According to a report from The Wall Street Journal, China is shifting its investment focus towards emerging markets as a response to growing hostility from the West, particularly led by the United States. Chinese companies are increasing their investments in mining and energy projects in regions such as South Asia, the Middle East, South America, and Africa, with an emphasis on sectors like renewable energy and electric vehicles.
The largest recipient of Chinese investment in recent times has been Indonesia, known for its abundant nickel resources, which has received 17% of the total investment. This strategic move by the world’s second-largest economy reflects a desire to expand its presence in resource-rich markets.
However, despite its shift towards emerging markets, China’s overall direct overseas investment saw an 18% decline to approximately $147 billion in 2022 compared to the previous year, as per UN data. Analysts predict that China’s overseas investment will not increase significantly in the coming years due to rising geopolitical tensions with the US and the country’s push for economic self-sufficiency.
Prior to 2016, China actively encouraged its businesses to invest in advanced economies within the Group of Seven (G7) to enhance Beijing’s influence in international markets. In 2016 alone, Chinese companies, including state-owned enterprises, made 120 investments worth $84 billion in G7 countries, with 63 investments going to the United States, according to data from the American Enterprise Institute (AEI) database.
However, the scenario has changed dramatically since then. Last year, China’s capital inflows in G7 economies plummeted to just $7.4 billion. Furthermore, the country’s direct investments in European Union (EU) countries hit a decade-low in 2022, totaling $8.8 billion, as revealed by a report from Rhodium Group and Mercator Institute for China Studies.
The decline in investment in advanced economies has been accompanied by an increase in capital flows towards emerging markets in Asia, South America, and the Middle East. These regions collectively received a capital inflow of $24 billion from China in 2022, marking a 13% increase from the previous year, according to the AEI database.
The researchers at Rhodium Group and Mercator Institute for China Studies wrote that given China’s fragile economic situation and geopolitical pressure, a rebound to the investment levels witnessed in the mid-2010s is unlikely.
The realignment of China’s investment strategy reflects the country’s efforts to navigate the changing dynamics of global economic relations. By redirecting its capital flows to emerging markets, China aims to reduce its dependence on Western economies and enhance its presence in regions with abundant natural resources. Nonetheless, the decline in overall overseas investment signifies a changing landscape driven by geopolitical tensions and China’s pursuit of self-sufficiency.