By Jayati GHOSH
\xa0While protectionist trade policies under US President Donald Trump frequently make the news, they are not the sole factors influencing global manufacturing. Emerging investment trends have been altering the global economic scene long before Trump implemented his tariffs.
Nowhere is this more apparent than in the movement of foreign direct investment. According to the most recentWorld Investment ReportAccording to the United Nations Trade and Development (UNCTAD), foreign direct investment arriving in Europe, South America, and large parts of Asia decreased in 2024.
In comparison, foreign direct investment reaching Africa rose by 75%, amounting to $97 billion, whereas investments in Southeast Asia grew by 10%, totaling $225 billion.
A larger realignment of global supply networks is behind these trends, with a gradual move towards Southeast Asia, Eastern Europe, and Central America. As a result, patterns of foreign direct investment are also evolving: although the United States, Japan, and China continue to be the top outward investors, the Middle East has risen as a significant source of FDI.
Boosted by oil earnings, the Gulf Cooperation Council (GCC) nations – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates – allocated fundsroughly $113 billionIn Africa during 2022 and 2023, there was a significant increase in their economic presence across the continent. Much of this investment has been directed towards logistics and infrastructure developments including ports, airports, and transport systems, along with oil and gas sectors.
The focal point is quickly moving towards China, particularly in terms of green investment. Anew reportFrom the Net Zero Industrial Policy Lab, the extent of Chinese foreign direct investment is highlighted, demonstrating how China's advancement in clean energy is enhancing its economic power.
Utilizing a database containing 461 green technology manufacturing initiatives supported by China, the report reveals that Chinese companies have invested over $220 billion in 387 projects across 54 countries since 2022. These projects encompass solar and wind energy installations, major battery production facilities, electric vehicles, charging networks, and even nascent green hydrogen startups.
As per the report, Chinese investments are primarily motivated by companies seeking market access and stable sources of raw materials. Although ASEAN nations continue to be the top choice for these initiatives, the Middle East and North Africa saw a notable increase, reaching more than 20% in 2024; Latin America and Central Asia also received a considerable portion of Chinese foreign direct investment.
Notably, this surge in Chinese foreign direct investment is driven by private companies, which have not depended on significant loans from state-owned banks or support from host country governments. As one of the researchers involved in the studyobservedChinese government officials might not be fully aware of the extent and combined total of these private-sector green investments abroad.
Collectively, these changes indicate a new stage in China's global economic growth. In contrast to President Xi Jinping's state-driven Belt and Road Initiative, profit-focused investments highlight both supply-side challenges—like excess production capacity in China—and demand-side factors, as recipient nations are now linking market access to advanced manufacturing rather than just the extraction of natural resources.
Since the complete effects of these initiatives will only become evident in the coming years, many analysts—especially in developed economies—might be surprised. Although Chinese exports and resource-based investments have frequently been seen as challenges to industrial growth in recipient nations, the present wave of manufacturing foreign direct investment has the potential to boost local production, generate employment, and support wider development objectives. Even modest technology transfers could be groundbreaking, speeding up the shift toward clean energy and altering global trade dynamics.
Certainly, China is not involved in philanthropy. Foreign Direct Investment – whether from the West, China, or the Gulf – is primarily aimed at generating profit, and at times, it is driven by the pursuit of rent. It can bring substantial advantages, yet it also presents risks: environmental damage, displacement, exploitation of labor, foreign exchange losses due to profit transfers abroad, and expensive technical fees or royalties. Moreover, when anticipated connections and spillover effects do not occur, the benefits tend to be limited to a small area.
As usual, a lot hinges on the policies implemented by host countries. Encouragingly, some export-focused developing economies seem to have taken lessons from Indonesia, where the government required Chinese companies to create more local value-added production (especially in nickel processing) as a condition for investment. Motivated by this, several governments are now trying to enforce similar conditions on foreign investors, placing more focus on local manufacturing and technology transfer. For example, inBrazil, the consumer-electronics firm Lenovo has set up a collaborative research and development division to improve its regional digital smart manufacturing skills.
Nevertheless, despite Indonesia's notable achievements, this has not resulted in increased real wages or improved working conditions. Simply attracting foreign direct investment is insufficient; host nations also require more robust domestic regulations, public involvement, and regional collaboration to ensure that the benefits are widely distributed.
A comparable call was central to the 1955 Bandung Conference, organized by Indonesia, which advocated for a more equitable global economic system and increased collaboration between Asian and African nations. Notably, the resolution isstill cited on Chinese government websites.
However, meeting the Bandung Conference's request for a more equitable global economic system goes beyond investments focused solely on profit. It necessitates governments that are ready to collaborate in creating markets that benefit communities, rather than only prioritizing shareholders.
Jayati Ghosh, an economics professor at the University of Massachusetts Amherst, is part of the Club of Rome's Transformational Economics Commission and serves as Co-Chair of the Independent Commission for the Reform of International Corporate Taxation.
Provided by SyndiGate Media Inc. (Syndigate.info).
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