China's Emerging Role As a Global Source of FDI

Abstract

China’s position as the world’s second largest recipient of foreign direct investment (FDI) has been well documented. However, it is less well known that China has recently become an important supplier of global FDI. This briefing describes what is known about the magnitude and composition of China’s outward foreign direct investment (OFDI). Official data show that China’s OFDI is large (relative to that of most countries), growing, and is mostly comprised of investments directed towards the financial sectors of Hong Kong, the Cayman Islands, the British Virgin Islands, and Luxembourg. Since much of China’s OFDI is eventually redirected back to China and other markets, it is difficult to isolate the magnitude and composition of its true outbound investment. Firm-level data provide clearer insight. That data suggests that Chinese OFDI may be higher than what has been reported, and that its investments have mostly been directed towards the building of new facilities in primary commodity sectors (e.g.,oil,coal, metals) in Asia, Latin America & the Caribbean, and Africa. The findings are relevant to the United States, since China’s OFDI – most of which is conducted by state-owned enterprises– is likely to add competitive pressure to U.S.-based multinational firms operating in similar markets.

Keywords: China, economy, OFDI, FDI, foreign direct investment

JEL Classification: E00, F00