What China's Overseas Investment Means for the Rest of the World

A first-of-its-kind review of the research literature examines the economic, social and environmental impacts of China’s overseas investment on host countries.

GENEVA—February 17, 2016—From the suburbs of Dallas, to the backstreets of Abuja and the oil fields of the Amazon—China has transformed the world’s investment landscape. A first-of-its-kind review of the research literature by the International Institute for Sustainable Development (IISD) examines the economic, social and environmental impacts of China’s overseas investment on host countries.

China’s foreign investment has grown ten-fold over the last decade; the country now ranks as the third largest source of overseas investment. It has been an especially welcome source of foreign capital to developing countries, contributing significantly to infrastructure development in areas such as construction and information technology. But views on the quality of Chinese goods and services are mixed, and cases of Chinese investors cutting corners have damaged the country’s reputation in some recipient countries.

Notably, accusations that Chinese foreign companies provide poor labour conditions is not substantiated by the evidence. A comparative study of Chinese companies and their counterparts from OECD countries concludes that there are no substantial differences in working conditions between Chinese companies and those from other countries.

The research also suggests that China has been unfairly singled out for taking a no-strings attached approach to investments in the natural resource sector—turning a blind eye to human rights abuses or corruption, for example. While these concerns are valid, there is evidence that a double standards exist in evaluating the impact of Chinese investment over investment from other countries.

While Chinese outward investments in oil and gas are well known, less attention is paid to its role in expanding clean energy. In a short time China has established itself as the leading global investor in renewable energy infrastructure, particularly solar and wind. China’s success abroad is attributed in large part to the strong domestic manufacturing capacity that it first built up at home.

Nonetheless, there are wide-spread concerns from local communities and governments over the impact of China’s overseas operations on the environment. These range of illegal logging activities, to poorly conducted environmental impact assessments.

“The discussion around China’s foreign investment has been somewhat poisoned by, on the one hand, scaremongering by non-Chinese commentators, and on the other by an overly defensive reaction by the Chinese to legitimate criticisms,” said Mark Halle, director of IISD-Europe, and a co-author of the study.

“This study provides some much needed nuance. It shows that China’s outward investment has entailed some serious ‘teething’ problems. But also that the benchmark by which China assesses the performance of its own investors has evolved a long way over the past years,” said Halle.

Sustainability Impacts of Chinese Outward Direct Investment: A review of the literaturedraws from 384 papers in English, Chinese and Spanish. It is the most comprehensive literature review to-date on the topic.

Facts and figures:

• China’s outward investment totaled USD 123.1 billion in 2014.
• Also by the end of 2014, 18,500 domestic investors had set up 29,700 establishments in 186 countries and regions.
• 84.7 per cent of China’s ODI was in developing and transition economies and 15.3 per cent were in developed economies.

(Source: Chinese Academy of International Trade and Economic Cooperation, SASAC, & UNDP, 2015)  

For more information please contact Sumeep Bath at sbath@iisd.org or +1 (204) 958-7740 (in Canada) or Damon Vis-Dunbar at dvis-dunbar@iisd.org or +41 22 917-8848 (in Switzerland).