China has emerged as a net exporter of Foreign Direct Investment (FDI) since 2022, marking a significant shift in global investment dynamics. The nation, once a major recipient of FDI, saw inward flows plummet to USD 4.5 billion in 2024. This dramatic change is attributed to foreign investors retreating and repatriating profits from China. Meanwhile, China's outward direct investment (ODI) has increasingly targeted emerging markets (EM) over developed markets (DM), focusing primarily on sectors like metals and transport.
The United States, in response to China's growing influence, has intensified its economic defenses. It imposed an additional 20% tariff on Chinese goods, further complicating bilateral trade relations. The move comes alongside the strengthening of the Committee on Foreign Investment in the United States (CFIUS) mandate, aiming to curb China's maritime, logistics, and shipbuilding sectors. The US's FDI position in China remains robust, being three times that of China's ODI position in the US. However, following the previous trade war, China's FDI in the US has notably decreased.
"Trump has signed the America First Investment Policy memorandum, hardening restrictions on bilateral investment with China. We believe more such actions are likely."
The shifting focus in China's ODI from DM to EM underscores a strategic realignment. Investment in metals and transport has surged, contrasting with a decline in energy and technology sectors. This transition highlights China's intent to diversify its investment portfolio amidst geopolitical tensions and trade barriers.
The US's recent tariffs are expected to exert additional pressure on China's economic growth. While these tariffs could pose short-term challenges for China, the broader impact of other US-imposed restrictions may be less significant.
"Near-term, additional US tariffs could drag down China’s growth, while the impact of its other restrictions are likely to be limited."
China's dominance in global shipping remains unchallenged despite these hurdles. Finding alternatives or building new ships to compete with China's well-established maritime infrastructure could take considerable time and resources.
The US's strategic maneuvers aim to maintain economic leverage and safeguard national interests. The "America First" policy reflects a broader trend of economic nationalism, seeking to recalibrate global financial engagements with China.
"Trump 2.0 has unfolded in an unprecedented fashion; only a month after taking office, he has announced multiple tariff actions on a broad swathe of countries."
China's pivot towards emerging markets is not merely a reaction to US policies but also part of a broader strategy to secure resources and expand its global influence. By investing in EMs, China looks to bolster its presence in rapidly growing economies and mitigate risks associated with traditional markets.