China is transforming from the “world’s factory” into a global industrial investor
China receives less foreign capital, but different capital, and Chinese companies now build their factories in Kazakhstan, Vietnam, Mexico, Egypt and the EU. With a film on what this means for Europe, in English, Dutch and Chinese.
By China Connect
China received about $105 billion in foreign direct investment in 2025 and invested $174 billion abroad itself. That is what UNCTAD, the United Nations trade and development body, reports in its World Investment Report 2026. China therefore remains the fourth largest recipient and the third largest investor in the world. Behind those two figures lies a shift that tells European companies more than the ranking does: less money is flowing into China, but it is different money, and Chinese companies are building their factories in different countries than five years ago. Europe is now one of them.
The film 05:45
What the World Investment Report 2026 means for Europe, in under six minutes. The film is also available in Dutch and Chinese.
China stays among the largest on both sides
Worldwide, foreign direct investment (FDI) rose by 6 percent in 2025 to $1.6 trillion, after two years of decline. UNCTAD calls the recovery fragile and uneven. A handful of megaprojects, mainly data centres and AI infrastructure, pushed the figures up. The twenty largest recipients together received more than 80 percent of all inflows.
Within that concentration, China holds its place. Among recipients it ranks fourth, after the United States ($277 billion), Singapore and Hong Kong. Among investors it ranks third, after the United States and Japan. Both figures did fall: inflows from $116 billion to $105 billion, outflows from $192 billion to $174 billion. UNCTAD counts Hong Kong, Macao and Taiwan separately. Add Hong Kong and the Chinese role is even larger, since Hong Kong itself is the third largest recipient and the fifth largest investor.
Less capital is flowing into China, and different capital
Inflows fell from more than $160 billion in 2023 to about $105 billion in 2025. UNCTAD does see signs of stabilisation: the decline is slowing. Part of the explanation is financial, with higher interest rates and companies bringing more profit home. The report puts the emphasis on structural causes. Wages rose, and multinationals moved labour-intensive, export-oriented production to other Asian countries, mainly in South-East Asia. China+1 strategies, geopolitics, uncertainty about tariffs and technology restrictions reinforced that movement.
What remains looks different. Scientific research and technical services accounted for almost a fifth of all foreign investment in China in 2025. That share has risen for seven years in a row and is now almost four times as large as in 2018. In that sector alone, 14,000 new companies with foreign capital were set up, 27 percent more than a year earlier. High tech attracted more than $32 billion up to November 2025, with strong growth in e-commerce services, medical equipment and aerospace equipment.
The Chinese figures tell the same story in yuan. According to the Ministry of Commerce, actual use of foreign investment fell by 9.5 percent in 2025 to ¥747.69 billion. At the same time 70,392 new foreign-invested enterprises were set up, an increase of 19.1 percent. So more companies are arriving, with smaller amounts on average. In the first half of 2026, inflows were still 5 percent lower than a year earlier, a smaller decline than in previous years.
Beijing is steering. The catalogue of sectors where foreign investors are welcome and receive incentives was expanded in 2022 and 2025, with more high tech and sustainable industry. An action plan from 2025 aims to broaden market access and make financing easier for foreign companies. In 2025, telecoms, digital services, financial services and tourism opened further, with pilot projects in telecoms, health care and education. The revised negative list of 2025 also brought new restrictions, including on civilian drones, e-cigarettes and online sales of medicines. UNCTAD sums it up as a transition from rapid expansion to more selective and strategic investment.
Who is heading abroad from China
Chinese investment abroad has also become more targeted, with more new facilities (greenfield), manufacturing and energy. What stands out is who is making those investments. The large state-owned companies are pulling back: shipping company COSCO Shipping, defence group Norinco and Shandong Energy slowed their foreign expansion and refocused on the home market. In oil and gas, infrastructure and heavy industry, the foreign share of Chinese multinationals' assets fell.
Private companies in technology and cars did the opposite. Before the pandemic, battery maker CATL held less than 10 percent of its assets abroad, now almost 30 percent. Huawei expanded with cloud, 5G and green energy, mainly in Africa and the Middle East. That also changes the list of the largest Chinese multinationals. In 2011, 8 of the 9 ranked Chinese companies were state-owned, almost 90 percent. Today it is 29 of 41, about 70 percent. UNCTAD names Tencent, Huawei, Geely and CATL as examples of private companies internationalising fast.
Some of the projects are huge. ByteDance announced a $41 billion data centre in Brazil, 43 percent of all announced new projects in Latin America in 2025 on its own. East Hope is planning a non-ferrous metals project of more than $12 billion in Kazakhstan. According to the report, American and Chinese multinationals are the biggest players in megaprojects, both abroad and at home.
Chinese factories now stand in other countries
The chapter on supply chains contains perhaps the most important finding about China. UNCTAD looked at new factory projects abroad, excluding strategic sectors such as chips and batteries. The five largest investors, the EU, China, the United States, South Korea and Japan, together account for 70 percent of the value of those projects. Compare 2021 to 2025 with 2015 to 2019 and only two of them grew: China and South Korea.
Chinese investment rose from $102 billion to $109 billion. It is also going to very different countries. Of the five main destinations of 2015 to 2019, only one remained: Kazakhstan. Indonesia, India, the Philippines and the United States dropped out of the top five. Vietnam, Mexico, Egypt and the European Union came in. For no other large investor did the list change as much.
Proximity plays little part. The share of Chinese factory projects in the home region or in neighbouring countries actually fell from 32 to 26 percent. Chinese companies are looking for places that give access to a large market or to raw materials: Mexico as a stepping stone to North America, Egypt for export-oriented production, Kazakhstan for metal processing.
In electronics, UNCTAD writes that investment is moving beyond a China-centred model. China's share as a destination for new ICT and electronics projects fell sharply. At the same time, Chinese electronics companies themselves invested far more in South-East Asia: from about $1 billion in 2015-2019 to $9 billion in 2021-2025. The "+1" in China+1 is often a Chinese company.
Raw materials and green industry, where China sets the pace
UNCTAD tracks five strategic sectors separately. Together they accounted for 44 percent of the value of all announced new projects in 2025, against 16 percent in 2020. China's role differs sharply by sector.
| Sector | China's share of outgoing projects, 2020-2025 | Who leads |
|---|---|---|
| Critical minerals | 32 percent, the largest investor | China, then South Korea and the UK |
| Energy transition (batteries, electric cars, cleantech) | 16 percent, the second investor | EU (28 percent), then China and South Korea |
| AI infrastructure | not among the three largest | United States (46 percent) |
| Semiconductors | not among the three largest | Taiwan (45 percent) |
In critical minerals, China is the pivot. It accounts for about a third of new foreign projects and is also strong in the refining and processing that follow, as nickel processing in Indonesia shows. In the energy transition, Chinese companies invest in batteries and electric cars in Germany, Hungary, Portugal, Slovakia and Spain, and beyond Europe in Malaysia, Mexico, Morocco, Saudi Arabia, Türkiye and Vietnam, among others. According to UNCTAD, these companies want to produce inside the large markets and secure their access to them. How that build-up of scale and supply chain works is explained in how China takes over an industry.
In semiconductors you hardly see China in the international figures. That does not mean little is happening: growth comes mainly through domestic investment and state support. Conversely, China remains an important destination for American and European investment in advanced industries, because of its industrial capacity, its technology ecosystem and its large home market.
What the report says about Europe
According to UNCTAD, Chinese investment in Europe remains below the 2017 peak. It shifted to targeted new facilities in electric cars, batteries and industrial companies, with Hungary as an important destination. The report relies on Rhodium Group and MERICS here. Their May 2026 update counts €16.8 billion of Chinese investment in the EU and the UK in 2025, 67 percent more than a year earlier and the highest level since 2018. New facilities reached a record €8.9 billion. Hungary received €3.9 billion, Germany €2.5 billion and France €1.9 billion.
Europe is also looking more critically. The Netherlands and Italy used special powers to limit the influence of foreign state-owned companies at chipmaker Nexperia and tyre maker Pirelli. The EU is asking member states to also monitor outbound investment in semiconductors, AI and quantum technology. China, incidentally, has its own screening: since 2021 it has reviewed foreign acquisitions and new projects in sensitive sectors on national security grounds.
According to the report, Belgium screened 137 foreign investments in 2025. Seven received an in-depth review. Two were approved without conditions, one with conditions, one file was withdrawn and none was rejected. These figures apply to all foreign investors, not only Chinese ones.
Finally, UNCTAD compares industrial policy. China, the EU and the United States together account for about half of all measures over the past decade. In China, 91 percent are subsidies, and 90 percent of those are direct grants to individual companies. The EU also relies mainly on subsidies (72 percent), but in the form of loans, grants and guarantees. That difference in approach is part of the imbalance Jun Jiang describes in the €292 billion question.
What you can do with these figures as a business
- You sell or produce in China. The door is open widest for research, high tech and services, and that is also where China's new openings are aimed. Cheap labour for export is no longer the reason to be there. An approach that targets domestic demand and technology fits better with what Beijing now encourages. More on doing business in China.
- You compete or partner with Chinese companies in Europe. They increasingly arrive with a factory rather than a container. That creates demand for local suppliers, installers, logistics and staff, and it makes them competitors in your own market. How Chinese companies approach the European market is explained on into Europe.
- You are diversifying your supply chain. A supplier in Vietnam, Mexico or Morocco may have a Chinese owner. That is not a problem, but it belongs in your risk analysis, especially for customers in the US.
- You are investing, or looking for an investor. Take screening on both sides into account: in Belgium and the EU for those coming in, and in China for sensitive sectors.
Frequently asked questions
Is foreign investment in China still falling?
Yes, but more slowly. According to UNCTAD, inflows fell from $116 billion in 2024 to $105 billion in 2025. In the first half of 2026 they were 5 percent lower than a year earlier according to China's Ministry of Commerce, while the number of new foreign companies kept rising.
Is China still a major investor abroad?
Yes. With $174 billion in 2025, China is the third largest investor in the world, after the United States and Japan. In manufacturing, it is one of only two large investors that still expanded their projects abroad.
Where are Chinese companies building most factories now?
In 2021-2025, Kazakhstan, Vietnam, Mexico, Egypt and the European Union were the five main destinations for new Chinese factory projects outside the strategic sectors. In 2015-2019 they were Indonesia, Kazakhstan, India, the Philippines and the United States.
What is the World Investment Report?
UNCTAD's annual report on international investment. It maps investment flows by country and sector, tracks government investment policy and analyses the largest multinationals. The 2026 edition was published on 7 July 2026 under the title "International Investment in a Turbulent Era".
Money follows the supply chain, not the cheapest labour
UNCTAD writes that for decades capital followed cost and efficiency, and today mainly strategic calculation and industrial policy. China stands on both sides of that shift. It is losing the investment that used to come for low costs, and it is itself exporting factories to where the markets and raw materials are. Read the figures only as "less money into China" and you miss half the story. The other half is increasingly taking place in Europe.
