Exploring China's investment landscape: Decoding the narratives

July 2026
ISBN  978-0-662-43983-7

Table of content

• 1. Highlights
• 2. Introduction
• 3. Chinese FDI – Myth and reality
  • 3.1. Why Investments in China Are Slowing Down
  • 3.2. Made in China, Sold in China
  • 3.3. Chinese Direct Investment abroad: recent developments
• 4. Conclusion
• Bibliography
• Appendix A - China’s FDI Landscape: A Snapshot
• Appendix B - Variable Interest Entity (VIE)

1. Highlights

This report explores three prominent narratives regarding China’s inward and outward Foreign Direct Investment (FDI). Using a data-driven approach, the analysis finds that:

1. While many assume a decoupling of Western economies from China based on the historic low in 2023 of Chinese inward FDI, Western countries have never been major direct investors in China, and their FDI levels have remained relatively stable. In fact, the FDI decline observed in Chinese data is likely driven by reverse flows (i.e. divestments) from Hong Kong and intra-company financial restructuring.
2. Another narrative is that foreign enterprises operating in China are increasingly shifting their focus from export-oriented production to serving the domestic Chinese market. The quantitative analysis suggests otherwise: foreign firms have been focused for some time on serving the local market and less on exports.
3. China’s outward FDI strategy is revealed by greenfield investments in strategic sectors and emerging markets – i.e., Mexico (automotive), Vietnam (electronics), and Thailand (electronics); although these investments represent a modest share of total outward FDI, they highlight China’s targeted efforts to access key markets and navigate trade barriers.

Overall, the analysis offers a more nuanced portrait of China’s role in global FDI flows. The report also highlights the importance of disaggregated data and structural context in interpreting investment trends, challenging simplistic interpretations and emphasizing the complexity of China’s evolving economic relationships.

2. Introduction

Over the past four decades, China has emerged as a central player in global production and trade. Through extensive trade liberalization, the country became a key manufacturing hub and exporter. In recent years, rising geopolitical tensions and concerns over supply chain resilience have sparked growing discussions around “a decoupling of Western economies from China”- i.e., the strategic reduction of economic dependence on China in key supply chains. As China played a larger role in global trade, more and more attention has turned to China’s position in foreign direct investment (FDI) as investment is the other side of the trade coin.

This report investigates three prominent narratives surrounding China’s inward and outward FDI. Through a data-driven lens, it aims to provide an accurate portrait of China’s evolving investment landscape and distinguish facts from rhetoric. The three narratives examined through data are:

1. Decoupling of Western Economies from China: This narrative is based on the sharp decline in inward FDI to China, which reached negative inflows in 2023 and declined further in 2024. This trend has been widely interpreted as a signal of economic decoupling from Western countries and a potential reconfiguration of global trade and investment networks.^{Footnote 1}
2. Strategic Shift in Foreign Multinational Enterprises (MNEs) Activity in China: The second narrative argues that many foreign MNEs operating in China are shifting their production focus from export to the Chinese domestic market, to capture opportunities from the country’s rising consumer base and evolving economic structure.
3. Expansion of Chinese Enterprises Abroad: The third narrative considers the growing international footprint of Chinese MNEs through China’s outward greenfield investment data. In particular, it focuses on strategic greenfield investments in Mexico’s automotive sector and in electronics manufacturing in Vietnam and Thailand. These investments may reflect efforts to bypass trade barriers and secure access to key markets.

This report uses primarily publicly available macro-level data from official sources, including FDI and balance of payments, as well as activities of multinational enterprises. Mirror data, or data disclosed by the partner country, is often used to supplement the limitations of existing data on China’s FDI. Special attention is given to the role of Hong Kong as an intermediary in FDI flows, as well as to the methodological differences in how FDI is measured and reported.

Foreign project announcements, also referred to as greenfield investments, from fDi Intelligence,^{Footnote 2} supplement this analysis. These data track foreign investment projects publicly announced, including new investments and expansions. Greenfield investments are used by many, such as the UN Trade and Development (UNCTAD), as predictors of future FDI flows. These data provide the advantage of associating the investment to the MNE source country, while official statistics for the recipient country often report only the investment by immediate investing country (IIC).^{Footnote 3} Furthermore, greenfield investment provides an interesting breakdown by sector for the purpose of this analysis. It is important to note that i) greenfield investment only depicts a portion of FDI flows and ii) transactions such as intra-company loans, mergers and acquisitions, and divestment are not captured in these data. Despite these limitations, greenfield investment data can support the understanding of trends when nuanced appropriately.

We separate this report into 3 main sections, each tackling a narrative. Section 3.1 examines existing data to explain the recent decline in inward FDI flows in China. Section 3.2 explores the market of foreign MNEs operating in China. Finally, section 3.3 explores the expansion of Chinese-owned MNEs in Mexico, Vietnam and Thailand. For additional context, a background section on FDI in China is included in Appendix A.

3. Chinese FDI – Myth and reality

3.1. Why Investments in China Are Slowing Down

Inward FDI to China reached negative values in the second half of 2023 and remained subdued throughout 2024, prompting speculation about a decoupling from Western economies. Our analysis reveals that i) FDI in China from Western countries is modest and unlikely to explain the recent decrease in FDI, and ii) the decline is primarily driven by lower inflows from Hong Kong. Debt repayments and intra-company financial restructuring explain much of the downturn, suggesting that the drop in FDI may reflects financial dynamics rather than geopolitical retreat. However, the absence of FDI data on a ultimate investing country basis, as well as the use of Hong Kong as an intermediary country for FDI flows can obscure the investment position of some countries in China, making it difficult to identify the responsible partner(s) for the observed decline. This section investigates the recent decline in China’s FDI inflows and presents the most plausible explanations for this trend.

In 2023, China recorded its lowest level of inward FDI in decades, inflows being negative for the first time in its history in the third quarter of 2023 (-US$10.8 billion), a trend that continued in 2024. For many observers, this decline was interpreted as a clear sign of economic decoupling between China and Western economies, a narrative that aligns with broader geopolitical tensions, trade disputes, and efforts by advanced economies to reduce reliance on China’s supply chains.

To understand this result it is important to point out that negative FDI inflows, or divestment, do not necessarily indicate equity withdrawals (i.e. firms divesting). There are different transaction types captured by FDI inflows, one being loan repayments by headquarters to affiliates in other countries. Intra-company financial flows are common. For negative FDI to be recorded in the balance of payments (BoP), debt repayments must outweigh other FDI components over a given period. In 2024, both Q2 (–US$15.0 billion) and Q3 (–US$11.6 billion) results exhibited negative net FDI inflows. By looking at the different components of FDI inflows (or transaction types), it becomes clear that these negative inflows were primarily driven by substantial outflows in the form of debt instrument repayments, while equity and investment fund shares remained positive, albeit at relatively low levels. This points to a false interpretation of the negative FDI inflows from the BoP as a sign of decoupling by Western countries. Yet, it is worth furthering the analysis to properly establish the drivers of these negative inflows.

The analysis draws on multiple FDI sources, each providing partial information about the drivers of China’s inward investment decline. Specifically, the analysis considers i) China’s two official statistical data sources for FDI, ii) greenfield investments, iii) FDI by selected partners, and iv) their respective mirror FDI data. However, while official FDI data help track capital flows, reported statistics may be biased by the growing use of complex financial structures (VIE) by Chinese firms that can hide the ultimate investor source.

3.1.1. China’s official statistics

The FDI inflows below are based on China’s State Administration of Foreign Exchange (SAFE) publication of balance of payments (BoP) statistics. They provide an aggregated view of flows on a net basis using the asset/liability principle which is consistent with international standards. This source does not, however, provide information on FDI inflows by industry, source or destination of investment. Without this type of details, it is difficult to explore fully the narrative about decoupling.

Alternatively, China’s Ministry of Commerce (MOFCOM) prefers “utilized FDI” estimated by the National Bureau of Statistics of China.^{Footnote 4} Utilized FDI is also referred as “productive FDI” or “actual use of foreign capital” and focuses on approved investment projects and actual reported transactions in foreign capital to establish and acquire equity in China. This is an uncommon definition of FDI flows. In contrast to SAFE’s BoP estimation of FDI, MOFCOM’s estimation of FDI uses the directional principal: capital entering the country is defined as inward FDI and that leaving the country as outward FDI. The two estimation principles differ notably in the treatment of reverse FDI. Reverse FDI happens when money is sent from the foreign affiliates in a given country to its headquarter abroad. On a BoP asset/liability principle, used by SAFE, reverse FDI decreases the inward FDI by the value sent by foreign affiliates to the headquarter abroad. In contrast, the directional principle, used by MOFCOM, would consider it as an FDI outflow. As a result, the directional principle is expected to measure smaller “decoupling” if one exists as divestments would not be recorded as negative FDI inflows, but rather as outward FDI.

Figure 1 shows the state of Chinese direct investment inflows for both measures of FDI on an annual basis. While both datasets show decline in the level of investments in recent years, the trajectories are different. As expected, the decline is less pronounced when FDI flows are measured using “utilized FDI”. Also evident below is that “utilized FDI” exhibits very little volatility, especially compared to the BoP-based FDI. The decline is thus a clear deviation from the historical trend. These observations, however, do not offer clear indication of decoupling.

Figure 1: Chinese FDI inflows

Data: SAFE & National Bureau of Statistics of China. Data retrieved in June 2026.

It should be noted that China’s BoP statistics show that FDI inflows during the COVID-19 pandemic, remained strong, and even accelerated, supported by high equity and investment fund shares. However, during the same period, we know that (i) global supply chains were negatively impacted, particularly the ones relying on China, and (ii) global FDI flows dropped in 2020 and did not fully recovered by 2023 (United Nations, 2024). Thus, a decrease in FDI inflows would have been expected in 2020 and 2021, rather than the observed sharp increase shown by the BOP data. In addition, due to the timing of flows, there is a likelihood that some decline in FDI, as measured by the BoP, comes from repayment of debt contracted by the affiliates to the parent company abroad during the COVID-19 period, resulting in lower total inward direct investment. Similarly, the concurring decline in utilized FDI seems to indicate a diminishing investment interest in the country.

3.1.2. Greenfield investments

An alternative to China’s reported statistics is to examine greenfield investments as a leading indicator of future FDI inflows.^{Footnote 5} Since 2010, both the number of project announcements and the total capital expenditure associated with these projects in China have shown an overall decline, while achieving a relative stability over recent years (Figure 2).^{Footnote 6} This 15-year greenfield investments decline could be interpreted as investors’ declining interest in China and as a possible explanation of the observed drop of FDI inflows since 2021 reported in BoP statistics. It is important to note, however, that these figures are an incomplete measure of FDI flows as (i) the statistical concept considers net inflows, rather than gross foreign investment increases, and (ii) other types of flows, such as intracompany loans, are important but not considered greenfield investment. Furthermore, given ongoing tensions between China and the U.S. the dataset may not be complete, as investors may choose to refrain from publicly announcing their investment projects in China.

Figure 2: Annual greenfield investment in China, 2010-2025

Note: Capital expenditure (CAPEX) reported in project announcements are used when available, otherwise the dataset represents an estimation from the data provider.
Data: fDi Intelligence. Data retrieved in June 2026.

Another source of information about potential future investments is investors’ sentiment as measured by the Kerney FDI Confidence Index (Kearney, 2026). The index is based on a survey of global business executives who rate countries for their investment attractiveness over the next three years.^{Footnote 7} If Western investors were trying to “decouple” from China, one would expect that China’s ranking would have declined on this index in the late 2010’s and early 2020’s. Since 2018, China has consistently ranked among the top 10 destinations with the exception of 2021 when China ranked 12th. This one lower rank could support the narrative of decoupling, except one would have expected that China’s ranking to continue to stay constant or decline in the subsequent years. In 2022 to 2026, China ranked again in the top 10. The recent variation in ranking (4^th in 2026, 6^th in 2025 and 3^rd in 2024) could indicate future divestments but cannot be used as evidence of the observed FDI decline in 2021-2024 (Figure 1). These contradicting results lead to mixed conclusions in regard to foreign investors’ declining interest in the Chinese market.

3.1.3. FDI by selected partners

In contrast with the BoP statistics for which data is not disaggregated by FDI source, the utilized FDI provides a view on countries from which it is originating (Figure 3). It identifies Hong Kong as the main contributor to utilized FDI, with a share of around 70% of the total utilized FDI. The year-over-year total decline in utilized FDI in China represented US$25.9 billion mostly due to the decline in FDI from Hong Kong (-US$26.1 billion). This points to Hong Kong as the main cause for the utilized FDI decrease in recent years. In addition, on a smaller scale, many Asian countries diminished their FDI in China in the same period, while utilized FDI from Western countries continued to grow in 2023 despite representing a small share of inward FDI. Finally, utilized FDI from Western countries declined slightly in 2024.

Figure 3: China's utilized FDI by selected source country, inflows

Data: National Bureau of Statistics of China. Data retrieved in June 2026.

3.1.4. Mirror data from selected FDI partners

Looking into outward flow data from the U.S. and European Union corroborate the limited role of Western countries in China’s FDI landscape. Together, American and European FDI account for less than 5% of Chinese inward FDI (Figure 15 in Appendix A). As such, it would be difficult to argue that declining Western investments were the main driver of China’s declining FDI inflows in 2021-2024, and thus a proof of a decoupling of the West from China.

Furthermore, Western countries’ direct investments in China are volatile, but they stood near their average level in 2023-2024 (Figure 4). In 2023, the U.S. and the EU outflows to China declined by US$3.3 billion and US$5.3 billion (€4.9 billion), respectively, from 2022. U.S. outflows however rebounded to US$5.1 billion in 2024, while EU outflows to China reached almost zero (€40 million). In 2023, Western countries’ outflows to China represented around 13% of the US$139 billion (on an IIC basis) year-over-year decline observed in China’s BoP inflows. The magnitude of Western countries’ outflows as well as the relatively stable trends cannot explain the decline in China’s FDI. This finding contradicts the decoupling between China and Western economies narrative.

Figure 4: FDI outflows to China from Western Countries

Data: US Bureau of Economic Analysis and Eurostat. Data retrieved in June 2026.

With no clear evidence of western FDI into China declining, it is worth looking at Hong Kong outflows as mirror data to Chinese inflows, especially given its large share in Chinese inflows (Figure 3). Hong Kong FDI flows into China do not match the 70% share of utilized inflows in China’s data and is less than half of the utilized FDI (37% in 2024) (Figure 5). While some discrepancies are often observed within FDI flows and their mirror data due, for example, to the timing of investment flows, a large difference such as the one at hand is likely indicative of FDI classification discrepancies between the two countries. Again, a contributor to China’s declining FDI does not emerge.

Figure 5: Total inflows in China vs outflows from Hong Kong

Note: Hong Kong outflows were converted from HKD to USD using OFX historical exchange rates.
Data: SAFE, National Bureau of Statistics of China and Hong Kong Census and Statistics Department – table 315-38021. Data retrieved in June 2026.

A possible explanation is that a substantial share of China’s inward FDI passes through Hong Kong but is ultimately coming from another source country (i.e. measured on an IIC basis, FDI would not reflect the investors ultimate source of investment). As a result, the investment would be recorded in China’s statistics as Hong Kongese, while Hong Kong’s own statistical agency could classify them differently. Hong Kong offers greater flexibility in capital management and access to international financial markets, helping Chinese-owned enterprises navigate limitations in domestic financial and legal infrastructure (Wright, Kratz, & Meyer, 2023). Hong Kong’s favorable business environment has attracted many foreign companies to establish regional headquarters there (Figure 6). Although the number of U.S. company headquarters in Hong Kong has declined steadily since 2012, MNEs from other developed economies have maintained a relatively stable presence. Furthermore, in recent years, Chinese businesses have increasingly chosen Hong Kong as a location for establishing regional headquarters,^{Footnote 8} with a sharp rise beginning in 2017. This trend may also have led to round-tripping investment, where capital is routed through Hong Kong and reinvested back into mainland China, further distorting China’s official FDI statistics on an IIC basis.

Figure 6: Regional headquarters in Hong Kong, selected countries

Note: European Union represents the sum for Germany, France, Italy, Netherlands and Austria.
Data: Census and Statistics Department - Table 325-43011A (last data point: 2025). Data retrieved in June 2026.

3.1.5. Variable Interest Entity

Importantly, the complexity of Chinese MNEs corporate structures obscure FDI data interpretation, reinforcing the need for caution when drawing conclusions based on FDI statistics. To circumvent restrictions on foreign ownership, particularly on sensitive sectors such as technology, Chinese companies have increasingly adopted the Variable Interest Entity (VIE) structure to access foreign capital (see Appendix B) (Hanemann, Witzke, & Yu, 2022; Coppola et al., 2021). This company structure allows firms to raise funds from international investors on foreign stock exchange market, without transferring ownership of the underlying Chinese business. As a result, VIE effectively bypass regulatory barriers and blur the line between traditional foreign direct investment and portfolio investment, some of the latter being misclassified as FDI. It also prevents the identification of the investment’s true country of origin, which may help explain some of the discrepancies between reported FDI inflows by China and the corresponding mirror data from Hong Kong. Coppola et al. (2021) estimate that China’s official statistics underestimate the U.S. position in China by roughly US$600 billion. This underestimation implies that the observed negative FDI flows may, at least in part, reflect reduced U.S. investors interest in China, with the result of diminishing FDI flows routed through Hong Kong.

In summary, the negative FDI flows reported in China’s BoP have led some observers to suggest that Western MNEs are divesting from China. While a declining trend in FDI project announcements may indicate reduced interest from Western countries, the BoP decline appears primarily driven by significant repayments of debt instruments following the surge in FDI inflows during the pandemic. This points to the first potential driver of lower inflows: foreign affiliates repaying debt to their headquarters incurred during the COVID period. Secondly, on an immediate investor basis, the U.S. and European countries are not the main contributors to Chinese inflows, and their investment levels have not decreased. Instead, utilized FDI data identify Hong Kong as the principal source of inflows and the main factor behind the observed decline; however, this trend is not observed in Hong Kong’s FDI outflow to China. Given Hong Kong’s role as a regional headquarters hub, some FDI recorded as originating from Hong Kong may not ultimately come from there but rather from Western countries. Thirdly, the growing presence of Chinese headquarters in Hong Kong raises the possibility that round-tripping FDI by Chinese-owned firms accounts for part of the recorded flows and divestment. Finally, by obscuring the ultimate source and nature of foreign investment, the increasing adoption of VIE structures by Chinese MNEs complicates interpretation of official FDI statistics. In short, there are many confounding factors and very little clear evidence that Western companies are divesting from China and a decoupling is taking place.

3.2. Made in China, Sold in China

The shift of foreign MNEs in China from export-oriented production to serving the domestic market has gained prominence in recent years. This trend has led to the belief that foreign firms are undergoing a strategic pivot toward China’s domestic economy. However, our analysis shows that this shift is not entirely new. Declining trade-to-FDI ratios point to a growing orientation toward domestic production, but evidence shows that U.S. MNEs, for instance, have long prioritized the Chinese market. The intensification of this trend suggests deeper integration into domestic supply chains rather than a fundamental strategic transformation. This section examines the evolution of foreign MNE activity in China and challenges the notion of a recent strategic shift.

An emerging narrative in global investment patterns is the shift of foreign MNEs in China from export-oriented production to serving the domestic market (Hanemann, Witzke, & Yu, 2022). This narrative has gained traction in recent years, driven in part by Chinese households’ rapid rise in wealth and consumption capacity, as well as China’s move up the value chain.

China’s merchandise trade and inward FDI stock have grown steadily since 2004 (Figure 7). Trade and investment data moving in tandem could be interpreted as FDI in China being geared towards trade, especially exports. To assess the extent to which FDI is geared toward domestic consumption, this analysis introduces a trade-to-output ratio, a proxy for the trade intensity of foreign-owned MNEs in China. A lower ratio indicates that a greater share of FDI output is likely consumed domestically.

Figure 7: Merchandise Trade and FDI stock in China

Data: Global Trade Atlas and SAFE International Investment Position. Data retrieved in June 2026.

Figure 8 presents data on foreign MNE activities as a share of their total output. Beginning in 2008, the trade intensity of foreign MNE production in China declined steadily, stabilizing around 2016. During this period, while the value of imports and exports grew by 118% and 125% respectively, the output of foreign MNE increased by 224%. This divergence led to a notable decrease in trade-to-output ratios, suggesting that a growing share of foreign MNE production was directed toward the domestic Chinese market.

Although supply chain disruptions and capital access constraints likely affected foreign MNE operations in 2019 and 2020, output levels in 2020 remained significantly higher than in 2008, supporting the narrative of FDI being increasingly focused on serving the domestic market. The data also show a sharp rise in value-added as a share of output, from 0.28 in 2008 to above 0.92 starting in 2017. This is indicative of a shift toward higher-value activities and deeper integration into China’s domestic supply chains.

Figure 8: Trade by Foreign MNE in China as a share of output

Data: OECD Multinational enterprises and global value chains; last data point 2020. Data retrieved in June 2026.

While the trade/output ratio points to a greater FDI focus on domestic market, U.S. data reveal that U.S. affiliates have long had this focus. (Figure 9). Based on operations of U.S. affiliates’ data, 72.2% of goods produced by U.S. affiliates in China were destined for the Chinese market in 2009, a figure that rose to 79.7% by 2022. Over the same period, the share of goods shipped back to the U.S. declined by 3.1 percentage points, reaching just 5.5% in 2022. In the services sector, 83.6% of services supplied by U.S. affiliates in China in 2022 were consumed in China, a slight decrease from 2009. However, there were increases of 2.6 percentage points in services supplied to U.S. parent companies and third countries.^{Footnote 9}

Figure 9: U.S. affiliates' operation in China, goods and services supplied

Data: US Bureau of Economic Analysis (last data point available: 2022). Data retrieved in June 2026.

The common narrative talks about China-based foreign multinationals enterprises shifting from producing in China to producing for the Chinese market. While Foreign MNEs’ trade to output ratio supports this narrative. U.S. data also show that since 2009, U.S. affiliates in China have produced mainly for the Chinese market, rather than for the U.S. and/or other markets.

3.3. Chinese Direct Investment abroad: recent developments

Chinese MNEs are expanding their global footprint, particularly through new investments in emerging markets. In recent years, this narrative has been strongly focused on the growth of Chinese investments in Mexico’s automotive sector, and in Vietnam’s and Thailand's electronics manufacturing sector. Greenfield investment data support this narrative, even though Chinese FDI in these countries remains modest. These investments can appear strategically motivated, aimed at accessing key markets, navigating trade barriers, and leveraging regional trade agreements. This section examines the scale and sectoral focus of China’s outward FDI in these three countries.

China has been steadily expanding its global investment footprint. From 2015 to 2024, outward stock of Chinese direct investment grew by 186%.^{Footnote 10} A shift in geopolitics through the erosion of relations between Western economies and China, along with a growing maturity of Chinese producers, seem to have encouraged the search for new markets.

While China’s global investment footprint spans a wide range of countries and sectors, Mexico, Vietnam, and Thailand emerged as the destinations that recorded the fastest growing Chinese FDI stock when known financial centers are excluded (Table 1). That said, these FDI destinations are representing a relatively small share of China’s investment abroad. Furthermore, these three countries have attracted growing attention due to their strategic positioning in global supply chains and increasing economic ties with both China and the United States. Mexico’s proximity to the U.S. market and its integration into the Canada–United States–Mexico Agreement (CUSMA) make it an attractive destination for Chinese automotive investment. Meanwhile, Vietnam and Thailand are reported to have become important hubs for electronics manufacturing. Advantages of these locations are multiple; amongst others, they may offer competitive production costs and a more favorable trade environment.

Table 1. China’s stock of outward FDI, top 5 growing destination country

Data: National Bureau of Statistics of China. Data retrieved in June 2026.
“*”: Denotes known financial centers.

This analysis examines the sectoral composition of Chinese foreign direct investment (FDI) in three emerging economies. Due to the limited availability of comprehensive data on Chinese outward FDI, this analysis primarily relies on fDi markets greenfield investment data which offer several advantages: i) provides forward-looking insights into FDI trends; ii) includes more granular sectoral information than official statistics; iii) capture very recent developments that may not yet be reflected in traditional data sources; and iv) provides a more accurate attribution of investment projects to their parent company and country of origin. The database, however, provides limited information on mergers and acquisitions and no information on intra-companies’ transactions.

China’s outward greenfield investment constitutes a growing share of global greenfield FDI (Figure 10). Chinese outward greenfield investment has followed an upward trend over the observed period, with the exception of a significant decline between 2020 and 2022 (i.e., the COVID-19 pandemic). Since then, investment activity rebounded and was close to pre-pandemic levels in 2025. Notably, the growth in capital expenditure and job creation has outpaced the increase in the number of investment projects since 2006, suggesting that Chinese greenfield investments are becoming larger and more labour-intensive.

Figure 10: China outward greenfield investments as a share of global investments

Source: fDi intelligence. Data retrieved in June 2026.

Consistent with official statistics, Mexico, Vietnam, and Thailand account for a relatively small share of China’s total outward greenfield investment in absolute terms. Between 2020 and 2024, growth in these destinations, measured by both the number of projects and capital expenditure, has remained below that observed in major recipient countries such as Germany and the United States. However, when we examine the sectoral composition of China’s FDI in these three countries, we notice a significant increase in select sectors – i.e., automotive in Mexico, and electronics manufacturing in Thailand and Vietnam.

This analysis focuses on the sectoral composition of Mexico, Thailand and Vietnam due to their increasing importance in China’s outward greenfield investment and their importance in outstanding narratives, rather than their current levels.

3.3.1. Mexico: the automotive sector

Since 2024, there has been growing attention on large-scale Chinese direct investments in Mexico, particularly in the automotive manufacturing sector (Rhodium Group, 2024). These investments are widely interpreted as strategic moves by Chinese firms seeking access to the North American market and leveraging Mexico’s extensive network of other trade agreements. Additionally, Mexico offers a relatively low-cost yet experienced manufacturing labour force.

According to greenfield investment data, Chinese firms have significantly ramped up their project announcements in Mexico, with the automotive sector accounting for the bulk of this growth (Figure 11). As of the end of 2025, Mexico is the third destination for greenfield investment in the automotive sector by Chinese-owned enterprises with total planned capital expenditure of US$16.4 billion, behind Indonesia (US$41.3 billion) and Kazakhstan (US$16.5 billion). In 2023, announced capital expenditures in the automotive industry reached US$4.5 billion for 30 recorded projects across the whole automotive supply chain.

Figure 11: Chinese greenfield investment in Mexico, automotive vs other sectors

Note: The automotive industry includes related activities and represents a grouping of the following fDi markets’ sectors: automotive components, automotive OEM, metals, non-automative transport OEM, industrial equipment.
Source: fDi intelligence. Data retrieved in June 2026.

Despite the heightened interest demonstrated by the recent surge in FDI project announcements, the reported stock of Chinese FDI in Mexico remains modest. As of 2025, it stood at US$1.8 billion, or 0.2% of Mexico’s total inward FDI stock. Comparatively, recent greenfield investment values in the Mexican automotive sector largely exceed the stock of Chinese FDI reported in Mexico’s official statistics. This statistical discrepancy suggests that many of these investments are still in the pipeline and have yet to be fully realized. Ongoing U.S. protectionist trade policies could delay, scale back, or even halt some of these projects.

A closer look at the composition of FDI inflows reveals a shift in investment patterns. While there was a notable spike in new equity investments from China in 2022, subsequent years have seen a rapid increase in intracompany loans and reinvested earnings. This suggests that Chinese MNEs are increasingly channeling capital into their recently established affiliates in Mexico.

3.3.2. Vietnam and Thailand: the electronic production

Recently, there have been reports regarding the relocation of Chinese firms’ electronic goods production, which could be seen as a strategy to circumvent trade measures and take advantage of lower production costs.

A sharp increase is observed in China’s outward greenfield investment in the electronics sector globally in 2023 as measured for the number of projects and the capital expenditure (Figure 12). In 2023, 168 greenfield projects, representing 21% of all Chinese greenfield investments, were announced in electronics. Although the number of projects declined slightly to 160 in 2024 and 130 in 2025, capital expenditure in the sector dropped more substantially, falling from US$29 billion in 2023 to approximately US$19 billion in 2024 and US$9.9 billion in 2025. This suggests a shift toward smaller-scale or less capital-intensive projects, despite sustained interest in the sector.

Figure 12: Total greenfield investment from China, electronics vs other sectors

Note: Electronics is the sum for the following two sectors: electronic components and consumer electronics.
Source: fDi intelligence. Data retrieved in June 2026.

When comparing the Chinese outward greenfield investment in electronics in Vietnam and Thailand to total number of Chinese projects in all sectors, both countries benefited from the 2023 surge. While their shares of total project count remained modest, greenfield investment data indicate a growing number of new Chinese direct investments being announced in both Vietnam and Thailand starting in 2023 (Figure 13).

In Vietnam, the electronics sector^{Footnote 11} saw a significant surge in 2023, with 17 announced projects totaling US$8.1 billion in capital expenditure. The sector is responsible for the growth in greenfield investment from China that year. In fact, Vietnam accounted for approximately 28%% of total capital expenditure in the electronics sector from China. This peak was driven by a few large-scale investments, notably from Sunny Optical Technology (US$2.5 billion), DBG Technology (US$1.5 billion), and GoerTek (US$1.1 billion). Together, these three projects accounted for approximately two-thirds of Chinese capital expenditure in the electronics sector in Vietnam. As a result, from 2003 to 2025, Vietnam received US$12.4 billion in greenfield investments from China in the electronics sector, making the country the 3^rd largest destination, closely following the United States (US$12.5 billion) and Malaysia (US$15.6 billion). Since 2023, the number of electronics-related projects from China declined in Vietnam, while the number of project announcements from Chinese-owned enterprises in the sector remained somewhat stable for other destinations.

In contrast, greenfield investment in Thailand was more modest, as measured by both the number of project and capital expenditure. Activity in the electronics sector peaked in 2023 and remained stable afterward, with 8 projects valued at US$0.7 billion in 2023, 7 projects (US$0.7 billion) in 2024, and 9 projects (US$1.4 billion) in 2025.

Figure 13: Chinese greenfield investment in Thailand and Vietnam, electronics vs other sectors

Note: Electronics is the sum for the following two sectors: electronic components and consumer electronics.
Source: fDi intelligence. Data retrieved in June 2026.

This analysis shows that Vietnam and Thailand were recent beneficiaries of Chinese electronics greenfield investment. In particular, Vietnam attracted several high-value projects, notably in 2023. Thailand, on the other hand, saw a more modest growth of the sector.  

4. Conclusion

This report has examined three dominant narratives surrounding Chinese FDI: the supposed decoupling from Western economies, the strategic shift of foreign MNEs within China, and the expansion of Chinese firms abroad. Using a combination of official statistics, mirror data, and greenfield investment records, the analysis provides a more nuanced and evidence-based understanding of China’s evolving investment landscape.

First, while China’s inward FDI reached negative values in 2023 and 2024, the decline cannot be attributed to a broad-based retreat by Western investors. Instead, it is largely explained by reverse flows from Hong Kong and intra-company financial restructuring. On an immediate investor basis, Western countries have never been major direct investors in China, and their FDI levels have remained relatively stable. This challenges the narrative of economic decoupling and points instead to structural and financial dynamics. However, there is growing evidence that China’s FDI statistics may include substantial round-tripping flows and misallocated foreign portfolio investment, channelled through intermediary jurisdictions. As a result, recent divestment trends may reflect shifts in financial channels and regulatory constraints rather than a broad-based geopolitical disengagement.

Second, foreign MNEs operating in China are increasingly oriented toward serving the domestic market. This shift is reflected in declining trade-to-output ratios by foreign affiliates. However, the data also show that this is not a new phenomenon, with data for the U.S. firms showing that the U.S. production in China had for some time been focused on servicing the domestic Chinese market. The trend appears to be intensifying rather than emerging, suggesting deeper integration into China’s domestic economy.

Third, Chinese outward FDI is expanding, especially through greenfield investments in strategic sectors and emerging markets. While Mexico, Vietnam, and Thailand still represent a modest share of China’s total outward FDI, recent investments in automotive and electronics manufacturing signal targeted efforts to access key markets and navigate trade barriers. These sector-specific developments suggest China’s evolving internationalization strategy and its responsiveness to geopolitical and regulatory pressures.

Taken together, the findings underscore the importance of disaggregated data and structural context in interpreting FDI trends. Rather than confirming simplistic narratives of retreat or decoupling, the evidence points to a reconfiguration of investment flows shaped by firm-level strategies, financial structures, and shifting global dynamics. Understanding these complexities is essential for policymakers, analysts, and stakeholders seeking to navigate the future of global investment and trade.

Finally, in the context of ongoing geopolitical realignments, many countries are increasingly seeking to diversify their economic relationships beyond traditional partners. Within this evolving landscape, China is a significant and expanding source of global FDI. Consequently, it will be essential to continue to evaluate ways for Canada not only to strengthen its existing FDI relationships but also to explore new avenues for investment diversification to ensure economic resilience and long‑term competitiveness.

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Appendix A - China’s FDI Landscape: A Snapshot

China has been an attractive destination for FDI over the past 16 years; the inward stock of FDI almost tripled over the period to reach US$ 3,729 billion in 2024, despite a growth slowdown since 2021 (Figure 14).^{Footnote 12} Since 2009, China’s FDI stock growth rate was 7.7%, well above the global FDI annual growth of 4.8%. As a result, the country attracted an increasing share of global FDI that grew from 6.1% in 2009 to 9.1% in 2024 (+3.0 percentage points).

Figure 14: China’s Inward Direct Investment (International Investment Position), 2009-2024

Data: IMF - Direct Investment Positions by Counterpart Economy dataset (last data point: 2024). Data retrieved in June 2026.

Advanced Western economies contribute only a small share to China’s FDI stock when measured on an IIC basis (Figure 15). From 2009 to 2024, the stock of Western countries’ FDI in China followed an upward trend. In 2024, the stock of FDI in China from the United States and the European Union, represented approximately US$ 382B, or 1/10 of all FDI in China, with the United States representing approximately 2% and the European Union 8% of Chinese FDI stock.

In 2024, Western countries’ total outward FDI to China represented less than 2% their total outward FDI. The percentage slightly increased over the observed period, which could be indicative of the raising, but still limited, attractiveness of China for Western countries’ MNEs.

Figure 15: Western Countries Direct Investment in China

Note: European Union outward FDI was converted from EUR to USD using OFX historical exchange rates.
Data: Eurostat and BEA. Data retrieved in June 2026.

Appendix B - Variable Interest Entity (VIE)

A typical VIE structure begins with foreign investments in a Special Purpose Vehicle (SPV), which is a publicly-listed company incorporated in an offshore financial center (OFC), such as the Cayman Islands, the Bahamas or the British Virgin Islands. While the SPV (i.e. SPV A) in the OFC is a subsidiary of the parent company, it is also a completely separate entity with its own corporate and management structure. In the Chinese case, the SPV may set up another SPV in Hong Kong (i.e. SPV B) to benefit from its business-friendly environment and leverage existing tax treaties with China. The final SPV (either A or B, if it exists) then establishes a foreign-owned affiliate in China, known as a Wholly Foreign-Owned Enterprise (WFOE). The foreign investment is transferred as FDI through the SPV that owns the WFOE. The WFOE then transfers the capital via an interest-free loan to the Chinese company with legitimate operations, referred to as the VIE. In return, the WFOE is granted the right to purchase i) the VIE at a predetermined price (Call Option Agreement), ii) voting rights, and iii) the right to attend meetings (Power of Attorney). It may also receive royalties, particularly on intellectual properties. However, for the foreign investor, the primary return on investment comes from market appreciation.

This layered structure blurs the distinction between foreign direct investment and portfolio investment. Although the capital enters China through the WFOE and is often recorded as FDI, the underlying investment resembles portfolio flows, as foreign investors typically hold shares in the offshore SPV (SPV A) rather than the Chinese operating entity. Consequently, official FDI statistics may overstate the extent of foreign control and understate the role of portfolio investment. This ambiguity is particularly evident in the dominant role of Hong Kong in China’s FDI (Figure 16). In 2024, Hong Kong accounted for 59% of China’s total inward FDI stock, up from 45% in 2009. Offshore financial centers such as the British Virgin Islands and the Cayman Islands also played a significant role, together representing about 14% of total inward FDI. These patterns suggest that a substantial portion of foreign investment in China may be routed through intermediary jurisdictions, obscuring the ultimate source of capital.

Figure 16: China top 10 source of FDI (IIC basis) as a % of total, 2009 and 2024

Data: IMF - Direct Investment Positions by Counterpart Economy (last data point: 2024). Data retrieved in June 2026.

The existence and importance of VIEs in the attraction of foreign capital is documented. As of March 7, 2025, the US-China Economic and Security Review Commission (USCC) reported 286 Chinese companies listed on U.S. stock exchanges with a market capitalization of $1.1 trillion, an increase of $250 billion from the beginning of 2024, but down from $2.1 trillion in May 2021 (USCC, 2025). The prevalence of VIE structures could explain Hong Kong’s importance in China’s FDI statistics and the discrepancies observed between bilateral data, Chinese inward flows, and Hong Kong outward flows. However, despite the growing market capitalization of VIE-listed firms there is no evidence that these valuations translate into increased FDI inflows. Research shows that FDI inflows do not co-move with rising market valuations (Coppola et al., 2021). This is likely because the bulk of foreign capital enters a VIE during initial public offerings and secondary market appreciation of shares had limited impact on VIE’s capacity to access new capital. Notably, under this structure, dividend payments may even result in reverse FDI, as funds flow back to offshore entities.^{Footnote 13} The opacity of these investment flows makes it difficult to accurately assess the true nature of foreign involvement in Chinese firms.

The widespread adoption of the VIE structure by Chinese-owned firms to attract capital from Western countries has recently begun to receive attention. Using firm-level data, Coppola et al. (2021) map security issuers to their ultimate parent companies and reallocate offshore-issued securities to reflect ultimate, rather than immediate, country of ownership, enabling the construction of reallocation matrices that adjust bilateral investment positions accordingly. Their reallocation of global investment shows that in 2017 United States’ national account understates the U.S. position in Chinese firms by nearly 600 billion dollars and estimates that the European Union position in Chinese equities should be about three times higher. Furthermore, they find that Chinese’s official statistics overestimate its net foreign assets position by about US$1 trillion, or about 50% of its position. Updating Coppola et al. (2021) research, Clayton et al. (2023) finds that by the end of 2020, approximatively 70% of foreign fund investment in China was via a tax haven affiliate of a Chinese firm. 

Recent changes in VIE regulations could have contributed to the observed decline in Chinese FDI inflows. In February 2023, the China Securities Regulatory Commission (CSRC) introduced new filing requirements for overseas listings involving VIE structures. These rules require government approval for new VIE listings and have significantly slowed the pace of VIE formation. By September 2023, only two companies had completed the required filings, suggesting that the regulation may have limited the creation of new VIEs, thus contributing to the observed decline in FDI inflows during that period.

Overall, the prevalence of VIE structures and the use of intermediary jurisdictions such as Hong Kong and other offshore financial centers complicate the interpretation of China’s FDI data. The lack of transparency in source and destination data, combined with the nature of VIE investments, challenges conventional classifications and may distort bilateral investment statistics.