From World’s Factory to Global Capital Exporter
China has undergone a remarkable economic transformation over the past four decades. Since opening its economy to the world, foreign direct investment (FDI) poured into the country, helping build the manufacturing juggernaut known as the world’s factory. This influx of capital, technology, and expertise propelled China’s unprecedented rise from an agrarian society to the world’s second-largest economy. The model worked exceptionally well for decades, attracting trillions of dollars in foreign investment and creating an export powerhouse that reshaped global supply chains.
Yet the dynamics have shifted dramatically in recent years. China is no longer merely a recipient of foreign capital but has emerged as one of the world’s largest exporters of capital through outbound direct investment (ODI). This transformation represents a fundamental change in China’s relationship with the global economy. The country that once welcomed foreign factories now sends its own companies and capital across the globe, establishing manufacturing bases, acquiring resources, and building infrastructure in markets from Southeast Asia to Africa and Latin America. China’s outbound investments now exceed inflows, and the country has consistently ranked among the top three global investors in recent years, following the United States and Japan.
This shift carries profound implications for international finance, global trade patterns, and the future of the Chinese yuan as an international currency. As Chinese firms expand their global footprint, they create new channels for capital flows that could eventually reduce dependence on the US dollar in international transactions. The transformation reflects both economic necessity and strategic ambition, driven by slowing domestic growth, intensifying trade tensions, and Beijing’s desire to secure resources and markets for its companies abroad.
What Drives China’s Outbound Investment Surge
Several powerful forces are propelling Chinese companies to invest overseas, creating a sustained wave of capital outflows that has reached record levels. In 2024, China’s overseas investments climbed 8.4 percent year on year to US$192.2 billion, approaching the historic peaks seen in 2016. This momentum has continued into 2025, with outbound investment reaching substantial levels despite moderating growth rates compared to previous years. The drivers behind this surge span economic pressures at home, geopolitical uncertainties abroad, and deliberate government policy designed to support Chinese global expansion.
China’s domestic economic environment has become increasingly challenging for many companies. Economic growth has slowed from the double-digit rates of previous decades to more modest levels, creating pressure on profit margins and market opportunities. Domestic consumer demand remains weak in many sectors, while intense price competition has squeezed profitability across numerous industries. Companies facing saturated home markets and diminishing returns on domestic investment have naturally turned their attention to international expansion as a path to continued growth.
According to a June report by Moody’s Ratings, this trend will likely continue over the next few years as companies seek to diversify income sources amid weak domestic demand. The credit rating agency notes that Chinese firms are pushing ODI close to record highs seen in 2016, with policy support providing additional momentum. Government backing comes through multiple channels including financial aid, tax subsidies, and advisory services that help companies navigate foreign markets. This state support makes international expansion more accessible and attractive for Chinese firms of all sizes.
Trade environment uncertainties provide another powerful motivation for overseas investment. Escalating trade tensions with the United States and other Western economies have exposed Chinese exporters to tariffs, restrictions, and the constant threat of further protectionist measures. By establishing production facilities in third countries, Chinese manufacturers can maintain access to key markets while avoiding trade barriers. This strategy of tariff-jumping has become particularly important for companies dependent on exports to North America and Europe. Chinese investment in Southeast Asia surged by 36.8 percent in 2024, with much of this activity concentrated in manufacturing sectors that serve Western markets.
Policy Support and Strategic Direction
Beijing has signaled its intention to maintain this outward focus for the foreseeable future. At its fourth plenum in October 2025, the Central Committee of the ruling Communist Party set the tone for economic policy over the next five years. The gathering produced clear pledges to safeguard the multilateral trade system and expand two-way investment cooperation, reinforcing ODI as a strategic priority alongside attracting FDI. This high-level endorsement ensures that outbound investment will continue to receive government support through favorable policies and diplomatic backing.
The policy framework supporting ODI operates on multiple levels. Financial institutions provide preferential lending for overseas projects, while tax incentives reduce the cost of international expansion. Government agencies offer advisory services on navigating foreign regulations, identifying investment opportunities, and managing cross-border risks. This comprehensive support system lowers the barriers to international investment and makes it easier for Chinese companies to establish operations abroad.
China’s Belt and Road Initiative (BRI) has also played a significant role in facilitating outbound investment, though its structure has evolved over time. Initially launched with grand infrastructure ambitions involving massive loans to developing countries, the BRI has shifted toward a more sustainable model. Since 2017, annual BRI disbursements have declined substantially and now consist almost exclusively of lightly subsidized loans for Chinese companies to build infrastructure in foreign countries. This approach reduces financial risks for China while still supporting its companies’ international expansion and strengthening economic ties with partner nations.
Geographic Shift in Investment Destinations
China’s outbound investment patterns have undergone a significant geographic realignment in recent years. While traditional destinations like the United States, the European Union, and Australia once absorbed substantial Chinese capital, these markets now receive reduced inflows. Instead, China’s focus has increasingly turned toward emerging markets, particularly Southeast Asia and Africa, where investments have surged significantly. This shift reflects both the desire to avoid geopolitical confrontation with Western powers and the recognition of greater growth opportunities in developing economies.
By the end of 2023, China’s outbound direct investment spanned 189 countries and regions, covering 80.8 percent of the globe. The distribution highlights key areas of strategic focus across different regions. In Asia, China had accumulated an investment stock of US$2,014.84 billion, representing 68.2 percent of its global total. The majority of this was concentrated in Hong Kong, which accounted for 87 percent of China’s investments in Asia, serving as a financial gateway for regional operations. Significant investments also flowed to Singapore, Indonesia, Macao, Vietnam, Malaysia, Thailand, and Laos.
Latin America received US$600.8 billion (20.3 percent of China’s total ODI stock), with most of this flowing to the British Virgin Islands and Cayman Islands. Together, these two financial centers accounted for 96.7 percent of China’s regional investments in Latin America, reflecting their role as conduits for structuring international investments rather than destinations for productive capacity. Other key countries in the region included Brazil, Mexico, Peru, Chile, the Bahamas, Jamaica, Panama, and Argentina, where Chinese investments focused on natural resources and infrastructure.
Europe attracted US$147.68 billion, or 5 percent of China’s total ODI, with investments primarily directed to the Netherlands, the United Kingdom, Germany, Sweden, Luxembourg, and Russia. France, Switzerland, Italy, Spain, and several Central and Eastern European countries also received Chinese capital. In North America, China’s investments amounted to US$110.11 billion (3.7 percent), largely focused on the United States and Canada, though flows to these destinations have diminished in recent years due to increased regulatory scrutiny and geopolitical tensions.
Africa attracted US$42.11 billion (1.4 percent), with top investment destinations including South Africa, the Democratic Republic of Congo, Nigeria, Ethiopia, and Angola. In Oceania, China’s investments reached US$39.85 billion (1.4 percent), with Australia and New Zealand being the main recipients. Notably, nearly 90 percent of China’s ODI was concentrated in developing economies, totaling US$2,645.69 billion by 2023. This emphasis on the Global South aligns with China’s diplomatic efforts to build partnerships beyond traditional Western powers.
Southeast Asia as a Priority Destination
Southeast Asia has emerged as a particularly important destination for Chinese outbound investment, driven by geographic proximity, cultural affinities, and rapidly growing markets. In 2023, China’s direct investment in the ASEAN region reached approximately US$25.12 billion, marking a significant increase of 34.7 percent from the previous year. This investment accounted for 14.2 percent of China’s total investment flows for the year and represented 17.7 percent of its overall investment in Asia.
The distribution of investment flows across different industries indicates that manufacturing was the primary sector in ASEAN, attracting US$9.15 billion. This represented yearly growth of 11.4 percent and constituted 36.4 percent of total Chinese investments in the region. The primary destinations for these manufacturing investments included Vietnam, Indonesia, Thailand, and Singapore, where Chinese companies established production facilities to serve both local markets and export destinations. The wholesale and retail sector followed with US$4.81 billion, a rise of 14.6 percent, accounting for 19.2 percent of total flows.
Agriculture, forestry, animal husbandry, and fishing saw a remarkable increase in Chinese investment, totaling US$1.14 billion and reflecting a staggering growth rate of 1,387.3 percent, primarily benefiting Singapore and Laos. This dramatic surge reflects China’s efforts to secure food supplies and agricultural resources through overseas investments. In contrast, financial services investments decreased by 37.7 percent to US$580 million, representing only 2.3 percent of total investments. Residential services and repairs experienced a significant surge of 185.5 percent, reaching US$570 million, while the mining sector saw a sharp decline of 73 percent.
From a geographical perspective, Singapore emerged as the leading destination for Chinese investments in ASEAN, receiving US$13.1 billion in new ODI in 2023. This represented 52.1 percent of total ASEAN investment flows and reflected robust growth of 57.9 percent. The majority of funds directed toward Singapore went to the wholesale and retail sector, leasing and business services, and manufacturing. Indonesia ranked second with US$3.13 billion, despite a decrease of 31.1 percent from the previous year. Vietnam followed closely in third place, attracting US$2.59 billion with growth of 52.3 percent.
From Investment to Currency: The Yuan Connection
China’s expanding outbound investment carries significant implications for the internationalization of the yuan, also known as the renminbi. As Chinese companies establish operations abroad and conduct trade with international partners, opportunities for using the yuan in cross-border transactions naturally increase. This gradual process could eventually reduce global dependence on the US dollar in international trade and finance, advancing one of Beijing’s long-term strategic objectives.
For years, Chinese authorities have promoted the yuan’s international use, viewing it as a means to reduce vulnerability to US financial sanctions and enhance China’s global economic influence. The Chinese currency gained international recognition in 2016 when the International Monetary Fund added it to the Special Drawing Rights basket, making it one of only five currencies in this exclusive reserve asset category alongside the US dollar, euro, Japanese yen, and British pound. This milestone acknowledged the yuan’s growing role in global finance and provided validation for China’s efforts to promote its currency internationally.
However, the path to yuan internationalization has faced significant obstacles. A speculative attack on the currency in 2015 and 2016 forced Chinese authorities to tighten capital controls dramatically, limiting the ability of individuals and companies to move money freely in and out of the country. This experience demonstrated the tension between promoting international use of the yuan and maintaining domestic financial stability. Almost US$1 trillion left the Chinese economy in 2016 as investors sought to protect their assets from expected devaluation, while state-owned companies purchased foreign businesses totaling US$200 billion.
“China no longer seeks a global yuan due to the actions of state-owned companies and Chinese individuals moving money abroad,” according to analysis from Georgetown University’s Journal of International Affairs. “Instead of a full-blown de-dollarization strategy and Belt and Road Initiative, China now focuses on developing cross-border yuan-denominated trade settlement systems.”
This quote encapsulates China’s revised approach to yuan internationalization following the 2016 crisis. Rather than pursuing full convertibility and unrestricted capital flows, which would risk another speculative attack, Chinese authorities have focused on more targeted measures to increase yuan usage in international transactions. This includes promoting yuan settlement in trade, building bilateral currency swap arrangements with other central banks, and developing offshore yuan centers in financial hubs like Hong Kong, London, and Singapore.
The Trade Settlement Strategy
China’s current strategy for promoting the yuan emphasizes trade settlement rather than replacing the dollar as a global reserve currency. Under this approach, Chinese importers pay foreign exporters in their local currencies, while Chinese exporters receive payment in yuan. This system bypasses the dollar in bilateral transactions without requiring full international acceptance of the yuan as a store of value or unit of account. For example, an Argentine exporter might receive pesos for goods sold to China, while a Chinese exporter to Argentina is paid in yuan.
This incremental approach has shown promising results in certain contexts. Increasingly, Chinese banks lending to emerging market economies have switched to yuan instead of US dollars, partly due to lower lending costs. Analysis published by the US Federal Reserve noted this trend, highlighting how yuan-denominated lending reduces dependence on the dollar system while providing borrowers with potentially cheaper financing options. China has also been actively promoting bilateral trade settlement in yuan, and in February announced $100 billion for businesses in Hong Kong to access yuan-denominated financing.
The digital yuan represents another front in China’s efforts to internationalize its currency. Beijing has already rolled out a digital version of its currency to replace some cash and coins in circulation domestically. People’s Bank of China Governor Pan Gongsheng announced plans to set up a center for digital yuan internationalization in Shanghai and promote trading of yuan foreign exchange futures. This digital infrastructure could eventually facilitate cross-border payments and make the yuan more attractive for international transactions by reducing transaction costs and increasing efficiency.
Despite these efforts, the yuan remains a minor currency in global finance. According to Swift’s RMB Tracker, the yuan accounted for only 2.89 percent of global payments by value in May 2025, ranking as the sixth most-active currency worldwide. The US dollar dominated with 48.46 percent of global payments, followed by the euro at 23.56 percent. This gap reflects structural advantages enjoyed by the dollar, including deep and liquid financial markets, strong legal institutions, and widespread acceptance as a reserve currency by central banks around the world.
Challenges to Yuan Internationalization
Several significant obstacles constrain the yuan’s potential to challenge the dollar’s dominance in international finance. These challenges stem from China’s domestic economic structure, policy choices, and the inherent advantages enjoyed by the established international monetary system. While China has made progress in increasing the yuan’s international use, substantial barriers remain before it can achieve widespread adoption comparable to the US dollar or even the euro.
Capital controls represent perhaps the most fundamental constraint. To maintain financial stability and prevent speculative attacks like the one experienced in 2016, Chinese authorities strictly limit the ability of investors to move money in and out of the country. These controls make domestic financial markets more resilient to crises but less efficient and attractive to international investors. Foreign companies face routine operational challenges, such as receiving payments from Chinese customers or paying dividends and royalties to Chinese stakeholders. This friction discourages widespread use of the yuan for international business.
“China’s rule of law is inferior to the US, it does not offer a large and deep pool of liquid assets that is open to foreign investors like the US,” said Matt Gertken, chief geopolitical strategist at BCA Research. “Beijing has not been sufficiently addressing the geopolitical risks tied to its markets.”
This assessment highlights another set of challenges facing yuan internationalization. The depth and liquidity of China’s financial markets remain limited compared to those of the United States. While China has the world’s second-largest economy and largest banking system by assets, its capital markets are less developed, more tightly regulated, and less accessible to foreign investors. These characteristics make the yuan less attractive as a reserve currency for central banks and less convenient for international businesses seeking to manage cash flows and financial risks.
Geopolitical tensions also complicate the yuan’s international trajectory. China’s increasingly assertive foreign policy and conflicts with Western nations over trade, technology, and human rights have created political resistance to greater dependence on the Chinese financial system. Countries seeking to maintain diversified economic relationships may hesitate to align too closely with China’s currency sphere. Furthermore, the threat of US sanctions against entities that conduct certain types of business with China creates risks for yuan internationalization that did not exist for the dollar’s rise to global dominance.
The economic concept of the “impossible trinity” or trilemma further constrains China’s options. This principle holds that countries can choose at most two of three policies: monetary policy autonomy, fixed exchange rates, and free capital flows. The United States maintains monetary policy autonomy and free capital flows but lacks a fixed exchange rate regime. Eurozone countries abandoned monetary autonomy to maintain both fixed exchange rates between members and free capital flows. China has traditionally chosen monetary policy autonomy and exchange rate stability, which requires capital controls.
Attempting to achieve full yuan internationalization would require China to abandon one of these policy pillars. Free capital flows are necessary for a truly global currency, but this would force China to choose between independent monetary policy and a stable exchange rate. Given the importance of domestic economic stability to the Communist Party’s legitimacy, Chinese authorities have shown little willingness to make this trade-off. Consequently, yuan internationalization proceeds slowly within the constraints imposed by this trilemma.
Strategic Implications for Global Finance
China’s evolving outbound investment strategy and its cautious approach to yuan internationalization carry significant implications for the global financial system. While a rapid challenge to dollar dominance appears unlikely in the near term, the gradual expansion of China’s financial influence will reshape aspects of international finance. This transformation will unfold over years and decades rather than months, creating both opportunities and risks for businesses, investors, and policymakers around the world.
The increasing use of the yuan in regional trade, particularly in Asia and with Belt and Road partners, will create a more multipolar currency system. This development reflects the broader shift toward a less US-centric global economy as emerging markets gain economic weight. Companies doing business in Asia, Africa, and Latin America may find themselves increasingly using yuan-denominated financial products and services to manage transactions and hedge currency risks. Financial institutions based in these regions will need to develop expertise in yuan-related business to serve their clients effectively.
Chinese outbound investment will continue to reshape global industry structures as companies acquire or establish operations abroad. In sectors ranging from automotive manufacturing to renewable energy, Chinese firms are becoming major global players through their international investments. This expansion creates new competitors for established Western and Japanese companies while also providing opportunities for partnership and collaboration. Countries that receive Chinese investment may benefit from infrastructure development, technology transfer, and job creation, though they must also navigate concerns about debt sustainability, environmental impacts, and political influence.
The clean energy sector represents a particularly important arena for Chinese outbound investment. Chinese companies have committed more than US$100 billion in outbound investment since 2023, marking a shift in how the country directs its green funds. This “green tsunami” reflects China’s growing dominance in clean technology manufacturing and supply chains, which now encompass over 80 percent of global solar manufacturing equipment. As countries around the world accelerate their energy transitions, Chinese companies will likely play a central role through both exports of equipment and direct investment in overseas renewable energy projects.
This leadership in clean energy creates complex dynamics for international relations and trade. On one hand, Chinese technology and investment can accelerate global decarbonization efforts by making renewable energy cheaper and more accessible. On the other hand, Western nations have expressed concerns about overdependence on Chinese supply chains for critical technologies and have launched initiatives to develop domestic clean energy industries. This competitive landscape may lead to trade tensions, industrial policy responses, and new patterns of global investment as countries seek to balance climate goals with economic security considerations.
Future Trajectories and Uncertainties
The future evolution of China’s outbound investment and yuan internationalization will depend on multiple factors that remain highly uncertain. Domestic economic conditions in China will play a crucial role, as continued slowdown or financial stress could either accelerate capital flight or force authorities to tighten controls further. The trajectory of US-China relations will also prove decisive, with worsening tensions likely to increase Beijing’s motivation to reduce dollar dependence while simultaneously making international partners more cautious about financial alignment with China.
Technological developments, particularly in digital currencies and financial technology, could reshape the landscape for yuan internationalization in unpredictable ways. China’s leadership in digital payments and its early adoption of a central bank digital currency give it advantages in developing innovative cross-border payment systems that could increase the yuan’s attractiveness for certain types of transactions. However, privacy concerns, regulatory questions, and the need for international cooperation on standards will all influence how quickly these technologies can be adopted globally.
The institutional development of China’s financial system will also affect the yuan’s international prospects. As Chinese capital markets deepen, regulatory frameworks mature, and legal systems strengthen, the yuan will become more attractive for international use. Progress in these areas has been steady but slow, reflecting the deliberate pace of financial reform in a system that prioritizes stability above rapid liberalization. The balance between opening up and maintaining control will continue to shape China’s financial integration with the rest of the world.
Despite uncertainties, certain trends appear likely to persist. Chinese outbound investment will probably remain robust, supported by policy priorities and economic necessities, with continued focus on emerging markets and strategic sectors. The yuan’s international use will gradually expand, particularly in trade with China and regional transactions, though the dollar’s dominant position appears secure for the foreseeable future. This gradual evolution will create a more complex and multipolar international financial system rather than a rapid transition to a new currency order.
Key Points
- China has transformed from primarily receiving foreign investment to becoming one of the world’s top three capital exporters, with outbound investments exceeding inflows in recent years.
- China’s outbound investment reached US$192.2 billion in 2024, up 8.4 percent year on year, with momentum continuing into 2025.
- Southeast Asia emerged as a key destination, with Chinese investment in the region surging 36.8 percent in 2024, primarily in manufacturing sectors.
- Chinese outbound investment spans 189 countries, with nearly 90 percent concentrated in developing economies, particularly in Asia and Latin America.
- The yuan’s internationalization faces constraints from capital controls, less developed financial markets, and geopolitical tensions with Western nations.
- China’s approach to yuan promotion now focuses on trade settlement rather than challenging the dollar’s status as a global reserve currency.
- The digital yuan and expanded futures trading represent new fronts in China’s efforts to increase international use of its currency.
- Clean energy has become a major focus for Chinese outbound investment, with companies committing over US$100 billion since 2023.
- Beijing has reinforced outbound investment as a strategic priority, with policy support including financial aid, tax subsidies, and advisory services.
- The Belt and Road Initiative has evolved from massive loans to a model of lightly subsidized support for Chinese companies’ overseas infrastructure projects.
