Report

Lockdowns at Home Paralyze China’s Global Investment

By Derek Scissors

American Enterprise Institute

July 14, 2022

Key Points

  • The Chinese government continues to say its outbound investment and construction are remarkably smooth despite COVID-19. Disclosures by Chinese firms unsurprisingly indicate otherwise—that lockdowns extended the pandemic-driven slump through the first half of 2022.
  • Certain commodities are partial exceptions. Oil and gas valuations have been driven up by high global prices. Chinese firms are chasing lithium and related opportunities in battery production. The potential for higher spending post-pandemic remains.
  • The US was previously concerned about Chinese acquisitions of American technology firms. This has all but stopped, but American investors are supporting technology development in China. The US has failed to take basic steps, such as finding out exactly where money is going.

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From 2005 through 2019, the China Global Investment Tracker fit official Chinese figures for outbound investment while providing information on individual transactions that the government does not. COVID-19, however, created a large gap between the tracker and official figures. The tracker relies on disclosures by participating firms. These have been spottier during the pandemic and can no longer be reconciled with government claims. Since early 2020, China’s verifiable outbound investment has been $100 billion below what it reports annually.

The China Global Investment Tracker (CGIT) from the American Enterprise Institute and Heritage Foundation is the most complete public record of China’s investment and construction worldwide, with 4,200 transactions from 2005 through the middle of 2022.1 The CGIT offers superior information to the government on firms, sectors, and countries. Before COVID-19, the CGIT could not document perhaps a handful of large transactions annually. Two problems have since emerged: Firms may be less transparent, and the average transaction size has definitely fallen. The CGIT excludes transactions below $95 million and misses more deals when the average size falls.

Official numbers are in worse shape. In 2020, China then the world faced the pandemic. Nevertheless, the Ministry of Commerce (MOFCOM) insisted outbound investment rose 12 percent from $137 billion in 2019.2 No independent source was close to this result.3

For 2021, MOFCOM reported a small spending gain,4 with the 2020 base making the total absurdly high. Other sources, with faster 2021 increases than MOFCOM indicates, still show a steep volume drop from 2019. The large bulk of official 2021 investment is outside the Belt and Road Initiative (BRI) in richer, more transparent countries and should be visible. Yet the CGIT can document 2021 spending of just $49 billion, a 17 percent annual gain.

In 2022, investment started well in January and February, but the Shanghai lockdown then crushed activity for several months. For the first half of 2022, investment dropped almost 30 percent compared to the first half of 2021, below $16 billion. The leading recipient was Saudi Arabia, and the leading sector was energy. The private share fell moderately. Lockdowns permitting, spending should accelerate sharply in the second half of the year.

Investment involves ownership and an indefinite presence in a host country. It is often conflated with construction of railways, ports, and the like. The People’s Republic of China’s (PRC) construction and associated lending are not indefinite and do not imply ownership. The average construction deal is smaller than the average investment, but the CGIT records about as many construction as investment transactions since 2005, despite missing early construction activity due to poor documentation.

As expected given work suspensions, construction activity plunged in 2020. It recovered somewhat in 2021—a 25 percent rise past $51 billion. In the first half of 2022, construction picked up mildly from the same period of 2021, which is more impressive than it seems because confirming construction can take months. The top sector was transport, and countries ranging from Algeria to the Philippines saw the start of large projects.

It’s construction where the BRI stands out. While official statistics typically count about 60 countries as part of the BRI, 149 appear at the government portal.5 Using the latter, to see the BRI’s maximum possible extent, the CGIT documents $530 billion in construction since the BRI’s inception. This is well over 90 percent of China’s total construction since the BRI was implemented. On investment, both CGIT and official tallies show the BRI outperforming recently, though from a small base.6

In 2016–17, Chinese investment in 149 BRI countries was comparable to that in the US alone. Now fresh investment in the US barely touches $1 billion annually. Recent political fuss about Beijing buying American land is outdated.

Instead, much more money has been going from the US to the PRC. The Committee on Foreign Investment in the United States protects American technology from Chinese acquisition, and exports are not supposed to assist Chinese technology development.7 Incredibly, American investment supporting technology development in the PRC is unrestricted. The Department of the Treasury will not even publish corresponding figures. In 2017–20, US portfolio investment in China rose nearly $800 billion, an unknown portion in technology.8 Until this is addressed, no claim about competing with China can be taken seriously.

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Notes

  1. American Enterprise Institute and Heritage Foundation, China Global Investment Tracker, July 2022, https://www.aei.org/china-global-investment-tracker.
  2. Xinhua, “China Ranks First Globally in ODI in 2020: Report,” September 29, 2021, http://www.news.cn/english/2021-09/29/c_1310217290.htm.
  3. See KPMG and University of Sydney, Demystifying Chinese Investment in Australia, April 2022, https://assets.kpmg/content/dam/kpmg/au/pdf/2022/demystifying-chinese-investment-in-Australia-2021.pdf; Agatha Kratz et al., “Chinese FDI in Europe: 2021 Update,” Rhodium Group, April 27, 2022, https://rhg.com/research/chinese-fdi-in-europe-2021-update; US Department of Commerce, Bureau of Economic Analysis, “Foreign Direct Investment in the U.S.: Balance of Payments and Direct Investment Position Data,” June 28, 2022, https://www.bea.gov/international/di1fdibal; and Aaron Back and Telis Demos, “American Banks Have What They Want in China,” Wall Street Journal, October 29, 2021, https://www.wsj.com/articles/american-banks-have-what-they-want-in-china-their-fate-is-still-out-of-their-hands-11635499841. Indirect measurements include Ovyintarelado (Tarela) Moses and Jyhjong Hwang, “How Chinese Loans to Africa Changed During the COVID-19 Pandemic,” Boston University Global Development Policy Center, https://www.bu.edu/gdp/2022/04/25/how-chinese-loans-to-africa-changed-during-the-covid-19-pandemic; and Global SWF, 2022 Annual Report: State-Owned Investor 3.0, January 1, 2022, https://global-swf.s3.amazonaws.com/file-uploads/6YUoFPQCGwLLy7qSHB2C2wxmYutIsggFxYUvLSNd.pdf.
  4. Xinhua, “China’s Outbound Direct Investment Tops 930b Yuan in 2021,” January 20, 2022, https://english.www.gov.cn/archive/statistics/202201/20/content_WS61e9408fc6d09c94e48a4006.html.
  5. People’s Republic of China, “Yi tong Zhongguo qianding gongjian ‘Yidaiyilu’ hezuo wenjian de guojia yilan” [List of Countries That Have Signed the “Belt and Road” Cooperation Documents with China], February 7, 2022, https://www.yidaiyilu.gov.cn/xwzx/roll/77298.htm.
  6. Xinhua, “China’s Non-Financial Outbound Direct Investment up 2.3 Pct in January–May,” June 23, 2022, https://english.news.cn/20220623/4e3931e9a4d94dbba8d04fd503ebce13/c.html.
  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. For four years the Department of Commerce has refused to properly implement export controls and lied about the reason, which is to protect existing technology sales to China. For the latest bit, 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-control-list-controls-on-certain-marine-toxins.
  8. US Department of Treasury, “Securities (C): Annual Cross-U.S. Border Portfolio Holdings,” https://home.treasury.gov/data/treasury-international-capital-tic-system-home-page/tic-forms-instructions/securities-c-annual-cross-us-border-portfolio-holdings.