China’s role as a major source and destination of foreign direct investment (FDI) has dwindled in recent years. Chinese FDI flow numbers compiled by Unctad show declining inward and outward FDI as a percentage of gross capital formation from 2016 to 2020. 

This downward trend is partially explained by China’s dual circulation strategy, which was outlined in its 14th Five-Year Plan in 2021. This concept targets expanding domestic demand by relying on less heavy industries but more on emerging industries such as advanced manufacturing. The plan also highlighted innovation as the centre of China’s modernisation and digitisation agenda, enhancing scientific and technological capability, as well as rural transformation to close the urban–rural divide. 


This is a temporary tactical withdrawal by China, as it slowly transforms itself for the future economy by focusing domestically. But what does China’s changing investment landscape mean for FDI and economic development in the Asia-Pacific region? Concurrently in Asia, there are two China–Association of Southeast Asian Nations (Asean) developments.  

The first is the reducing outward FDI to China from Asean. Some Asean investors are already investing and diversifying elsewhere, such as the UK, while China focuses more domestically.  

The second is Chinese outward FDI’s impact on Asean. China is no longer the top investor in Asean — the top three are Japan, the EU and the US — however, China still holds significant economic influence, thanks to its Belt and Road Initiative projects. Its infrastructure projects are slow and costly to host countries.  

Given such twin pressures, China will play a lesser role in Asean’s economic development while it seeks to source and diversify inward FDI from other countries. Dwindling investment to and from China will be temporary — once it re-emerges after its transformation, I expect its global impact will be even more far reaching. 

Lawrence Yeo is CEO of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asian market research and investment/trade promotion services. E-mail:

This article first appeared in the February/March 2022 print edition of fDi Intelligence. View a digital edition of the magazine here