Chinese outbound foreign direct investment (FDI) has climbed to record levels, as companies make greenfield investments to gain entry to new markets.

Between January and August this year, Chinese outbound greenfield FDI has reached an estimated capital expenditure of $110bn, according to fDi Markets — already the highest amount tracked of any year on record. 

“Chinese outbound FDI has entered a new phase,” says Luisa Kinzius, director at Sinolytics, a European research-based consultancy focused on China. 

Shift to greenfield

Whereas there used to be more Chinese companies gaining access to new markets through mergers and acquisitions (M&A) during the 2010s, she explains, there has since been “a shift to greenfield” investments — notably, in sectors where Chinese companies are leading in terms of innovation, such as electric vehicles (EVs) and renewable energy. 

Chinese cross-border M&A transactions, which swelled from $54.4bn in 2010 to $200.6bn in 2016, have been dwindling in recent years, and sank to $17.3bn in 2022, according to Refinitiv data. 

According to Sinolytics, Chinese greenfield investments in Europe were larger than M&A investments for the first time in 2022.

The decision to invest overseas is due to overcapacity and slowing economic growth in China and the push to “going global” from the government, Ms Kinzius says. “The greenfield expansion is not about technology transfer, but about new markets.”

The Chinese government’s ‘Made in China 2025’ initiative — a state-led industrial policy announced in 2015 — aims to not only reduce China’s reliance on technological imports, but also make China’s manufacturing capabilities competitive on the global market.

Over recent years, the US, UK and EU have modified their respective FDI screening regimes in a bid to safeguard critical industries, which has made Chinese firms cautious about M&A activity. Though FDI screening laws do not cite countries by name, it is an open secret that China has been the focus.

Last year, the German government banned the sale of two German chip companies to Chinese investors. “The German government is aware of its dependency on China and does not want to leave itself vulnerable,” Daniel Wiedmann, head of the antitrust department at law firm Poellath, told fDi.

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Lower risk entry

Jocelyn Chow, partner at law firm Eversheds Sutherland in Hong Kong, says that the FDI controls introduced by Western governments have meant that Chinese firms are more wary of acquiring companies in Europe or the US.

“Nowadays, for many Chinese firms, greenfield investments are seen as lower risk as a way of gaining entry to a market,” she says. 

As an example, a Chinese firm may decide to set up a battery plant in Europe so that it can produce the products in Europe, she continues, and export the products from Europe, which may ultimately be treated as European products.

“In this way, the products won’t be subject to the same trade controls that they may be subject to if produced in China,” she says. “A lot of [these new investments] are actually driven by revenue generation, shaped by trade controls.” 

So far this year, the biggest Chinese outbound project tracked by fDi Markets has been Zhejiang Huayou Cobalt’s Dh200bn ($19.3bn) factory in Morocco to produce EV battery components, announced in August. This is a joint venture with South Korean LG Chem.

According to fDi Markets, the global spread of Chinese outbound FDI so far this year stands at: 34.3% in Asia-Pacific, 36.1% in Africa, 8.7% in Europe, 4.6% in Latin America and the Caribbean, 1.4% in North America and 14.9% in the Middle East.