Chinese President Xi Jinping and Maldivian President Mohamed Muizzu.
Credit: Reuters File Photo
By David Fickling
Money doesn’t just make returns. It builds alliances, too.
That was the thinking behind the Marshall Plan, the US aid package intended to restart shattered European economies in the aftermath of World War II. “If Europe fails to recover, the peoples of these countries might be driven to the philosophy of despair,” and return to totalitarianism, President Harry Truman told Congress in proposing the program.
The political effect of turning the continent’s war-ravaged economies into a prosperous, integrated group of US allies is hard to deny. Rich countries need to contemplate that as they raise barriers ever higher against Chinese clean technology. If Beijing is serious about building mutual alliances abroad, it will do everything it can to use its industrial and financial power to emulate Marshall’s example.
As in postwar Europe, much of the world right now is struggling to recover from crisis. Lower-income countries whose budgets were shattered by the Covid-19 pandemic have struggled to roll over their debts thanks to deteriorating government balance sheets. Emerging middle powers such as Egypt, Pakistan and Bangladesh, heavily dependent on imported liquefied natural gas, have faced further problems as Russia’s invasion of Ukraine pushed prices out of their reach.
Meanwhile China — like the postwar US — emerged from the global crisis looking stronger than ever, with its economy about a third larger in real terms in 2023 than in 2019. Its current account surplus peaked at $460 billion in the third quarter of 2022, meaning foreign countries are sending more money for its goods and services than it’s sending back in return.
To balance out this surplus, Beijing has to invest more overseas — traditionally, by buying US Treasury bonds. Recently, however, the mix has shifted toward direct ownership of businesses. Over the past few years, outflows of foreign direct investment, or FDI, have been running ahead of inflows for the first time since the mid-2010s, when President Xi Jinping's Belt and Road infrastructure program was in its first flush, and acquisitive conglomerates such as HNA Group Co. and Dalian Wanda Group went on a shopping spree for prestige assets.
The trend is only accelerating. Outbound FDI rose 19 per cent in the first four months of 2024 relative to its level a year earlier, to more than 343 billion yuan ($47 billion), the Ministry of Commerce said last month.
With developed democracies casting a skeptical eye over Chinese businesses, more and more of this money is flowing into emerging economies. Europe and the US accounted for just $10.3 billion of a total $28.2 billion of Chinese FDI in electric vehicle manufacturing last year, according to Rhodium Group, a consultancy. Far larger shares went to Asia, Latin America, and North Africa, with Morocco alone receiving $6.3 billion.
EV manufacturers have been working on building new car plants in Mexico and Brazil, where State Power Investment Co. is adding to the 3.8 gigawatts of solar and wind farms it has operating.
All this spending represents a dramatic change for a country that was once the destination of others’ inward investment. China “appears to be undergoing a significant shift, from capital importer to capital exporter,” FDI Intelligence wrote last week.
There are many reasons to welcome such a shift.
China has built a clean-technology manufacturing sector that can go a long way toward getting the world to net-zero emissions. However, the two largest export markets, the US and Europe, are shunning this technology with tariffs and investigations into solar and wind exports and internet-connected cars. Poorer nations could provide an export market for the solar panels, rechargeable batteries and EVs that rich countries appear to no longer want.
That’s not just a benefit to China. Developing countries need energy and capital to get richer, something China’s growth miracle amply demonstrates. By turning its current account surplus into investments in renewable power projects and EV plants, China can provide the fuel for other countries’ journeys to riches.
There are more strategic reasons for Beijing to favor such a policy. FDI is a potent form of soft power that often goes hand-in-hand with political hegemony. Just as a previous generation of foreign policy experts hoped that FDI in China would sway it toward a more democratic path, so Beijing may hope to build alliances with emerging economies through spending.
That’s going to be particularly important as China’s own growing wealth makes it look less and less like would-be allies in the Global South. The country may be just months away from joining the ranks of high-income nations, and meanwhile accounts for more than 40 per cent of the world’s emissions.
If Beijing wants to maintain its diplomatic standing with low- and middle-income countries and not look like another heedless rich polluter, it will need to do everything it can to borrow the altruistic legacy of the Marshall Plan.