What Might China’s Changing Investment Patterns Mean?

Commentary

Outward-bound investing by Chinese enterprises—private, state-owned enterprises, and the state itself—has fallen off precipitously. To be sure, the data from Chinese sources are pretty sketchy, making any conclusions drawn from them tentative at best.

Nonetheless, the available information yields three conclusions. First, Beijing needs to utilize domestic resources that were previously sent overseas to counter the effects of the property crisis and its associated economic and financial problems. Second, the Belt and Road Initiative, which formerly drew huge amounts from Beijing and state-owned enterprises, has run into problems that have raised some caution among the Chinese authorities. Third, and most speculative, these trends have overwhelmed a countertrend as private investors in China seek ways to get assets out of the country.

Even before considering their meaning, the gross figures on outbound investment are striking. According to the China Global Investment Tracker compiled by Derek Scissors of the American Enterprise Institute, Chinese investments—from private sources, state-owned enterprises, and Beijing—peaked in 2017 at the equivalent of $175.1 billion. Following that high, the flow of money overseas shrank in the next two years by some 45 percent. The flow understandably fell again in the pandemic year of 2020 and bounced up some 16 percent in the recovery year 2021.

Perhaps that jump reflected an effort to find opportunities while China’s economy was suffering from Beijing’s zero-COVID lockdowns and quarantines. But the overseas money flow resumed its decline in 2022 and has continued on that path through to the first half of this year, when the outflow of investment monies averaged the equivalent of approximately $44 billion, some 75 percent lower than the peak of 2017.

To be sure, the CGIT figures differ somewhat from the figures offered by Beijing’s Ministry of Commerce, but both nonetheless show the decline in outward-bound investment. And if uncertainties brought on by U.S. President Donald Trump’s tariff impositions and threats exaggerate the extent of decline in 2025, there is no mistaking the downtrend, especially compared to the tremendous growth in such flows before 2017.

Although there is no bright line connecting these ebbing investment flows with China’s more general economic and financial troubles, it is surely hard to deny any connection. Certainly, the collapse of several major property developers and subsequent mortgage failures have starved Chinese finance—private and state-owned—for funds, including the wherewithal to invest overseas.

The subsequent shortfall in Chinese economic activity could only have stemmed from the availability of such funds. The ebbing flows offer a clear sign, indeed, of just how severe China’s economic and financial challenges are, enough to overwhelm the impulse to move money overseas implicit in the declining confidence among Chinese households and private businesses.

The decline in overseas investments would also seem to reflect Beijing’s need for funds to stimulate domestic economic activity. Notably, the communist regime’s efforts in 2023 and 2024 to significantly expand China’s technology sector must have diverted billions away from Beijing’s ambition to use overseas investments to enhance its global influence. Figures on this domestic demand for funds are spotty, but estimates range near the equivalent of $100 billion being dedicated to this technology buildup—$8 billion on artificial intelligence startups alone.

Meanwhile, Beijing’s once-vaunted Belt and Road Initiative (BRI) has met resistance from current and prospective partners, enough perhaps to slow the flow of funds from government and state-owned sources into this overseas initiative. You can read details on these matters here.

In 2023 and 2024, Chinese leader Xi Jinping tried to overcome such resistance by allocating more funds to the BRI, especially loans to recipient countries. Still, the continued decline in overseas flows indicates that this effort, too, may well have petered out.

Although these investment flows—or rather the relative lack of them—can say nothing definite about the severity of China’s domestic economic troubles or resistance to the BRI, they do nonetheless verify other signs of economic and financial trouble chronicled frequently in this column. If nothing else, they serve as a reminder of these severe troubles and consequently bear watching.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.