As Australia wined and dined leaders from across Southeast Asia, China threw a knockout punch, with investment in Asia-Pacific surging despite the world’s second-largest economy seemingly oscillating day to day.
This is according to a new Griffith University and Shanghai’s Fudan University report yesterday. It shows that Chinese investment totalled nearly $20 billion across the region last year, up 37% – including more than $17 billion in construction contracts, partly financed by Chinese loans, marking a roughly 14% increase from 2022.
It contrasts sharply with last year’s 12% decline in foreign direct investment into emerging economies.
In the same week, the Chinese government targeted gross domestic product growth of “around 5%” for 2024 – matching last year’s target.
Analysts are now pointing to heavy pressure on the economy due to sluggish global and domestic demand, restrained manufacturing, and a relentless property slump.
According to the report, most of the overseas activity is connected to countries involved in the Belt and Road Initiative (BRI), Beijing’s drive to build a network of infrastructure projects across 150 countries from Asia to Europe.
Last week, Wood Central spoke to Rudolf van Rensburg, the co-author of “China – Forest, Log & Lumber Outlook,” who said China is investing heavily in oriented strand board (OSB), plywood and “has big plans to increase its pulp production,” to meet the demands of the Global South.
In October, Wood Central revealed that the BRI controls 30% of the world’s timber supply chain and has spent more than $1 trillion since its launch in 2013. However, momentum has tapered off in recent years as the pandemic and China’s slowdown disrupted the global economy.
Investment in non-BRI countries plunged to an all-time low of $120 million, down 90% from what was already a record low in 2022, according to data provided by the director of the Brisbane-based Griffith Asia Institute, Professor Christoph Wang.
Dr Wang also said BRI participants also accounted for 92% of construction contracts, “the most interesting trend we found in 2023 was the strong emergence of a ‘green China engagement’ through energy and mining investment, which is going up, not down,” Dr Wang told an interview with Nikkei Asia, a Japan-based publication.
The combined data on Chinese investment and construction contracts suggests that activity returns to practices seen before the pandemic.
In the past, investment was a heavy component of Chinese engagement in the region, but in 2021, construction accounted for more than 70% for the first time. According to the report, investment made up about 54% of total engagement last year, approaching pre-pandemic levels, with more than 50% in Southeast Asia alone (up from 27% in 2022).
Indonesia, now a popular destination for Chinese-backed plywood manufacturing, is the largest recipient of Chinese investment, taking over $7.3 billion in Chinese government-backed loans in 2023.
According to Dr Wang, TikTok’s 75% acquisition of Indonesian e-commerce business Tokopedia was a key driver of Chinese investment – with the Chinese tech giant eying a piece of the Chinese e-commerce market after regulators forced TikTok to split its shopping features from its social media functions last October.
On the other hand, six countries—the Philippines, Mongolia, Myanmar, Papua New Guinea, Tajikistan, and Turkey—saw 100% drops in Chinese engagement from 2022—in other words, there were no new investments or construction projects.
“There are various reasons, but it is typically due to the incorporation of political and economic risks,” Dr Wang said, adding that “for example, the Philippines and China have had some cooling of bilateral relationships.”
“Engagement in the China-Pakistan Economic Corridor dropped by about 74% amid the South Asian country’s political turmoil and concerns over militancy,” whilst engagement in Australia was down 66%.
“Overall, Chinese private companies dominated Asia-Pacific investment in the past year, with more Chinese players joining the fray than in the previous two years. Construction engagement, like last year, was dominated by state-owned enterprises.”
Dr Wang said the majority of investors were involved in energy transition and battery material projects, underscoring China’s ascent to the top of the world’s minerals and renewable energy industrial supply chains.
Zhejiang Huayou Cobalt, one of the world’s largest cobalt refiners, contributed 21.2% to the total investment, followed by e-commerce group Alibaba’s 11.6%.
Meanwhile, China is heavily invested in metals and mining, particularly resources relevant to the ‘green transition’ such as lithium and battery materials and nickel for EVs, which are focused on Indonesia, South Korea, Vietnam, and Bangladesh.
Such engagement reached $5.3 billion, growing 130% from 2022 but still off the pace in 2018 and 2019.
Notable investments in the EV sector include a joint venture between Zhejiang Huayou Cobalt and LG Chem in South Korea and Chinese automaker plants in Thailand, Vietnam, and Malaysia.
“Similar to the BRI, China’s engagement in the Asia-Pacific does not necessarily jibe with Beijing’s stated strategy of pursuing ‘small yet beautiful’ projects,” Dr Wang observes.
“After ten years of the Belt and Road, there has been much talk of a recalibration toward more modest endeavours, particularly given China’s economic problems.”
Yet, the average deal size for investments remained high, “$499 million, which is more than double the 2021 level of $195 million,” before adding that “for construction projects, deal size increased to $401 million in 2023 from $285 million the previous year.”
The report predicts a further recovery in Chinese investment and construction in the region this year due to increased urgency in the ‘green transition’ and softening domestic demand, pushing Chinese companies to seek opportunities abroad.
Furthermore, the report says that China might continue engaging in large strategic infrastructure projects that might not have direct financial benefits, pointing to rail, road, and ports, as Beijing seeks to “avoid dependence on vulnerable transportation links.”
- For more information about the Chinese forest economy and the role of the Belt and Road Initiative in driving the global supply chain for timber products, click here to view Wood Central’s exclusive interview with the co-authors of the most comprehensive report on the Chinese forest industry ever conducted.
