China Power

The Security Implications of China’s Overseas Investment Boom

The international implications of Chinese investment abroad, and security moves designed to protest those assets.

The Security Implications of China’s Overseas Investment Boom
Credit: UN photo/ Stuart Price

Recently, various sources have revealed Chinese forces, perhaps including elements of the Chinese military, have been involved in “joint counterterrorism operations” in Afghanistan where Chinese companies have several billions dollars of investment in mining, transportation, and utilities. To be clear, overseas involvement for Chinese forces is not new, with Chinese forces involved in multilateral crime patrols with Laos, Myanmar, and Thailand in the Mekong river about five years ago and Chinese police engaging in joint patrolling with Italian police in certain Italian cities starting last year. However, involvement in the tumultuous situation in Afghanistan seems to be a qualitatively different level of activism than the Mekong River case or police patrolling in Italy. Media have reported, too, the emergence of “private” security companies, with links to Chinese security agencies, in places such as South Sudan and other places like Ethiopia and Iraq. These kinds of developments are raising or reviving questions about China’s intensifying economic internationalization and its global implications.

By way of background, the People’s Republic of China has had an overseas economic presence for decades. However, it intensified in the 1980s as China’s evolving political and economic interests drove it to participate more broadly and deeply in international economic organizations (IEOs) like the World Bank, to join the international trading system, and to start investing abroad, albeit in small amounts in nearby locales. The picture changed, though, due to China’s surging foreign exchange reserves, growing experience with overseas investment and foreign investment destinations, and intensifying competition in the Chinese market. It also changed due to Chinese companies’ rising needs for brands and technology, and China’s voracious appetite for resources.

As a result, Chinese outward foreign direct investment (COFDI) went from invisible to eye-catching. According to United Nations Conference on Trade and Development data and other sources, in 2000, annual COFDI ran less than $2.3 billion. Five years later, it hit $72.4 billion. In 2015, it reached an astounding $135.6 billion, with COFDI found in a diverse mix of sectors, above all natural resources, and developed and developing countries spanning the globe.

As suggested above, there are many political, military, economic, and social questions swirling around COFDI, ranging from its effect on employment and the environment in recipient (or host) countries, to its effect on the policies of host countries toward China and policies favored by it, to its implications for Western ideologies like economic neoliberalism.  Many have been curious, too, about the impact of COFDI on Chinese foreign policy activism on the diplomatic and military front, long-standing Chinese principles such as “non-interference in the internal affairs of other countries,” and China’s stance toward IEOs. While the extent to which China previously was truly inactive on the international front or genuinely adhered to the principle of non-interference has long been debated, these questions have emerged anew as a result of the recent stories enumerated above as well as China’s intensified participation in United Nations Peacekeeping Operations, the involvement of its navy in unilateral anti-piracy actions off the Horn of Africa, and China’s role in supporting initiatives to stabilize Sudan and South Sudan.

The general inclination in the West is to highlight the negative implications of these developments: Among other things, they are viewed as a mark of the decline of the power of the West (above all the United States), evidence of China’s tightening grip over global infrastructure and resources, and indisputable signs of China’s newfound foreign policy activism and expanding overseas military footprint. Beijing, of course, has gone to pains to deny any malevolent intentions and there is considerable evidence it has been moderate and attentive to the sensitivities of host countries when it does undertake overseas activities. Still, the clear association of China’s expanding foreign military and security footprint with rising COFDI and other areas of growing overseas Chinese presence, China’s increased ability to take a more active stance abroad, and China’s greater familiarity with the requirements and upsides and downsides of overseas activism and history of other great powers mean there is a strong basis for expecting more of the same going forward.

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Given this, the question of the effect of COFDI on Chinese foreign policy ideologies, policies, and policy implementation becomes more relevant. Unfortunately, it is a difficult task to answer what will happen in these areas. Regardless, if Chinese involvement geared to protecting Chinese overseas assets and nationals also serves to improve the situation in parts of the world where Western countries and Western-led institutions have been struggling for years to promote peace and development, then it is hard to claim definitively that the political effects of COFDI and other forms of Chinese economic internationalization are bad. On the contrary, they may help to reduce terrorism, increase opportunities for Western companies, and enhance regional stability. Of course, if it is too self-serving or puts China in league with problematic regimes that only make the security situation worse, then it would seem the political effects of COFDI are not something to be welcomed. Still, even if increased Chinese overseas activism was self-serving, it is not clear this would be a bad thing if it led Beijing to absorb some of the burdens previously borne by the West, which always cries about the need for China to provide more “public goods,” or if it led Beijing, as it tries to reduce its risks, to work more cooperatively with other actors.

The above does not deny that COFDI flows, a rising Chinese overseas security presence, and increased Chinese foreign policy activism may spur human rights, environmental, labor, or other problems. These issues, however, need to be considered on their individual merits. What this piece points out is that it is problematic to judge the political effects of China’s intensifying economic internationalization without undertaking rigorous analysis. Indeed, thoughtful analysis is imperative given that China’s internationalization will remains a key facet of world politics. Otherwise, the world risks rejecting something that potentially should be embraced and encouraged.

Jean-Marc F. Blanchard is Distinguished Professor, School of Advanced International and Area Studies, East China Normal University (China), and Founding Executive Director at the Mr. & Mrs. S.H. Wong Center for the Study of Multinational Corporations (USA).