China’s Persistent Global Influence Despite Economic Growth Challenges

Zongyuan Zoe Liu CLM Issue 81 September 2024

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Despite its economic growth challenges, China’s global influence remains strong due to its significant role in international finance and development. China invests globally not because of its excess capital but to serve domestic needs. Since 2016, China has consistently ranked among the top three in foreign direct investment flows and has been the world’s largest bilateral official creditor since 2017. Chinese state-directed capital has amplified China’s geo-economic clout, with substantial investments in overseas assets, including foreign firms and critical infrastructures. China’s international creditor position and global development initiatives have made it a formidable force in redefining the sovereign debt restructuring negotiations process and reshaping global governance. China’s competitive clean energy industrial sectors, such as electric vehicles and batteries, will continue challenging Western industries. Finally, China’s efforts to promote an alternative financial system to mitigate geopolitical risks advance its continued global presence.  

In a Foreign Affairs piece published on the 72nd anniversary of the establishment of the People’s Republic of China, Michael Beckley and Hal Brands write, “Welcome to the age of ‘peak China.’”[1] They later elaborate on the “Peak China” thesis and offered policy recommendations for U.S. policymakers in their book Danger Zone: The Coming Conflict with China. Observing China’s declining economic indicators, Ruchir Sharma writes in the Financial Times that “China’s rise as an economic superpower is reversing,” and he declares that “it is a post-China world now.”[2]

The “Peak China” thesis starts with the accurate observation about the Chinese economy that certain tailwinds contributing to China’s double-digit growth have become headwinds. Economically, the confluence of growing political pathologies, worsening resource shortfalls, demographic catastrophes, and a hostile global geopolitical environment means the Chinese economy will no longer ascend; instead, it will inevitably “suffer a severe and sustained economic slowdown.”[3] Geopolitically, the “Peak China” thesis also posits that China’s “best days are probably behind it” because an increasingly unfavorable regional geopolitical environment near China’s borders amid unabated tensions with the United States exposes China to a hostile geopolitical cauldron.[4] As Michael Beckley and Hal Brands argue, “Once-rising powers frequently become aggressive when their fortunes fade and their enemies multiply.”[5] Drawing lessons about falling powers in history, the “Peak China” thesis depicts an upcoming conflict between the United States and China, largely due to China as a revisionist power becoming more aggressive and unpredictable because it views that its window of opportunity is beginning to shut. Considering the possibility of a looming conflict with China aggressively seeking to secure its interests before its power wanes further, the United States should have a “danger-zone strategy” to downgrade Chinese coercive capabilities through the use of a comprehensive tech embargo and trade and financial sanctions to drag down the Chinese economy.[6]

The “Peak China” thesis has received varied responses among U.S. researchers and policy veterans in Washington. For example, Oriana Skylar Mastro and Derek Scissors point out that China has not peaked, China’s decline from its economic peak will be gradual, and China is likely to bide its time to develop its technology capacity and to build up its military rather than frantically rushing into a conflict with the United States. Thus, the United States is likely to be challenged by a confident and capable China rather than by an anxious and reckless China, as Brands and Beckley suggest.[7] Regarding the policy implications derived from the “Peak China” thesis, Evan Medeiros warns that it “does not explain much about the challenges posed by China in the twenty-first century … only confuses the debate in the United States,” and he cautions that America cannot wish away its toughest challenger, and U.S. policymakers “need to determine where and how to compete with China and, equally important, what risks they are willing to take and what costs they are willing to pay.”[8]

The “Peak China” thesis accurately highlights China’s economic challenges. However, it fails to recognize that the exact same structural factors causing China’s economic difficulties – such as overcapacity – have also created globally competitive Chinese industries and brands. The competitiveness of China’s new industrial sectors, such as electric vehicles, batteries, and solar cells, has become a source of concern for Western policymakers and industry leaders who fear a loss of their industrial foothold. In response to China’s growing edge in the clean energy transition, major Western economies have increasingly resorted to industrial policies and protectionist trade measures. Addressing the structural roots of China’s economic woes will take years. Yet, as China tries to muddle through its pressing challenges by expanding sales in global markets, it will continue to challenge foreign policymakers.

Another oversight of the “Peak China” thesis is its failure to acknowledge China’s growing influence in the global financial system, especially through development finance and overseas investment. In 2016, China ascended to become the second-largest investing country in the world, and it has since consistently ranked among the top three in terms of foreign direct investment (FDI) flows.[9] Since 2017, China has emerged as the world’s largest bilateral official creditor, outstripping the combined claims of the World Bank, IMF, and all 22-member Paris Club creditors.[10] In a recent essay in The New York Times, Michael Beckley correctly acknowledged China’s role as a leading international creditor.[11] However, the analysis perpetuated the “debt trap diplomacy” misconception, even though substantial robust empirical evidence from scholars suggests otherwise.[12] Moreover, it fell short of recognizing China’s formidable role in reshaping the sovereign debt restructuring negotiation process and reforming global governance despite its domestic economic difficulties.

China’s state-directed capital has gone global, amplifying the nation’s geo-economic clout.[13] This global financial influence transcends mere newspaper headlines and statistics. China’s rising influence is demonstrated by Chinese investors’ acquisitions of foreign firms, materialized in infrastructure projects constructed and funded by Chinese companies and Chinese money, and occasionally, demonstrated by diplomatic shifts whereby governments, incentivized by Beijing’s economic packages, realign with Beijing over Taipei.

China Invests Globally Not Because of Its Excess Capital

China’s foray into overseas investment began not because of its abundance of surplus capital but despite its domestic economic backwardness. Since the beginning of the reform and opening up in the late 1970s, Chinese planners viewed encouraging outbound investment as a way to bolster exports, earn foreign exchange reserves, and access Western advanced technology for domestic industrial modernization. In August 1979, the State Council issued a set of fifteen economic reform measures, with the 13th specifically encouraging companies to pursue overseas ventures and direct investment.[14] Since then, state-owned non-financial enterprises have led the charge of China’s overseas direct investments in non-financial sectors.

Between 1979 and 1985, China established 185 non-trading foreign affiliates, primarily through joint ventures, in 45 countries and economies.[15] For example, the Keiho Company, a joint venture between Beijing Friendship Commercial Service Company and Japan’s Tokyo Maruichi Corporation in Tokyo established in November 1979, became the first overseas joint venture following China’s reform and opening up.[16] Subsequently, state-owned enterprises with established international trade networks began to establish subsidiaries or representative offices abroad. The period from 1985 to 1990 saw a surge in overseas investment, with China’s state-owned enterprises setting up 577 non-trading foreign affiliates across over ninety countries and economies.[17]

Since the 1997 Asian financial crisis, China’s overseas direct investments have grown significantly, fueled by firm-level incentives and macroeconomic conditions. At the firm level, companies are eager to invest in other countries to gain access to factors of production, such as raw materials, capital, technology, expertise, and market insights. Expanding overseas helps firms diversify operational risks and gain a bigger global market share over time. Additionally, with tough competition at home and sometimes expensive price wars that erode profits, companies are looking to sell overseas where they can make more money.[18] 

It is worth noting that these firm-level incentives have been significantly shaped by the broader macroeconomic environment. A key driver behind China’s push to increase overseas manufacturing investment has been the government’s strategy to encourage production overseas. The primary factor driving China’s state-owned financial institutions to allocate assets globally has been the need to optimize the management of China’s foreign exchange reserves.

At the macro level, the Chinese government has supported a long-term strategy to shift from exporting “made-in-China” products to producing at the export destination. This strategy has been driven by two main factors. First, as Chinese exports soared, since the 1990s Chinese firms have frequently faced anti-dumping investigations. Producing overseas at export destinations helps mitigate such risks. Second, nationwide duplicate investment in state-prioritized sectors driven by industrial policies frequently led to excess production capacity, fierce domestic competition in homogenous products, plummeting industrial profitability, and a huge waste of resources.

To correct course and shift excess manufacturing capacity overseas, in 2006 the government officially encouraged firms to invest in overseas economic and trade cooperation zones. The Ministry of Commerce laid out criteria and procedures for setting up 50 such zones.[19] Additionally, in September 2009, the State Council issued the “Opinions on Reducing Overcapacity and Duplicate Construction in Some Industries and Guiding Industrial Healthy Growth,” a policy document jointly drafted by ten agencies, including the National Development and Reform Commission (NDRC) and China’s financial regulators.[20] In this document, the Chinese government explicitly encourages firms to “go out” and shift production capacity overseas to participate in overseas industrial competition. Fast forward, President Xi Jinping unveiled the Belt and Road Initiative (BRI) in his speech at Nazarbayev University in September 2013.[21] In early October 2013, the State Council issued the “Guiding Opinions on Resolving Serious Overcapacity Problem,”[22] The Opinions call for expanding domestic demand and overseas markets, encouraging Chinese firms to invest overseas, strengthening investment cooperation with neighboring countries and emerging markets, and building overseas production bases.

According to China International Engineering Consulting Corporation, a state-owned consulting firm under the purview of the State-owned Assets Supervision and Administration (SASAC), by the end of 2022 China had established 125 such economic and trade cooperation zones worldwide, with 112 (nearly 90 percent) located in BRI countries, 57 (45.6 percent) in the manufacturing sectors, and only 5 featuring R&D.[23] These cooperation zones in foreign countries are more than merely tokens of China’s economic statecraft. As Deborah Bräutigam and Tang Xiaoyang note, they serve as platforms to accelerate China’s own domestic restructuring by easing the outward investment of mature Chinese firms, boosting demand for Chinese-made machinery and equipment, and reducing trade frictions by relocating production to third countries.[24] The trend of Chinese companies relocating production facilities abroad has gained momentum in recent years due to recurring price wars and rising trade barriers. For example, China’s leading EV maker BYD has invested billions of dollars to establish factories in Hungary, Thailand, Turkey, Indonesia, and Brazil.[25]

China’s recurring cycles of overcapacity have been a drag on its economic growth. This structural problem will not be resolved because of China’s economic growth slowdown or the West’s erection of trade barriers. Chinese domestic economic policies and the resultant internal structural imbalances will continue to challenge national economies in foreign countries and shape their economic and trade policies. [26] The rise of industrial policies and protectionist trade measures in the United States is one such example. As Michael Pettis argues, “the U.S. economy is already subject to aggressive trade and industrial policies” and a U.S. industrial policy “had to emerge as the obverse of other countries’ industrial policy.”[27]

The need to optimize China’s growing stocks of foreign exchange reserves has led Chinese investment institutions to invest overseas, especially since the 2007–8 global financial crisis.[28] State-owned investment institutions, such as China Investment Corporation (CIC) and investment institutions affiliated with the State Administration of Foreign Exchange (SAFE), have become major players at home and in global financial markets.[29] They have been created by leveraging China’s foreign exchange reserves with the goal of achieving optimal returns in global markets and supporting national interests. Over the years, Chinese sovereign funds have played a crucial role in rescuing Chinese banks, backing industrial policies, acquiring strategic assets abroad, bankrolling mergers and acquisitions by Chinese companies overseas, and nurturing homegrown technology startups.

Under President Xi’s leadership, there has been a heightened focus on the Party’s leadership of economic and financial issues, with financial security being deemed as an essential part of national security. This has resulted in President Xi’s direct involvement in using sovereign funds to enhance bilateral ties, fund BRI projects, and finance industrial policies.[30] The Party’s tighter grip on China’s state-owned investment institutions subjects fund managers to balancing pursuing financial returns with advancing national interests and strategic goals, which can sometimes conflict.

Nonetheless, China’s experience with leveraging its massive official foreign exchange reserves – over $3.2 trillion, bigger than France’s GDP in 2023 (about $3.03 trillion), the world’s seventh largest economy that year – and the strategic allocation of capital in global markets by Chinese sovereign funds provide the party-state ways and means to shape the global geo-economic environment. China’s financial clout allows it to finance initiatives that can mitigate its strategic vulnerabilities and enhance its competitive edge. Viewed from the West, China is seen as a “pacing” long-term rival rather than merely as a short-term competitor.

In addition to the above two domestic factors, a recent external factor driving Chinese companies to expand investment overseas is the need to mitigate the risk of supply chain diversification away from China. The supply chain crisis triggered by the COVID-19 pandemic, combined with heightened geopolitical tensions since President Putin’s invasion of Ukraine, has led firms and governments to accelerate moves to diversify supply chains and to enhance resilience. The U.S. government and the EU have implemented industrial policies to further incentivize onshore, nearshore, and friendshore, posing risks to Chinese firms of losing their position in, if not being completely cut off from, global supply chains. In response, Chinese firms have sought to invest in countries with free trade agreements with the United States and the EU to mitigate the rising protectionism measures. For example, some Chinese mineral and material companies have set up joint ventures with their Korean partners in Korea and Morocco.[31] This recent trend suggests that the composition of Chinese overseas investors will become more diverse. It also signals the limits of protectionist measures.

China Redefines Sovereign Debt Restructuring Negotiations Process and Reshapes Global Governance

China’s overseas investment has become part of China’s development finance package, allowing China to offer an alternative to traditional sources of capital. A 2021 UNDP report highlights that China, as a relative newcomer to international development finance, has emerged as a significant alternative provider of financial resources.[32]

In the early stages of its reform and opening up, the Chinese government sought to integrate official development assistance (ODA) with overseas direct investment. To this end, Chinese entities encouraged recipient governments to use ODA loans to attract Chinese investment in existing projects and to establish joint ventures involving Chinese companies. In 1994, China extended monetary assistance to 46 developing countries and arranged for 350 bilateral aid projects and 25 new construction projects in 77 countries.[33] During the past two decades, the scope of China’s foreign aid has expanded to a new model of international development cooperation that includes BRI as a major platform to facilitate China’s development finance and links with the United Nations 2030 Agenda for Sustainable Development.

The Chinese government differentiates its approach to foreign aid from that of traditional donor countries and organizations. According to a 2021 official White Paper entitled “China’s International Development Cooperation in the New Era,” China emphasizes its role as a partner rather than as a donor to promote international development cooperation through BRI.[34] China’s development finance cooperation includes both ODA and other forms of lending, such as non-concessional loans and export credits. Although China’s prominence as an official lender has greatly increased since President Xi Jinping launched the BRI in 2013, its role as an international lender predates the BRI, with active lending to Communist countries dating back to the 1950s and 1960s. Since the beginning of reform and opening up, China’s official lending has shifted from being driven by communist ideology to supporting domestic economic development. Between 2000 and 2021, Chinese financial institutions lent a staggering $1.34 trillion to developing countries.[35]

Unlike other major economies, much of China’s overseas lending is official and conducted by the Chinese government, government agencies, state-owned policy banks and commercial banks, and state-owned enterprises. This official nature allows China’s party-state to exercise economic statecraft and pursue geopolitical interests via its lending. For example, a team of scholars based in Hong Kong, Beijing, and Shanghai has found that Chinese policy banks provide more preferential lending to firms from BRI countries with closer political ties to China despite their weaker economic performance and more fragile institutional quality.[36] However, it would be naïve to assume that China’s state-owned creditors are motivated solely by geopolitical ambitions without concerns for loan repayments. An analysis of 100 Chinese foreign lending contracts by a team of U.S. researchers reveals that China is “a muscular and commercially savvy lender to the developing world,” as Chinese state-owned entities use creative designs in their lending contracts to manage credit risks and overcome enforcement hurdles.[37]

Today, official lending has become an important channel for China to participate in global governance, improve its global image, and increase its discourse power in international affairs.[38] Since the 2007–8 global financial crisis, advocating reform of global governance institutions has become an important part of China’s diplomacy. China has applied varied strategies to reform global sovereign credit ratings, free trade agreements, and Bretton Woods institutions, such as the World Bank and the IMF.[39] As Gregory Chin analyzes, Chinese policy banks, like the Export-Import Bank of China, have worked together as donors with the World Bank and influenced it to depart from some of its established norms and practices.[40] China has not waited passively for the West to reform the existing development finance system. Instead, it has pursued three different approaches, differing from the West-dominated institutions formed post–World War II. The first approach is bilateral, implemented by Chinese state-owned policy banks, commercial banks, its export credit insurer, and state-owned enterprises.[41] The second approach is through China-led multilateral non-Western partnerships, such as BRICS and the Shanghai Cooperation Organization (SCO). China has bankrolled some multilateral non-Western development finance institutions, such as the BRICS New Development Bank and the SCO Interbank Consortium. The third approach is through the Asian Infrastructure Investment Bank (AIIB), a China-led multilateral development finance institution with global partners, staffed by Western finance professionals and veterans of the World Bank and IMF. Collectively, these approaches have become platforms for China to exercise economic statecraft and advance China’s interests and preferred norms in global financial governance.

China’s significant role as an official lender gives it considerable influence in international sovereign debt restructuring negotiations, making it a formidable player in reshaping global coordination mechanisms for the sovereign debt restructuring process. As a U.S. Treasury official notes, China’s enormous scale as a lender means its participation in sovereign debt restructuring is essential.[42] When developing countries struggle to repay their BRI debts, China often steps in as a lender of last resort and expands emergency rescue lending to sovereign borrowers in financial distress or even default. A key component of China’s financial rescue mechanism is the global swap line network developed by the People’s Bank of China (PBoC) since 2008.[43] By 2022, the PBoC had used its swap line network to provide $170 billion in emergency liquidity support to central banks worldwide.[44] In 2023, Argentina – a country that frequently taps into its PBoC swap line – drew on its PBoC swap line to repay over half of its $2.7 billion debts to the IMF.[45]

China’s Global Influence is Likely to Persist Despite Its Economic Growth Challenges

A tangible result of China’s participation in global development finance is its growing ownership of overseas physical assets, such as critical infrastructure. Take ports, for example. Over the past two decades, Chinese state-owned entities have built, expanded, or acquired shares in about 145 port projects globally. Chinese companies have a majority ownership share in nineteen port projects worldwide, twelve of which exhibit dual-use physical potential.[46] China’s growing ownership of critical infrastructure has raised concerns among foreign researchers and officials regarding their potential military applications or as future naval bases for the Chinese navy.[47] Although China is not yet a global naval power and currently has limited overseas naval bases, it has grown to become a leading commercial power that wields significant geo-economic influence over international sea lanes and commercial ports critical for the uninterrupted flow of goods globally. Chinese access to and ownership of overseas critical infrastructure are critical assets that can support China’s international trade and e-commerce development in the long run.

Another growing concern for the U.S. government is the role of Chinese lenders, as part of a China-led alternative financial system, in supporting U.S. strategic adversaries, particularly by helping them mitigate sanctions. For example, during the first year of President Putin’s invasion of Ukraine, Chinese state-owned commercial banks reportedly extended billions of dollars to Russian banks as Western institutions withdrew their operations.[48] Despite China’s chronic domestic economic challenges, Chinese leaders are unlikely to halt their efforts to develop an alternative financial system underpinned by broader use of the Renminbi and Renminbi-based financial infrastructures. Chinese policymakers aim to reduce the country’s strategic vulnerabilities. They view financial security as an indispensable part of national security. President Xi considers improving the Renminbi’s international status as an indispensable component of strengthening China’s financial security. In January 2024, he urged leading cadres at the provincial and ministerial levels to bolster China’s financial power, listing making the Renminbi a “powerful currency” as a top priority. He also called on Chinese officials to promote safe and efficient China-governed financial infrastructures to improve China’s financial autonomy.[49]

Japan’s overseas FDI ended abruptly in the early 1990s largely due to a sharp decline in asset prices, which triggered severe balance sheet difficulties in the business sector and resulted in a prolonged economic decline. Despite some similar symptoms of economic slowdown risks, China is unlikely to follow Japan’s path in terms of diminished global influence. Admittedly, China’s economic growth is challenged by domestic structural problems and heightened geopolitical tensions globally.[50] However, Chinese leaders are determined to strengthen China’s economic security and are unlikely to stop efforts to expand the country’s economic and financial influence in the global system.

On the one hand, any domestic structural rebalance will require years of continued policy adjustment, necessitating the effective and sustained implementation of policies focused on strengthening household balance sheets and empowering individuals to expand consumption. However, with most household assets tied to a depressed property market and an insufficient social safety net, boosting household consumption remains a distant goal. On the other hand, unabated geopolitical tensions with the West will reinforce the Party’s commitment to self-sufficiency to reduce strategic vulnerabilities against Western coercion. Trade barriers, export controls, and investment screenings implemented by the U.S. government and its allies and partners compel Chinese policymakers to channel finite resources into strategic sectors prioritized by the party-state, such as semiconductors and artificial intelligence.

This creates a vicious cycle. Flooding resources into concentrated sectors will exacerbate the structural imbalances favoring investment over household consumption. Duplicate investment nationwide will lead to excess capacity and fierce competition, suppressing industrial profitability and resulting in firm closures and layoffs due to market consolidation. If China continues to rely on exporting excess production, it will compel foreign governments to raise trade barriers even further and to recalibrate their industrial policies, both of which will have substantial domestic consequences and may even force Western democracies to make politically difficult trade-off decisions. China’s GDP growth slowdown does not necessarily signal its full-scale retreat from the global market and international system. Quite the contrary, highly competitive Chinese firms – survivors of intense domestic competition that became industry leaders – will continue to compete for global market shares and challenge foreign firms. The influx of cheap Chinese manufacturing products will continue to challenge the industrial base and competitiveness of other countries. Despite the challenges to its economic growth, China’s global influence and its challenge to the U.S.-led global system will persist. The domestic and international challenges contributing to China’s economic growth slowdown will not remain within Chinese geographic borders but will also have political economic consequences worldwide. As Anne Stevenson-Yang argued, although China won’t be able to innovate its way out of its current economic challenges, the dead-end Chinese economy is bad news for everyone.[51]

In this context, the West should be careful about what it wishes for. A potential economic crisis in China carries far greater consequences than the prior emerging market crises. The size of China’s economy and its level of integration dwarf that of South Korea in the late 1990s when it was at the epicenter of the East Asian financial crisis. The degree of integration of Chinese industrial supply chains today also far exceeds that of Japan in the 1980s. Assuming a Chinese economic slowdown would automatically lower energy prices and help ease inflationary pressures in the major Western economies overlooks supply-side dynamics. As long as the global economy is still powered by hydrocarbon, OPEC retains the ability to cut production in response to diminished demand. Additionally, as long as Russia’s war against Ukraine continues, Russian President Putin could still weaponize its oil, gas, and petrochemical exports. Given that China is a leader in cost-competitive clean energy manufacturing and technology, China’s economic slowdown could also slow down the energy transition, especially in lower income economies that cannot afford to deploy clean energy in mass.

Should the Chinese economy sleepwalk into a stagnation or approach crisis faster than major companies can complete diversifying their supply chains, a fresh wave of industrial supply disruptions and price spikes in global markets could ensue. Although this could complicate Western central bankers’ efforts to curb inflation, the repercussions for developing countries and low-income economies could be even graver. Particularly vulnerable are those that have grown reliant on China for their exports or that have counted on China for investment during the past decades. A crippled Chinese economy would directly translate into dwindling purchasing orders, slower factory activities, mounting layoffs, diminished funding, and ultimately slower global growth, unless the huge demand hole left by China could be swiftly supplanted by faster-growing economies. Some are already searching for the next China. However, no other country presently has as complete industrial supply chains as China has, and the buildup of supply chains takes time and incurs tradeoffs. While not all countries resort to war in times of economic downturns, empirical data suggest that deteriorating economic growth heightens the likelihood of armed conflict. Economically fragile African states, for instance, may be challenged by heightened regional strife or internal instability due to the external factor of China’s slowdown.

About the Contributor

Zongyuan Zoe Liu is Maurice R. Greenberg Senior Fellow for China Studies at the Council on Foreign Relations (CFR). Her work focuses on international political economy, global financial markets, sovereign wealth funds, supply chains of critical minerals, development finance, emerging markets, energy and climate change policy, and East Asian–Middle Eastern relations. Dr. Liu’s regional expertise is in East Asia, specifically China and Japan, and in the Middle East, specifically the Gulf Cooperation Council countries. Dr. Liu is the author of Can BRICS De-dollarize the Global Financial System? (Cambridge University Press, 2022) and Sovereign Funds: How the Communist Party of China Finances its Global Ambitions (Belknap Press of Harvard University Press, 2023).

Notes

[1] M. Beckley and H. Brands, “The End of China’s Rise: Beijing Is Running Out of Time to Remake the World,” Foreign Affairs, October 1, 2021. https://www.foreignaffairs.com/articles/china/2021-10-01/end-chinas-rise

[2] R. Sharma, “China’s Rise is Reversing.” Financial Times, November 19, 2023. https://www.foreignaffairs.com/articles/china/2021-10-01/end-chinas-rise

[3] See Chap. 2, in H. Brands and M. Beckley, Danger Zone: The Coming Conflict with China. (New York: W.W. Norton, 2022).

[4] See Chap. 3, in ibid.

[5] Beckley and Brands, “The End of China’s Rise.”

[6] See Chaps. 4–8, in Brands and Beckley, Danger Zone..

[7] O.S. Mastro and D. Scissors, “China Hasn’t Reached the Peak of Its Power: Why Beijing Can Afford To Bide its Time,” Foreign Affairs, August 22, 2022. https://www.foreignaffairs.com/china/china-hasnt-reached-peak-its-power 

[8] E. Medeiros, “The Delusion of Peak China: America Can’t Wish Away its Toughest Challenger,” Foreign Affairs, May/June 2024. https://www.foreignaffairs.com/china/delusion-peak-china-united-states-evan-medeiros 

[9] United Nations Conference on Trade and Development, “World Investment Report.” https://unctad.org/system/files/official-document/wir2017_en.pdf ; “Statistical Bulletin of China's Outward Foreign Direct Investment 2022,” Ministry of Commerce of the People’s Republic of China, National Bureau of Statistics, and State Administration of Foreign Exchange, September 2023.  http://images.mofcom.gov.cn/hzs/202310/20231007152406593.pdf 

[10] S. Horn, C. Reinhart, and C. Trebesch, “China’s Overseas Lending,” Journal of International Economics 133 (2021). https://www.sciencedirect.com/science/article/pii/S0022199621001197 

[11] M. Beckley, “The China Hangover Is Here,” The New York Times, August 19, 2024. https://www.nytimes.com/2024/08/19/opinion/china-economy-debt-developing-countries.html 

[12] See for example, Brautigam, D. (2019). A critical look at Chinese ‘debt-trap diplomacy’: the rise of a meme. Area Development and Policy, 5(1), 1–14. https://doi.org/10.1080/23792949.2019.1689828; Jones. L, and Hameiri. S., “Debunking the Myth of ‘debt-trap Diplomacy’” Chatham House, December 2020, https://www.chathamhouse.org/2020/08/debunking-myth-debt-trap-diplomacy; and Brautigam. D, and Rithmire. M, “The Chinese Debt Trap Is a Myth: The Narrative Wrongfully Portrays Both Beijing and the Developing Countries It Deals With.” The Atlantic, February 6, 2021. https://www.theatlantic.com/international/archive/2021/02/china-debt-trap-diplomacy/617953/ 

[13] See the Intro. in Z. Liu, Sovereign Funds: How the Communist Party of China Finances Its Global Ambitions (Cambridge, MA: Harvard University Press, 2023).

[14] P. Gao, L. Xin, L., and L. Sun, “新中国70年对外直接投资: 发展历程、理论逻辑与政策体” (Chinese OFDI in 70 Years: Development Course, Theoretical Logic, and Political System), 财经理论与实践 (The Theory and Practice of Finance and Economics) 40, no.5 (September 2019).

[15] Choosin Tseng, "Foreign Direct Investment From the People's Republic of China," in Henri-Claude de Bettignies (ed.), Business Transformation in China (London: International Thomson Business Press, 1996), p. 91. Cited in K. G. Cai, “Outward Foreign Direct Investment: A Novel Dimension of China’s Integration into the Regional and Global Economy,” The China Quarterly, no. 160: 856–880. http://www.jstor.org/stable/656046 

[16] Y. Wang, “: 企业走出去的后发展大国逻” (The Logic of Late Developing Great Powers in the Context of Enterprises Going Out), Chinese Economy (2010). https://finance.sina.com.cn/g/20100308/17127522784_3.shtml ; “China's

Dual-circulation Policy: Prospects for International Economic Cooperation,” a report by the Center for China and Globalization, December 21, 2021, p. 15. http://www.ccg.org.cn/archives/67257 

[17] Tseng, "Foreign Direct Investment from the People's Republic of China," p. 91. Cited in Cai, “Outward Foreign Direct Investment.” http://www.jstor.org/stable/656046 

[18] T. Lu,《中国企业跨国经营战略》(Operation Strategies of Chinese Multinational Companies) (Beijing: Economic and Management Press, 2003), p. 197.

[19] “境外经贸合作区: ‘一带一路’双赢平台” (Overseas Economic and Trade Cooperation Zones: Win-Win Platform for “Belt and Road Initiative”).  https://www.yidaiyilu.gov.cn/p/9630.html 

[20] 国务院批转发展改革委等部门 关于抑制部分行业产能过剩和重复建设引 导产业健康发展若干意见的通知 (Notification of the State Council on Transmitting the National Development and Reform Commission and Other Departments Opinions on Reducing Overcapacity and Duplicate Construction in Some Industries and Guiding Industrial Healthy Growth). https://www.gov.cn/zwgk/2009-09/29/content_1430087.htm 

[21] The full text of Xi’s speech at Nazarbayev University is available at https://www.mfa.gov.cn/web/ziliao_674904/zt_674979/dnzt_674981/qtzt/ydyl_675049/zyxw_675051/201309/t20130908_9279198.shtml 

[22] 国务院关于化解产能严重过剩矛盾的指导意见  (Guiding Opinions of the State Council on Resolving Conflicts of Severe Overcapacity), October 6, 2013. https://www.gov.cn/zhengce/content/2013-10/18/content_4854.htm  

[23] “境外经济贸易合作区高质量发展报告 2023” (2023 Report on High Quality Development of Overseas Economic and Trade Cooperative Zone), 中国国际工程咨询有限公司(China International Engineering Consulting Corporation).  https://dwyw.ciecc.com.cn/module/download/downfile.jsp?classid=0&filename=1eade498a9f3402599d8060437270760.pdf ; also “走出去导航 境外经贸合作区.” https://hzq.investgo.cn/#/ 

[24] D. Bräutigam and X. Tang, “Economic Statecraft in China’s New Overseas Special Economic Zones: Soft Power, Business or Resource Security?” International Affairs (Royal Institute of International Affairs) 88, no. 4 (2012): 799–816. http://www.jstor.org/stable/23255619 ; G. Meng, R. Wang, and S. Wang, “A Review of China’s Overseas Economic and Trade Cooperation Zones along the Belt and Road: Progress and Prospects,” Journal of Geographical Sciences 33 (2023): 1505–1526. https://doi.org/10.1007/s11442-023-2140-8 

[25] “裁员、减产、价格战，光伏行业竞争加剧” (Layoffs, Production Cuts, and Price Wars, Competition in the Photovoltaic Industry Intensifies), 中国城市报 (China City News), January 15, 2024. http://paper.people.com.cn/zgcsb/html/2024-01/15/content_26037240.htm ; “整车厂和供应商齐叫苦 汽车价格战进入‘囚徒困境’” (OEMs and Suppliers Are Complaining as the Car Price War Enters a “Prisoner's Dilemma’),  经济观察网 (The Economic Observer), May 25, 2024. https://www.eeo.com.cn/2024/0525/663159.shtml ; “China's State Planner Warns Intensified EV Price War on Oversupply,” Reuters, April 22, 2024. https://www.reuters.com/world/china/prices-evs-plug-in-hybrids-fall-chinese-city-shenzhen-state-planner-says-2024-04-22/ ; Daniel Ren, “China’s EV Price War Spreads Overseas as Carmakers Chase Market Share, Higher Profit Margins,” South China Morning Post, May 24, 2024. https://www.scmp.com/business/china-business/article/3264032/chinas-ev-price-war-spreads-overseas-carmakers-chase-market-share-higher-profit-margins ; Justin, Spike, “China’s BYD to Build its First European Electric Vehicle Factory in Hungary,” Associated Press, December 22, 2023. https://apnews.com/article/chinas-byd-building-electric-vehicle-plant-hungary-4c4754f43703d061e1dc02516be0c14a ; Chayut Setboonsarng, “China’s BYD Opens EV Factory in Thailand, First in Southeast Asia,” Reuters, July 4, 2024.  https://www.reuters.com/business/autos-transportation/chinas-byd-opens-ev-factory-thailand-first-southeast-asia-2024-07-04/ ; “China EV Maker BYD to Build $1-bln Plant in Turkey,” Reuters, July 8, 2024. https://www.reuters.com/business/autos-transportation/china-ev-maker-byd-build-1-bln-plant-turkey-2024-07-08/ ; Monique Handa Shafira, “Chinese EV Manufacturer BYD Announces $1.3 Billion Investment in Indonesia,” Jakarta Globe, January 18, 2024. https://jakartaglobe.id/business/chinese-ev-manufacturer-byd-announces-13-billion-investment-in-indonesia ; “China's BYD Starts Construction on Manufacturing Complex in Brazil,” Reuters, March 5, 2024. https://www.reuters.com/business/autos-transportation/chinas-byd-starts-construction-manufacturing-complex-brazil-2024-03-06/ 

[26] Z. Liu, “China’s Real Economic Crisis: Why Beijing Won’t Give Up on a Failing Model,” Foreign Affairs, September/October 2024. https://www.foreignaffairs.com/china/chinas-real-economic-crisis 

[27] M. Pettis, “Which Country Should Design U.S. Industrial Policy?” Carnegie Endowment China Financial Markets Blog, July 16, 2024. https://carnegieendowment.org/china-financial-markets/2024/07/which-country-should-design-us-industrial-policy?lang=en 

[28] For more details on reserve management and overseas direct investment, see Liu, Sovereign Funds.

[29] Ibid.; Also see “CLM Insights Interview with Zongyuan Zoe Liu,” China Leadership Monitor, no. 78 (December 2023).  https://www.prcleader.org/post/clm-insights-interview-zongyuan-zoe-liu 

[30] For more details, see Z. Liu, “Testimony for the ‘Hearing on China's Current Economy: Implications for Investors and Supply Chains,’” August 1, 2023. Written testimony is available at https://www.cfr.org/report/chinas-current-economy-implications-investors-and-supply-chains Also see Intro. to Liu,  Sovereign Funds.

[31] Z. Liu, “Navigating Korea’s Changing Trade Shifts with the United States and China,” Korean Economic Institute, January 22, 2024.  https://keia.org/the-peninsula/navigating-koreas-changing-trade-shifts-with-the-united-states-and-china/ 

[32] UNDP China, “China’s Overseas Development Finance: Review of Flows and Definitions, and Potential Support for SDG Attainment in Partner Countries,” January 2021, p. 28.  https://www.undp.org/sites/g/files/zskgke326/files/migration/cn/China-Development-Finance-Report-UNDP.pdf 

[33] K. G. Cai, “Outward Foreign Direct Investment: A Novel Dimension of China’s Integration into the Regional and Global Economy. The China Quarterly, no. 160 (1999): 856–880. http://www.jstor.org/stable/656046 

[34] “China’s International Development Cooperation in the New Era,” The State Council Information Office of the People’s Republic of China, January 2021. https://english.mee.gov.cn/Resources/publications/Whitep/202101/P020210122374486901993.pdf 

[35] S. Custer et al., Tracking Chinese Development Finance: An Application of AidData’s TUFF 3.0 Methodology (Williamsburg, VA: AidData at William & Mary, 2023).

[36] X. Chen et al., “Does Chinese Policy Banks' Overseas Lending Favor Belt Road Initiative Countries?” International Studies of Economics 17, no. 4 (Special Issue) (2022):  430–458. https://doi.org/10.1002/ise3.8 

[37] A. Gelpern et al., “How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments,” Peterson Institute for International Economics, Kiel Institute for the World Economy, Center for Global Development, and AidData at William & Mary, 2021.

[38] J. Yuan, F. Su, and X. Ouyang, “China’s Evolving Approach to Foreign Aid,” Policy Paper 62, Stockholm International Peace Research Institute (May 2022).  https://www.sipri.org/sites/default/files/2022-05/sipripp62.pdf

[39] J. Zhu, “China’s Path Selection in Global Governance Reform,” International Organizations

Research Journal l15, no 3 (2020: 248–81. https://iorj.hse.ru/data/2021/06/28/1356185591/Zhu.pdf 

[40] G. Chin, “Two-Way Socialization: China, the World Bank, and Hegemonic Weakening,” The Brown Journal of World Affairs 19, no. 1 (2012): 211–230. http://www.jstor.org/stable/24590939 

[41] For an analysis of the role of China’s export credit insurer, China Export & Credit Insurance Corporation (SINOSURE), see Z. Liu and Y. Chen, “Hedging Belts, De-risking Roads: SINOSURE in China’s Overseas Finance and the Evolving International Response, a Research Report of Overseas Development Institute,” December 14, 2023.  https://odi.org/en/publications/hedging-belts-de-risking-roads-sinosure-in-chinas-overseas-finance-and-the-evolving-international-response/ 

[42] Remarks by Counselor to the Secretary of the Treasury Brent Neiman at the Peterson Institute for International Economics, September 20, 2022. https://home.treasury.gov/news/press-releases/jy0963 

[43] By 2023, China had signed bilateral currency swap agreements with more than 40 foreign monetary authorities. There are currently 31 effective bilateral currency agreements covering the major economies in key regions around the world, with a total scale of swap agreements reaching approximately RMB 4.16 trillion. See “中国货币政策执行报告 2023 年第四季度” (China Monetary Policy Report Q4 2023), Monetary Policy Analysis Group of the People’s Bank of China, Box 3, pp. 23–24. http://www.pbc.gov.cn/zhengcehuobisi/125207/125227/125957/4883187/5238308/2024030610591528512.pdf 

[44] S. Horn et al., “China as an International Lender of Last Resort,” NBER Working Paper No. 31105  (Cambridge, MA: National Bureau of Economic Research (NBER), 2023). https://www.nber.org/papers/w31105 

[45] For a detailed case study of the history and evolution of the PBoC swap line with the Central Bank of Argentina, see V. Arnold, "China: Central Bank Swaps to Argentina, 2014," Journal of Financial Crises 5, no. 1 (2023): 158–188. https://elischolar.library.yale.edu/journal-of-financial-crises/vol5/iss1/5/ 

[46] Z. Liu, “Tracking China’s Control of Overseas Ports,” Council on Foreign Relations, November 6, 2023, and updated in August 2024. https://www.cfr.org/tracker/china-overseas-ports 

[47] I. Kardon, "Research & Debate—Pier Competitor: Testimony on China’s Global Ports," Naval War College Review 74, no. 1 (2021), Article 11. https://digital-commons.usnwc.edu/nwc-review/vol74/iss1/11 ; Agnes Chang and Hannah Beech, “The Chinese Base That Isn’t There: New Facilities and the Months-long Presence of Chinese Warships Show Beijing’s Growing Global Influence,” The New York Times, July 14, 2024. https://www.nytimes.com/interactive/2024/07/14/world/asia/china-cambodia-military-warship-base.html ;

A. V. Obe, A. van Rij, H. Tugendhat, “Is China Eyeing a Second Military Base in Africa as the US Struggles to Maintain One in Niger?” Chatham House, May 14, 2024. https://www.chathamhouse.org/2024/03/china-eyeing-second-military-base-africa-us-struggles-maintain-one-niger?gad_source=1&gclid=CjwKCAjw_Na1BhAlEiwAM-dm7FeTX_DofezLX2IME2gB7VMWl2fzZ5imBS0ZWD9mIh8HJTxHuvhsmRoC1LoQAvD_BwE 

[48] “Chinese Lenders Extend Billions of Dollars to Russian Banks After Western Sanctions,” Financial Times, September 3, 2023. https://www.ft.com/content/96349a26-d868-4bd1-948f-b17f87cc5c72 

[49] “习近平在省部级主要领导干部推动金融高质量发展专题研讨班开班式上发表重要讲话” (Xi Jinping Delivers an Important Speech at the Opening Ceremony of a Special Seminar for Leading Cadres at the Provincial and Ministerial Levels to Promote High-quality Financial Development), January 16, 2024. https://www.gov.cn/yaowen/liebiao/202401/content_6926302.htm 

[50] Z. Liu, “Beijing Needs to Junk Its Economic Play Book,” Foreign Policy, February, 2, 2023. https://foreignpolicy.com/2023/02/02/beijing-economy-playbook-gdp-household-consumption/ Z. Liu, Pettis. M, and Posen, A. “Who Killed the Chinese Economy? The Contested Causes of Stagnation,” Foreign Affairs, November/December 2023 Issue, https://www-foreignaffairs-com.proxy1.library.jhu.edu/responses/who-killed-chinese-economy 

[51] Stevenson-Yang, A. Wild Ride: A Short History of the Opening and Closing of the Chinese Economy. (Bui Jones Limited, 2024). “China’s Dead-End Economy Is Bad News for Everyone,” The New York Times, May 11, 2024. https://www.nytimes.com/2024/05/11/opinion/china-economy-dead-end.html 

Photo credit: Huangdan2060, CC BY 3.0 <https://creativecommons.org/licenses/by/3.0>, via Wikimedia Commons