export controls for the sake of protecting technology sales. See US Department of Commerce, Bureau of Industry and Security, “Commerce Control List: Controls on Certain Marine Toxins,” Federal Register
    87, no. 99 (May 23, 2022): 31195–203, https://www.federalregister.gov/documents/2022/05/23/2022-10907/commerce-controllist-controls-on-certain-marine-toxins.
  8. Carol C. Bertaut, Beau Bressler, and Stephanie Curcuru, “Globalization and the Geography of Capital Flows,” Federal Reserve, Board of Governors, December 15, 2023, https://www.federalreserve.gov/econres/notes/feds-notes/globalizationand-the-geography-of-capital-flows-20190906.html.
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