China Ranks Among Top FDI Powers Despite Weaker Inflows

China was the world’s third-largest source of foreign direct investment and the fourth-largest destination last year, holding firm in an annual ranking as it expanded its role in critical raw materials, tech services and the broad energy transition, while the United States remained the global leader in both categories, according to a new report.

Chinese companies invested US$174 billion overseas last year, ranking just behind Japan, and both trailed the US, which saw FDI outflows of US$263 billion, according to findings by the United Nations Conference on Trade and Development (UNCTAD).

The latest rankings represent a departure from 2020, when China ranked second worldwide in both FDI inflows and outflows.

In the UN agency’s report, released on Tuesday, it noted that despite a decline in recorded outflows, China’s overseas investment had become more targeted, “with greater emphasis on greenfield projects, manufacturing, energy, infrastructure and critical raw materials, often in developing economies and along South-South investment corridors”a designation for investments made between Global South nations.

Mainland China also attracted US$105 billion in inbound FDI last year, trailing Singapore, Hong Kong and the US, which remained the world’s largest recipient by drawing US$277 billion, the report said.

The shift came as China’s FDI inflows have faced mounting pressure in recent years, with investment falling from a record US$189 billion in 2022 amid economic restructuring and changes in global value chains.

However, the UN agency said that the pace of decline had moderated, noting that the slowdown coincided with a “challenging global investment environment” shaped by rising costs, supply-chain diversification, geopolitical tensions and tariff uncertainties.

Beijing has rolled out a series of measures to restore investors’ confidence, while tariff pressures and intensifying competition in the domestic market have also encouraged Chinese companies to accelerate their global expansion.

At the same time, China’s FDI landscape has been shifting towards higher-value sectors in a “more selective and strategic” manner, with capital increasingly flowing into scientific research, technical services and hi-tech industries, including e-commerce services, medical-equipment manufacturing, and aerospace.

Beyond traditional manufacturing, China has also become a major force in the global race for strategic resources – critical minerals such as copper, lithium and rare earth elements. The country accounted for about one-third of global greenfield investment in critical minerals, while maintaining a strong presence in downstream refining and processing activities, the report said.

“Large-scale investment in Indonesia linked to nickel processing illustrates this role, while newer projects in Europe, Latin America and North Africa point to broader efforts to secure inputs, expand refining capacity and strengthen positions across strategic industries,” UNCTAD said.

China has also become a major source of investment in the global energy transition, with the nation’s multinational enterprises driving the global expansion of clean-technology manufacturing through investments in batteries, electric vehicles and related industries that are helping establish new regional production hubs across emerging markets.

Meanwhile, five strategic sectors – including artificial intelligence (AI); advanced and sensitive technologies; critical minerals; energy-transition technologies and services; and semiconductors – are attracting a growing share of global investment. Their combined share of global greenfield investment increased from 16 per cent in 2020 to 44 per cent last year, according to UNCTAD.

The US and Europe have led global investment activity in frontier fields such as AI infrastructure and sensitive technologies, the report said, but China remained an important recipient of capital from Western companies, supported by its industrial capabilities, technological ecosystem and large domestic market in certain advanced industries.