China’s outbound investment reshaping the global economy

As economists obsess over plunging foreign direct investment into China, they risk missing a far more important trend: the giant waves of capital zooming in the other direction.

In 2023 alone, Chinese outward direct investment in the Asia-Pacific region surged 37% to nearly US$20 billion. That outflow speaks to how Chinese companies seeking growth abroad are altering financial dynamics from Asia to the West to Latin America.

And how China Inc’s investment ambitions are only just beginning to remake the global pecking order, despite Washington’s attempts to curb its influence.

“China’s ODI has risen substantially since the turn of the millennium,” says Frederic Neumann, chief Asia economist at HSBC. “Only starting to venture out into the international investment landscape in the mid-2000s, China was, in a sense, ‘late to the game.’ However, after rapid increases in the first half of the 2010s, China’s stock of ODI now surpasses that of Japan, Germany and the UK.”

And there’s still room for exponential growth. As of the end of 2023, Neumann notes, the overall stock of Chinese outward investment was just one-third that of the US, and still small relative to the size of China’s economy. At 15.7% of gross domestic product (GDP), Neumann says, “it’s well below” that of the major developed economies and the global average of 34%.

The reason, Neumann explains, is that Chinese firms have strong incentives to “go out” to explore global markets, including the so-called “Global South” developing markets. As China develops, its funding of ODI will be an increasingly vital channel to gain access to resources, markets and trade routes.

The dynamic marks an about-face from earlier policies de-emphasizing ODI in 2016 and 2017 and during