(Bloomberg) -- China’s overseas investment hit a record high as its companies look to build more factories abroad, potentially helping to ease criticism of Beijing’s export policies.
Chinese firms increased their overseas assets by about $71 billion in the second quarter, according to revised data from the State Administration of Foreign Exchange on Monday. That’s an increase of more than 80% from a year ago and the highest level since records began in 1998.
Leading the charge were companies in sectors where China is outpacing competitors, like electric vehicles and solar energy. These investments might help ease trade tensions by creating jobs and economic growth in foreign markets, rather than overwhelming them with exports that could hurt local producers.
But some economists have called those flows into question, with a new database compiled by Rhodium Group indicating that actual foreign investment has been much lower in recent years. SAFE’s data may be inflated by significant “phantom” capital driven by financial considerations, not real economy investment, said analysts led by Thilo Hanemann.
“More than two-thirds of official outbound investment flows were retained earnings, debt, and intra-company transfers,” the analysts wrote in a report this month.
Even so, there appears to be an upward trend in Chinese overseas investment in recent years, according to Rhodium. The data indicates a substantial recovery since 2022, although total investment remains well below the peak in 2016. Investors are increasingly focusing on greenfield projects rather than mergers and acquisitions, the analysts said.
Chinese outbound FDI has been shifting away from advanced economies toward Asia and emerging economies, according to the new database on Chinese investment projects from Rhodium. Vietnam, Malaysia, Indonesia and Singapore have all seen at least $1 billion in investments last year and in 2024, with Chinese firms investing in automotive, real estate, and metal and mineral assets.
Africa, Latin America, and the Middle East have also become more significant recipients of Chinese capital in the past five years, Rhodium said.
Meanwhile, foreign investors withdrew a record amount of money from China in the second quarter, with the revised data showing a deeper pullback amid pessimism about the world’s second-largest economy.
China’s direct investment liabilities in its balance of payments dropped almost $15 billion in the April-June period, data from SAFE showed. That was only the second time this figure has turned negative, and it was down about $4.7 billion for the first six months.
“China is increasingly seen as too risky a location for new FDI investors given the potential to fall foul of tariffs, investment restrictions, and other US sanctions,” Adam Slater at Oxford Economics said in a report Monday. “The evaporation of FDI into sensitive sectors like semiconductors also points to a strong impact from US policy initiatives aimed at China.”
If the decline continues through the year, it would be the first annual net outflow since at least 1990. China announced a stimulus package last week offering more funding and interest rate cuts. While that has boosted stocks — with the CSI 300 Index entering a bull market — it’s uncertain if foreign investors will come flocking back. Third-quarter data is due in early November.
(Updates with comment from Oxford Economics in penultimate paragraph.)
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