Tracking China’s Global Economic Activities: Data Challenges and Issues for Congress 
Released: 2020-04-02T00:00:00

Background

The People's Republic of China (PRC or China) has significantly increased its overseas investments since launching its "Go Global Strategy" in 1999 in an effort to make Chinese firms more globally competitive and advance domestic economic development ( Figure 1 ). Since then, Chinese firms have acquired foreign assets and pledged billions of dollars to develop infrastructure abroad. China's push overseas has been particularly visible in the Indo-Pacific region, a major focus of China's effort to increase global trade connectivity through the "Belt and Road Initiative" (BRI, initially known as "One Belt, One Road"), which launched in 2013. However, China's overseas, global economic activities include the purchase, financing, development, and operation of assets and infrastructure across Africa, Asia, Europe, Latin America and the Caribbean, North America, and Oceania.

Links to Select Databases on China's Foreign Direct Investment (FDI)

Many in Congress and the Trump Administration are focusing attention on possible critical implications of China's growing global economic reach for U.S. economic and geopolitical strategic interests. Some analysts view China's activities as largely commercial in nature, following the path that some Western multinational firms forged in the 1980s and 1990s in expanding and integrating into global markets. Others contend that China's activities are ultimately in support of alleged efforts by Beijing to challenge and undermine U.S. global influence.

This report does not provide figures or estimates of China's global economic activities. Nor is it an in-depth analysis of recent trends and developments. Rather, it provides an overview of select issues and challenges encountered when compiling, interpreting, and analyzing statistics on Chinese investment, construction, financing, and development assistance around the world.

Framing the Debate on China's Global Reach

Economic- and resource-related imperatives play an important role in China's expanding global economic footprint. Analysts see strong domestic economic development as a primary objective for China's leaders for a number of reasons, including those leaders' desire to raise the living standards of the population, dampen social disaffection about economic and other inequities, and sustain regime legitimacy. In addition, China's rapid economic growth has created a domestic appetite for greater resources and technology, as well as for creating markets for Chinese goodsâall of which have served as powerful drivers of China's integration into the global economy and enthusiasm for international trade and investment agreements. For example, as China's energy demands have continued to rise, the Chinese government has sought bilateral agreements, oil and gas contracts, scientific and technological cooperation, and de-facto multilateral security arrangements with energy-rich countries, both in its periphery and around the world. Moreover, China's recent relative economic slowdown (in the aftermath of the government-financed boom of the post-global recession years) has created excess capacity and the need to find overseas markets and employment opportunities for its infrastructure and construction sectors. In pursuing commercial opportunities abroad, Chinese firmsâmany of them state ownedâhave become global leaders in these sectors (e.g., transport infrastructure, such as ports and high-speed rail).

Some observers contend that these investment and construction trends may reflect an attempt by China to bolster its position as a global power, gain control of vital sea-lanes and energy-supply routes, secure key supply chains, aggregate control over communications infrastructure and standards, and build up geo-economic leverage to ensure support for its foreign policy objectives. In particular, some U.S. officials have expressed concerns that China's growing international economic engagement goes hand-in-hand with expanding political influence. The seeminglyâthough debatableâ"no strings attached" nature and looser terms of Beijing's overseas loans and investments may be attractive to foreign governments wanting swifter, more "efficient," and relatively less intrusive solutions to their development problems than those offered by bilateral and international financial institutions, such as the International Monetary Fund (IMF), World Bank, and Asian Development Bank (ADB). Unlike these institutions, many of the Chinese financial institutions and enterprises involved in China's overseas investment, lending and construction are owned or subsidized by the government. As such, they are not accountable to shareholders, do not generally impose safeguards or international standards related to transparency, human rights, and environmental protection, and can afford short-term losses in pursuit of longer-term, strategic goals.

Although some analysts and policymakers suggest that Chinese officials and state-owned enterprises (SOEs) appear more comfortable working with undemocratic or authoritarian governments, China's outreach also has extended to the United States, key U.S. allies and partners, and regions where U.S. economic linkages and diplomatic sway have been, until recently, predominant. These developments have led some observers to conclude that Beijing intends to challengeâor is already challengingâU.S. global leadership directly. As a result, some Members of Congress and Administration officials are focusing attention on the critical implications that China's increasing international economic engagements could have for U.S. economic and strategic interests.

Some observers have sought to compare China's activities to those of the United States. In contrast to China's, however, U.S. global economic engagements have tended to be more diverse and not government-directed or -funded. They have been driven primarily by the U.S. private sector, whose global presence is long-standing and comprehensive.

Data Limitations

A major challenge when researching global investment and construction projects and related loans is the accuracy of the data. While this challenge is not unique to projects involving Chinese players, it is exacerbated by the nature of many Chinese projects and loans, whose terms are not always publicly available or transparent. No comprehensive, standardized, or authoritative data are available on all Chinese overseas economic activitiesâfrom either the Chinese government or international organizations. A number of think tanks and private research firms have developed datasets to track investment, loans, and grants by Chinese-owned firms and institutions using commercial databases, news reports, and official government sources, when available ( Appendix A ). These datasets often record the value of projects, loans, and grants when they are publicly announced (e.g., at press conferences). However, many publicly announced projects are never formalized, and if they are, project and loan details may change, and projects may not always come to fruition for various reasons (e.g., changing economic and political conditions, or concerns about sovereignty, debt structure, or environmental impact).

Despite these limitations, figures derived from such "data trackers" often drive the policy debate. Because U.S. policymakers may rely on them to assess the overall scope and magnitude of Chinese activities, it is important to recognize the problems with the data and the limitations of existing databases. While they might be valuable and informative, they may also provide vastly different figures that are not necessarily comparable. For example, for 2015âthe most recent year for which complete annual data are available from all major sourcesâfigures on China's investment flows into the United States vary from $2.6 billion (which only includes nonfinancial gross foreign direct investment (FDI) flows and is reported by MOFCOM ) to $16.4 billion (which includes gross announced transaction flows of $100 million or more and is tracked by AEI/Heritage ) ( Figure 2 ). Similarly, China's total outward investment flows for the same year range from $117.9 billion (AEI/Heritage) to $174.4 billion (OECD ) ( Figure 3 and Table 1 ). Comparability issues also arise when trying to differentiate loan, investment, and construction projects that overlap, since datasets only capture a certain type of activity. Various datasets' categorizations may not cover the full range of activity that is taking place.

China's official foreign direct investment (FDI) statistics are compiled by two government agencies according to different criteria. The Ministry of Commerce of the People's Republic of China (MOFCOM)'s data are based on officially approved investments by nonfinancial institutionsâthat is, information recorded during the approval process rather than through surveys or questionnaires as in the United States (see textbox below). They are generally separated out by country and industry. The State Administration of Foreign Exchange of the People's Republic of China (SAFE), on the other hand, reports Balance of Payments (BoP) data at the aggregate level. SAFE, in theory, follows IMF guidelines. While both agencies are supposed to reconcile their figures in their annual revisions, discrepancies in the total amounts reported are common and significant.

Much of China's official outbound FDI also has traditionally been registered in Hong Kong, the former British colony that has been a Special Administrative Region of the PRC since 1997, or in tax havens such as the Cayman Islands or British Virgin Islands. Chinese firms, in particular, are known to use holding companies and offshore vehicles to structure their investments. "Round-tripping" (the practice of firms routing themselves funds through localities that offer beneficial tax policies or special incentives), "trans-shipping" (the practice of firms routing funds through countries that offer favorable tax policies to later reinvest these funds in third countries), and indirect holdings all make it difficult to track and disaggregate investments accurately. Chinese domestic investors have also been known to rely on these schemes to take advantage of favorable conditions granted only to foreign investors. As the Economist Intelligence Unit notes, "Chinese statistics record approved projects rather than actual money transfers," and "[c]ompanies often list the initial port of call of their capital, rather than its final destination, thus falsely inflating the importance of stop-over locations."

In addition to data reliability and comparability issues, it is not always possible to determine if an asset or project is wholly or partially owned, financed, built, or operated by a Chinese entity. Thus, the lack of consistent, disaggregated, and detailed information limits the proper assessment of the size, scope, and implications of these activities. Moreover, because major projects generally involve several phases and a sometimes-evolving cast of stakeholders, it is not always possible to distinguish between the phases of acquisition or construction and those of operationsâas they are often blended in terms of time and firms involved.

Many of the overseas infrastructure projects in which Chinese entities are involvedâparticularly portsâalso present distinct challenges not always encountered in the analysis of traditional foreign direct investments (e.g., multinational corporations building a new factory or acquiring an existing domestic firm). In the case of infrastructure, to attract foreign investment and transfer risks to the private sector, it is common for host countries to offer long-term concessions or leasesâfor both construction and operation. These typically allow the grantee firm the right to use land and facilities (e.g., ports and highways) for a defined period in exchange for providing services. Because these lands and facilities tend to be owned by the host government, the investments can come in the form of use-rights through leases or joint ventures. These challenges, together with the opacity of China's terms and conditions, can limit the ability to assess accurately the extent of Chinese involvement.

Data availability limitations also may arise since China often finances infrastructure development through its export credit agencies and development banks. China is not a member of the Organization for Economic Cooperation and Development (OECD) or part of its Arrangement on Officially Supported Export Credits, which includes rules on transparency procedures for government-backed export credit financing. The United States, China, and other countries have been working to develop a new set of international rules, but progress reportedly has been limited.

Finally, some of China's global economic activities are portrayed inaccurately as "foreign aid" or "development assistance." While certain aspects may resemble assistance in the conventional sense, they generally do not meet the OECD standards of "official development assistance" (ODA). The terms of China's "ODA-like" loans are less concessional than those of other major actors such as the United States and Japan, have large commercial elements with economic benefits accruing to Chinese actors, and are rarely government-to-government. Details on specific Chinese deals and overall flows are opaque because the PRC government rarely releases data on any of its lending activities abroad or those of its state firms and entities. China also is not part of the OECD's Development Assistance Committee, which "monitors development finance flows, reviews and provides guidance on development co-operation policies, promotes sharing of good practices," and helps set ODA standards.

Issues and Options for Congress

Data limitations and lack of transparency, combined with the number of unknown variables that drive China's foreign economic policy decision-making processes, can affect how Members of Congress perceive and address the challenges that China's overseas economic activities pose to U.S. and global interests. These limitations also complicate efforts to compare accurately the extent to which China's global economic reach differs from that of the United States. Little consensus exists within the United States and the international community on China's ultimate foreign economic policy goals or what motivates and informs its economic activities abroadâeither in general or with regard to specific regions or countries. Debate is ongoing over whether China's global economic engagements have a pragmatic, overarching strategy, or are a series of marginally-related tactical moves to achieve specific economic and political goals. Similarly, some analysts argue that Beijing, through its global economic activities, is trying to supplant the United States as a global power, while others maintain that it is focused mainly on fostering its own national economic development.

In the absence of sufficient transparency in China's international economic activities, Members of Congress may seek to support current and new U.S. efforts to better track, analyze, and publicize actual Chinese investment, construction, assistance, and lending activities. Better data and information on China's activities may help U.S. policymakers assess the scope and address key questions over China's international engagements and growing economic role, including:

How could the United States more accurately assess and respond to increasing competition by China for leverage and influence, both in countries where the United States is seeking to expand its economic and political ties, as well as in those with strong existing U.S. relationships? To what extent are the terms of China's global investments and economic assistance less restrictive than U.S. activities and how does this affect U.S. efforts to promote good governance around the world? What commercial advantages does China's arguably unique approach to global economic engagement provide its companies, how does this affect the ability of U.S. companies to compete for international business, and what policies and agreements should the United States put in place to mitigate these effects? How can the United States expose where China is in violation of the rules and norms of global institutionsâparticularly where it has or is seeking leadership positionsâand use this knowledge to require China to adhere to international norms and condition its investments and assistance on widely accepted best practices? What are the implications for the United States and international financial institutions (IFIs) that often promote good governance when China competes directly as an international lender and may offer less encumbered "assistance" in ways that directly undermine U.S. and IFI values and principles? How should the IFIs and the United States respond to this challenge, particularly when China is seeking influence and leadership in both current IFIs and these alternative paths? Should China's leadership role be challenged if it is found to be undermining the goals and principles of the organizations it leads or seeks to lead, including with respect to transparency commitments? How do differences in approach and scale of U.S. and Chinese global economic activities affect global perceptions of U.S. engagement around the world?

U.S. policymakers could seek to improve their own knowledge base in ways that may enable them to advance U.S. foreign economic interests more effectively, while at the same time encouraging more transparency by China. This could include:

Collecting, maintaining, and publicizingâto the extent that is possibleâa more accurate calculus of actual Chinese economic activities, particularly by tracking investment and assistance that is delivered, as opposed to that which is merely announced (e.g., either unilaterally or by encouraging or requiring greater disclosure through the international financial institutions and WTO). Directing agencies within the executive branch to develop a whole-of-government approach and guidance to better assess the global investment, construction, and lending activities of U.S., Chinese, and other major actors. As part of this effort, the U.S. government could harmonize U.S. programs for gathering information and streamline data centralization. In addition, it could study the adequacy of data and information recording, collection, disclosure, reporting, and analysis at the U.S. and international levels and recommend necessary improvements. Establishing a U.S. statistical office or program tasked with collecting current information on international capital flows and other information related to international investment, public procurement, and export and investment promotion, financing, and insurance by U.S., Chinese, and other major economic actors. Conducting oversight and examining more closely data collection and transparency commitments in various institutions, including the Organization for Economic Co-operation and Development (OECD), International Monetary Fund (IMF), the World Bank, and United Nations Conference on Trade and Development (UNCTAD) on investment, loans, and government procurement to determine if these mechanisms are sufficient and/or are being adhered to. Determining whether the World Trade Organization (WTO) should play a greater role to enhance transparency and set standards for dissemination of investment data through future reforms to key agreements or new agreements on investment. Examining the activities of international and regional organizations to determine if they are sufficient to address emerging data requirements or whether a major U.S. and/or internationally-coordinated effort is required. Supporting U.S. and international efforts to provide training courses, workshops, and technical assistance programs for countries to implement international statistical guidelines and improve comparable data compilation and dissemination practices. Holding hearings on Chinese overseas lending and investment practices.

The United States could consider a combination of pressure and collaboration to strengthen its economic engagement efforts and encourage China to adopt international best practices. While the success of past efforts has arguably been limited, the United States could continue to:

Work with other countries and international economic institutions to improve the collection and accuracy of data, address data deficiencies, and harmonize data reporting requirements by China and other major economies. Encourage China to participate more vigorously in adopting or developing rules on export credit financing and related areas, while urging China to sign on to public-private sector good governance initiatives and agreements. Coordinate efforts with other countries to set terms for data transparency and best practices for China to participate in multilateral and country-level donor foreign assistance dialogues and related efforts to prioritize key development goals and coordinate aid efforts in order to create synergies, avoid duplication and tied aid, and maximize each donor's strengths. Offer to work collaboratively with Chinaâeither bilaterally or through multilateral foraâto more clearly differentiate its official grant-based aid from its subsidization of trade and commerce credit; monitor the effectiveness of its aid strategies; harmonize aid reporting with other donor governments; and develop best practices in support of transparency and accountability.

Appendix A. Databases and Resources

Appendix B. China's FDI in the United States