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China’s Global Investment: Neither the US nor Belt and Road

By Derek Scissors, American Enterprise Institute

Key Points

  • China is investing much less in the US than it did just a year ago. It has never invested much in the Belt and Road. Yet China’s global investment spending remains healthy, with impressive diversification across countries and the reemergence of private firms.
  • Construction and engineering is considerable but unlikely to expand much, as the projects drain China’s foreign reserves. Construction in the Belt and Road alone is rising because the number of countries is rising, not because China is more active.
  • The US is about to change its investment review framework with new legislation. This is a step forward, but problems remain. The new framework appears complex while foreign investment thrives on certainty. The Committee on Foreign Investment in the United States must be properly resourced or reform will prove meaningless.

American headlines stress coming restrictions on Chinese activity in the US. Global headlines stress transformation wrought by the Belt and Road Initiative. Actual measurement shows China has not invested heavily in the US since early 2017 and never invested heavily in the Belt and Road (BRI).

Several large transactions have driven China’s 2018 outbound investment, featuring a $9 billion transport play in Germany, plus a series of health care acquisitions. The top five investment targets in 2018 to date sit on five different continents. China’s overseas spending habits are more diverse than many observers believe.

The China Global Investment Tracker (CGIT) from the American Enterprise Institute is the only fully public record of China’s outbound investment and construction. Rather than presenting only totals or a map, all 3,000 transactions are profiled in a public data set. The CGIT estimates the number of investments in the first half of 2018 dropped 15 percent from the first half of 2017. Based on the number of transactions and total amount spent, the first half of 2018 strongly resembles the first half of 2015, before the pace of capital exit first soared and then was curbed by Beijing.

There are encouraging signs. Transport, energy, and metals investment led in the first half but, contrary to Beijing’s insistence, entertainment and real estate are not dead. Perhaps the single best development is private Chinese firms are spending again this year. While the raw quantity is lower, the private share of investment is back to its 2016 level. If 2018 continues to follow the pattern of 2015, total investment volume will be in the $115-$130 billion range for the year. Another $1 trillion globally could be added by the end of 2024.

Investment by the People’s Republic of China (PRC) is often conflated with construction of rail lines, power plants, and so forth. Construction does not involve ownership, as investment does. Since 2005, there are more construction contracts worth $100 million or more than investments, though the average construction deal is smaller. In the first half of 2018, the PRC initiated at least one large construction contract in over 40 countries, chiefly in energy and transport.

Chinese engineering and construction is the core of the BRI. Using the latest, 76-member version of the BRI for the largest possible size, the BRI accounts for over 60 percent of Chinese overseas construction since its inauguration in the fall of 2013, with that pace holding in 2017-18. On this tally, in not quite five years, BRI construction has been worth more than $250 billion. In contrast, the current set of BRI countries accounts for less than 25 percent of the PRC’s outbound investment over the period, a bit more than $150 billion total.

BRI investment weakness is especially troubling for Beijing because the preferred location for Chinese companies is closing off. The PRC’s investment in the US exceeded $50 billion in 2016, fell by more than half in 2017, and was only $4.5 billion in the first half of 2018. Congress has been crafting legislation to tighten oversight of Chinese ventures since the 2016 surge, but there is less and less to oversee. Chinese enterprises exist at the sufferance of the Communist Party and must be treated accordingly. The American goal should be to do so yet still offer clear, stable policies to welcome investment when national security is not involved….

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