The Context
When looking at Chinese overseas projects, it is helpful to understand what is driving that investment. This page looks at the trends and motivations behind Chinese investment over the past two decades, from the “Going Out” strategy to the Belt and Road Initiative, which is now the guiding framework behind much of China’s outbound investment and finance. It also discusses China’s overseas aid and the ongoing development of the institutions responsible for its implementation.
China’s “Going Out” Strategy
In the late 1990s, as China was preparing to join the World Trade Organization (WTO) and seeking to become more integrated into the global economy, the government began to encourage Chinese companies to go overseas (at this time, most Chinese companies had very little experience outside China). This was known as the “Going Out” strategy. The government encouraged companies to invest in overseas construction projects, promote trade and exports, and invest in strategic natural resources. Since then, the Chinese state has strongly supported outbound investment, facilitating the provision of finance, insurance, foreign currency, tax incentives and other services. Increasingly, private capital has also become an important driver of overseas investment.
There are various motivations behind China’s push to increase overseas investment. One goal is the acquisition of strategic resources and energy supplies. Chinese companies also seek to increase their access to global markets and value chains, develop their technical capacities and expertise, and build companies that can compete in global markets. China’s domestic economic growth has been fueled by investment in industry and infrastructure. This led to Chinese companies building up capacity in construction and production. As China developed, this capacity could not be fully absorbed domestically. The government responded to this by further encouraging Chinese companies to invest overseas, especially in industries where China has excess capacities.
The Belt and Road Initiative
In 2013, President Xi Jinping announced the Belt and Road Initiative. Under this initiative, China continues to develop global connectivity and trade routes, enhance the international presence of Chinese companies, and increase access to global markets. The trade and investment components of Belt and Road can be seen as the next phase of the “Going Out” strategy. China’s aid program is also now captured within the rhetoric of the Belt and Road. The initiative was first officially explained in writing in 2015. The initiative was first officially explained in writing in 2015. This set out five main pillars: Policy coordination; facilities connectivity; unimpeded trade; financial integration and people-to-people ties.
“Facilities connectivity” covers the infrastructure component of the Belt and Road Initiative. This has received the most attention and is central to the Belt and Road, but the other four pillars are equally important to the initiative. Policy coordination feeds into host country development planning, which in turn facilitates infrastructure projects. These projects often require large amounts of finance, and ultimately support increased trade. Along the way, China seeks to promote greater interactions with governments, the private sector and populations located in host countries.
Originally the Belt and Road Initiative covered around 65 countries, but over time many more have signed memorandums of understanding to cooperate along the Belt and Road. By 2021, around 140 countries had signed such agreements and the Belt and Road Initiative has become a general framework for China’s global engagements.
In Chinese government statements, the Belt and Road Initiative has become a broad term that covers a wide range of policy issues related to China’s engagement with other countries. Therefore, it should not be regarded as a single “program” with a clear administrative structure. However, there is a high-level Leading Group for Promoting the Belt and Road Initiative, which is made up of several senior officials who are responsible for guiding the top-level vision of the initiative. The more concrete policy formulation is in the hands of various ministries, the most important of them being the National Development and Reform Commission (NDRC).
As critical attention has fallen on the Belt and Road Initiative, China has increasingly made reference to building a “Green Belt and Road.” Chinese President Xi Jinping and other senior officials also frequently state that the Belt and Road Initiative will pursue “high-quality development.” This language is now often adopted in official documents and guidelines related to overseas investment.
Chinese Overseas Aid
China has yet to develop a systematic aid reporting system, and official information about China’s foreign aid is not released in a regular manner. According to the last official report published by China’s State Council in 2021, between 2013 and 2018, 45% of China’s aid went to Africa, followed by almost 37% to Asia. Most Chinese aid has supported public facilities (such as hospitals, schools, water supply and other public infrastructure) and infrastructure projects (including transport, communication and energy).
Publicly available information on China’s aid program is limited, and China has not had a dedicated aid agency until recently. Previously, the Ministry of Commerce oversaw China’s aid provision. This changed in 2018, when the China International Development Cooperation Agency (CIDCA) was established.
In 2021 a new administrative measure was issued that sets out the roles of CIDCA and the ministries of commerce and foreign affairs. CIDCA is now the central agency for aid planning and related policy making, and it coordinates across different government bodies. The Ministry of Foreign Affairs is responsible for supervision of aid projects, and the Ministry of Commerce for implementation.
Most Chinese aid is provided “in-kind” (rather than in cash), meaning that China provides materials, builds projects, sends experts to provide services, or provides scholarships and training for recipient countries. The majority of Chinese aid projects are the “complete projects” mentioned above and donation of materials. These are funded in three ways:
- Grants: A gift of money, services or goods for a specific project that does not need to be re-paid.
- Interest-free loans: A loan provided from China’s state budget that must be paid back during a specific period, but with no
interest . China has forgiven manyinterest -free loans that could not be repaid when they reached maturity.
- Concessional loans: A loan that must be paid back, but often over a long repayment period with an interest rate that is below the market rate. This kind of loan is provided through the Export-Import Bank of China (Eximbank). Unlike interest-free loans, they are rarely forgiven, but may be rescheduled when countries have difficulty repaying.
Typically, projects for public services such as schools, hospitals and government buildings are funded by interest-free loans. Concessional loans are used for infrastructure projects such as power plants, roads and other infrastructure. Projects financed by Chinese aid are often implemented by Chinese state-owned enterprises.
China’s foreign aid has increased considerably in recent years, but it is still much smaller than Chinese outbound investment. Although Chinese aid-funded projects are subject to different approval and monitoring processes than Chinese investment, projects are often contracted to Chinese companies. These companies are subject to many of the policies and guidelines that are discussed in this guide, including those applying specifically to international contracting.
For a useful primer on Chinese aid see here.