This report analyzes the changes in China’s outbound direct investment (ODI) policies and approaches in response to the evolving external economic cooperation environment in China. By examining the shifts in China’s ODI strategies, the report also explores the impact of regional strategies and economic cooperation relationships during the transition from Hu Jintao’s second term to the Xi Jinping administration, using regional ODI data. Finally, based on the characteristics of China’s ODI, the report presents the risks and suggested responses for South Korea.

In Chapter 2, we examined the changes in China’s ODI strategy. China’s ODI is closely related to its reform and opening-up policy. Since the reform and opening-up policy, China has pursued the simplification of regulations and the easing of restrictions on ODI. During the second term of the Hu Jintao administration, the ODI system encouraged overseas expansion, including by private enterprises, and witnessed significant regulatory simplification. The approval process shifted from a stringent examination system to an approval system, and there was a decentralization of government authority from the central government to local governments, which contributed to the easing of FDI regulations.

During the first term of Xi Jinping administration(2013-2017), China’s ODI began to experience rapid growth in scale and expansion of investment scope across various industries. The broadening scope of China’s ODI is attributed to the sustained effects of regulatory relaxation and the implementation of China’s new economic cooperation strategy, the ‘Belt and Road Initiative(一带一路).’ Since the beginning of the second term of Xi Jinping administration in 2018, amidst escalating tensions with the United States, Western countries have initiated measures to counter China’s influence. In response, China has strategically used economic development initiatives to interpret ODI as a supportive method of national development strategies. Emphasizing goals such as stabilizing supply chains, enhancing global corporate capabilities, entering emerging markets, and advancing the Belt and Road Initiative, China pursued an ODI strategy. There was a notable decline in M&A activity in the technology sector, which had previously been subject to strict regulations in developed countries. Meanwhile, there was a gradual expansion of greenfield investment in developing countries, which offer favorable conditions for market entry and resource acquisition.

From the second term of Hu Jintao to the second term of Xi Jinping administration, China’s ODI policies significantly influenced China’s actual OID. During this period, China consistently relaxed administrative regulations on ODI, while simultaneously increasing the level of management over investment areas. As a result, from the first term to the second term of Xi Jinping administration, China’s ODI rapidly expanded in scale. In addition China’s intention to position ODI as a supportinvemethod for national development was gradually manifested, as the country’s national economic development strategy became more defined.

Chapters 3 to 5 of this study analyze China’s ODI strategies in key regions are analyzed. The analysis covers the period from the second term of the Hu Jintao administration to the second term of the Xi Jinping administration, based on chronological, enterprise-type, investment-type, and sector.

Chapter 3 analyzes China’s investment strategy and current status in the United States and the European Union. China’s ODI in the U.S. and the EU has three main characteristics. First, regulations focused on advanced countries have affected China’s overseas expansion. Particularly, the Trump administration’s tightened regulations on China’s investment in advanced technology sectors since 2017 have led to a decline in M&A investment. Similar regulatory trends have been observed in the EU region, resulting in a decline in China’s investment in the EU. Second, there has been a shift from state-owned enterprises to private companies and a transition from brownfield to greenfield investments. The change in investment subjects became evident during the transition from Hu Jintao’s second term to the Xi Jinping administration, with a gradual increase in overseas investment by private enterprises. While brownfield M&A investments were prevalent in the earlier period, there was a shift toward greenfield investments due to changes in the M&A investment environment during Xi Jinping administration. Third, the motives and key investment sectors of China’s outboundinvestments have changed over different periods. During Hu Jintao’s second term, investment in the U.S. and the EU focused on the energy sector. In Xi Jinping’s first term, investment focused on real estate, finance, transportation, and technology. In Xi Jinping’s second term, there was a greater emphasis on investment in the transportation and logistics sector. These changes are interpreted as reflecting shifts in China’s investment motives due to policy changes by the Chinese government.

Chapter 4 investigates China’s ODI strategies and current status of China, focusing on the ASEAN and the Middle East regions since the second term of the Hu Jintao administration. China’s ODI in Asia has been characterized by close cooperation between the Chinese government and the target countries. Factors such as the level of economic cooperation, U.S.-China strategic competition, the Belt and Road Initiative, resource acquisition, market expansion, and the demand for new cooperation related to green and digital transformation have influenced China’s strategies. Over different periods, there have been changes in the key investment regions and countries, as well as the objectives and directions of investment. Particularly, since the beginning of the Xi Jinping administration, China’s investments in Asia has emphasized the integration of the Belt and Road Initiative and ODI. The Xi Jinping government actively promotes the overseas expansion of Chinese companies based on the Belt and Road Initiative, highlighting the coordination of Belt and Road projects with investments in the ASEAN and the Middle East regions. The Chinese government actively uses ODI in developing countries as a means of external promotion of the Belt and Road Initiative and facilitating the overseas expansion of Chinese companies. It is necessary to monitor China’s overseas investment trends, by recognizing that China is increasing investment cooperation with the ASEAN and the Middle East not only from a political and diplomatic perspective but also for economic security, pursuit of national interests, and the promotion of new growth industries.

Chapter 5 examines China’s ODI in Africa and Central and Latin America. In these regions, China has focused its investments primarily on the energy and metals & mineral sectors, a trend that can be linked to the Chinese government’s main goal of securing raw materials. The most significant investments have taken place since the Hu Jintao administration. However, during the Xi Jinping era, with the announcement of the Belt and Road Initiative, China has expanded its investments not only in energy and metals & mineral sectors but also in transportation, logistics and agriculture. China has actively engaged in economic cooperation and diversified investment in various sectors through forums such as the China-Africa Forum and the China-CELAC Forum, enhancing economic collaboration through consultations with each region. China’s ODI has significantly increased in Africa and Latin America, in part because these countries have actively sought foreign investment for their own infrastructure improvement and economic growth, which was in line with the objectives of Chinese investment. However, a change in the pattern of China’s ODI can be observed after the announcement of the Belt and Road Initiative in 2013. Following the Belt and Road Initiative, China actively cooperated with developing countries to develop supply chains and increased investment in Africa and Latin America.

Based on the previous analysis, this study proposes three policy recommendations, including △strengthening government cooperation channels for ODI △creating momentum for ODI in emerging markets such as green and digital sectors △strategically expanding policy initiatives for Korea-China cooperation in third countries.

First, China adopts a strategy to promote ODI by providing incentives through policies encouraging companies to expand abroad domestically. Externally, it adopts a strategy to facilitate companies’ overseas expansion by utilizing various channels of intergovernmental agreements and foster an environment of economic cooperation. This includes using government agreements to build regional cooperation through bilateral government communication channels, and multilateral cooperation bodies such as BRICS and BRI. China has consistently applied this strategy of promoting ODI through government agreements until the second term of Xi Jinping administration. This is seen as an effective strategy to address new concepts of economic security and uncertainties in the international community, such as supply chain blockage. South Korea has also adopted a similar approach in the Middle East through its “One Team Korea” strategy, which coordinates ODI through government-to-government agreements. Given the growing importance of ODI in developing countries, especially in resources and emerging industries sectors, and heightened national security concerns, there is a need for joint responses from government and business. Therefore, it is crucial for South Korea to actively consider engaging in government-to- government discussions through bilateral and multilateral summits with strategically important regions. At the same time, the use of business forums should also be thoroughly explored.

Second, during the Xi Jinping administration, China has begun to strengthen the link between ODI and the national development strategy. In particular, given the increasing importanceof climate change mitigationand digital economic growth for future national competitiveness, there is a concentrated effort on ODI strategies in emerging areas such as green and digital sectors. This focus was also underscored during the high-level forums of the Belt and Road Initiative (BRI) in October 2023 as well. It is noteworthy that the strategic industries selectedby China for new ODI momentum are also critical for South Korea. As emerging industries gain prominence, securing markets becomes closely linked to a nation’s overseas production capabilities. Especially in regions such as Latin America, Africa, and the Middle East, where developing countries are focusing on resources and emerging industries, various forms of support are crucial for South Korean companies to enhance competitiveness and secure comparative advantages.

Third, there is a strategic need to expand South Korea-China cooperation in third countries. South Korea’s ODIand China’s ODI overlap significantly. China strategically defines minerals, energy, and advanced technology as key resources and invests heavily in green and digital sectors. Competitive dynamics between South Korea and China are already emerging, especially in intermediate goods production. While this may be a constraint on South Korean companies’ ODI, it should be strategically leveraged as a new opportunity. South Korea has a history of joint investment with China in third countries, particularly in energy, utilities, and infrastructure. Building on this foundation, there is a need to strengthen strategic cooperation in new areas, including strategic industries for both countries.