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Under our Dear Leader President Trump, the United States is hard at work destroying its place in the world economy. But in the rest of the world, globalization is still proceeding apace. In the 2000s and early 2010s, when you said “globalization”, it often just meant “moving manufacturing to China”, but that’s pretty much over; inbound foreign direct investment to China has fallen off a cliff, and companies are now trying to pull their money out. Blame a combination of rising labor costs, the closing off of the Chinese domestic market, and “de-risking” over fears of war.
But this doesn’t mean that China is going to simply wall itself off from the rest of world and disappear. Far from it. Instead, China is going to shift from being a destination for direct investment to being a source of investment. A whole bunch of Chinese companies are going to build factories (and offices) in other countries.
In fact this is already happening, in a big way. Kyle Chan (whose blog I highly recommend, by the way) has a truly excellent post about this trend:
He writes:
Chinese companies are racing to build factories around the world and forge new global supply chains, driven by a desire to circumvent tariffs and secure access to markets. Chinese companies have been building manufacturing plants directly in large target markets, such as the EU and Brazil. And they’ve been building plants in “connector countries” like Mexico and Vietnam that provide access to developed markets through trade agreements. Morocco, for example, has emerged as a surprisingly popular destination…due to its trade agreements with both the US and the EU…Countries across the developed world and the Global South alike are eager for Chinese companies to build factories in their markets, with the promise of new jobs and new technology.
Kyle has a great map showing just how global this investment boom is:
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It can be a little difficult to see this boom in the overall numbers. As Rhodium Group reports, a large portion of China’s official completed outbound investment is actually “phantom FDI” — Chinese companies keeping their earnings outside of China by pretending to do FDI. And when you look at FDI announcements, the total is still way below where it was in the mid-2010s:
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But this overall decline masks a very important shift in the type of FDI China is doing. Up until the pandemic, China’s foreign investment was focused more on acquiring foreign companies, usually in developed countries — basically, Chinese companies bought American/European/Japanese/Korean companies so that they could A) get their technology, and B) use them as local beachheads to sell stuff to rich consumers. This was the big boom of the mid-2010s.
Since 2022, however, China’s focus has shifted dramatically to “greenfield” investment — Chinese companies are building their own offices and factories overseas:
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Most of this new wave of greenfield FDI is in the auto and energy industries:
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Basically, the Chinese auto and battery industries are going global. In addition to his post, Kyle has a great thread about the expansion plans of BYD, China’s flagship automaker and in many ways its single most impressive company.
Greenfield FDI is in many ways more of a boon to the receiving country than M&A; when you build new factories and offices in a country, it creates new jobs, and often transfers new technologies, instead of just changing the ownership of an existing business. And unlike M&A, greenfield FDA tends to target developing countries, because it’s usually at least partially about reducing costs.
So it makes sense for developing countries around the world to be a lot more excited about the flood of Chinese investment now than back in 2016. And we should also expect this wave to be more durable than the previous one, because it’s driven by Chinese costs and by mature Chinese companies with a long-term stake in overseas markets.
Generally speaking, this is how economic development is supposed to work. As countries get richer, their costs go up, and they want to move production to cheaper locations. China was the cheap place to make stuff 20 years ago; now, it’s places like Vietnam, Indonesia, and Morocco. Like a flock of geese, manufacturing companies tend to fly from one country to another, helping each one industrialize along the way.
Also, it’s easier to sell products in a country if you also produce those things inside that country — transport costs are lower, you can get a bett