# Strategic Gamble

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FDI FROM CHINA: MAKE HASTE SLOWLY THE APPEAL OF CHINESE CAPITA L Chinese foreign direct investment (FDI) — capital that Chinese firms and state-linked entities deploy abroad to build, acquire, or expand businesses — has become one of the most consequential sources of external finance for developing and advanced economies alike. In 2025, Chinese outward FDI reached roughly $174 billion, making China the world's third-largest source of outbound capital after the United States and Japan. For host governments, the attraction is straightforward: Chinese money arrives quickly, often with fewer conditions than Western aid or multilateral lending, and it targets exactly what many economies need — ports, railways, power plants, factories, and increasingly, green-technology supply chains such as batteries and solar components. For ASEAN economies with large infrastructure gaps and limited domestic savings, and for a European Union anxious to secure electric-vehicle and battery capacity, Chinese capital can fill real gaps that other investors are unwilling or unable to fill. But speed and convenience are not the same as safety, and the record from both regions shows why host countries have learned to welcome this capital cautiously rather than reflexively. ASEAN'S BALANCING ACT   Southeast Asia illustrates both the promise and the price. ASEAN drew a record $225 billion in FDI in 2024, and Chinese greenfield investment in regional manufacturing has roughly doubled since the late 2010s, helping countries like Vietnam expand into electronics and semiconductor assembly. Yet the same relationship has produced serious dependency risks. Laos has borrowed roughly $5.5 billion from China — about 39% of its external public debt — largely to fund Belt and Road railways and hydropower, leaving Vientiane with a debt profile IMF analysts consider fragile. Cambodia, where Chinese capital accounts for roughly half of total inbound FDI, has seen Belt and Road-linked construction concentrate in a handful of coastal zones without corresponding gains in institutional capacity or diversified growth. In Indonesia, Chinese firms control an estimated three-quarters of nickel refining capacity, yet Indonesia is estimated to capture only a small share of the value added across the full battery-metals production chain — a pattern that raises questions about whether resource-linked FDI is truly building domestic industrial capability or simply relocating low-margin processing. Research tracking satellite data across Cambodia, Laos, Myanmar, and Vietnam has also linked Belt and Road-financed infrastructure corridors to measurably faster deforestation, underscoring how weak environmental safeguards and limited local oversight can turn investment into extraction. EUROPE'S RECKONING The European Union's experience shows that these concerns are not confined to lower-income economies. A wave of Chinese acquisitions of European semiconductor and technology firms in the 2010s — described by some analysts as a "garage sale" of strategic industrial assets — pushed Brussels toward its first EU-wide FDI screening framework in 2019. That system has since been tested repeatedly: Germany, Italy, the Netherlands, and the UK have all blocked or unwound Chinese acquisitions of sensitive semiconductor firms, particularly after Beijing's tacit support for Russia's war in Ukraine hardened European threat perceptions. The Commission's own data show Chinese transactions' share of notified investment cases rising from 6% to 9% between 2023 and 2024, with manufacturing and critical technologies — defense, semiconductors, aerospace — the leading triggers for in-depth review. In December 2025, EU institutions agreed to overhaul the screening regulation entirely, making national screening mandatory across all member states and, for the first time, reaching toward greenfield investment and outbound European capital in semiconductors, AI, and quantum technology. Yet Europe's posture remains genuinely conflicted: the same Chinese firms whose acquisitions worry security officials also supply the capital, know-how, and battery technology the bloc needs to compete in electric vehicles — a tension epitomized by debates over whether to require Chinese automakers to transfer technology to European partners as a condition of market access. COMMON THREADS: DEBT, DATA, AND DEPENDENCE The ASEAN and EU experiences point to a common set of risks that host governments now weigh against the benefits of jobs, infrastructure, and market access that Chinese FDI can deliver. Strategic sectors — ports, telecoms, power grids, semiconductors, critical minerals — are the recurring flashpoint, since ownership or long-term concession rights in these areas can translate into leverage over host-country decision-making. Debt sustainability is a second concern: loan-financed infrastructure, common under the Belt and Road Initiative, can leave borrowing governments exposed if project revenues fall short, and researchers have documented financing contracts containing asset-transfer or preferential-repayment clauses that are rarely disclosed in full. Technology transfer cuts both ways — a channel for genuine industrial upgrading in cases like Vietnamese electronics, but a source of limited value capture where investment stays confined to low-margin assembly or resource extraction, as in Indonesian nickel processing. Governance and transparency gaps compound all of this: many contracts are negotiated bilaterally with limited parliamentary or public scrutiny, weakening host-country bargaining power. None of this means Chinese FDI is uniquely harmful — many of these risks apply to any concentrated, opaque source of capital — but the scale and state-linked nature of Chinese outbound investment make the stakes unusually high. POLICY PRESCRIPTIONS: HOW TO MAKE HASTE SLOWLY The lesson from ASEAN and the EU is not to reject Chinese capital but to govern it deliberately. Host governments benefit from proportionate FDI screening mechanisms — reviewing transactions in strategic sectors without deterring the broad majority of ordinary, welfare-enhancing investment. Contract transparency matters: publishing loan and concession terms, including repayment and asset-transfer clauses, allows legislatures and civil society to assess exposure before commitments are locked in. Competition policy should guard against a single foreign supplier dominating critical infrastructure or inputs, while local-content and technology-transfer requirements — calibrated realistically rather than symbolically — can help ensure investment builds durable domestic capability rather than enclave production. Environmental and labor safeguards, enforced independently of the investor's origin, address the deforestation and standards concerns documented in the Mekong subregion. Finally, diversifying the investor base — a "China+1" approach to capital as much as supply chains — reduces bargaining leverage that any single dominant financier can accumulate, while active debt-sustainability monitoring, ideally benchmarked against IMF and World Bank frameworks, keeps infrastructure ambitions aligned with fiscal reality. None of these measures require confrontation with Beijing; they simply apply to Chinese FDI the same standards of scrutiny, transparency, and reciprocity that any large, concentrated capital flow should receive. Making haste slowly — accepting useful capital while insisting on the safeguards to manage it — is less about distrust of any one investor than about the ordinary discipline good governance requires. SOURCES  UNCTAD, World Investment Report 2025 https://unctad.org/publication/world-investment-report-2025 UNCTAD Global Investment Trends Monitor https://unctad.org/system/files/official-document/diaeiainf2025d1_en.pdf OECD  FDI Regulatory Restrictiveness Index https://www.oecd.org/en/topics/sub-issues/sustainable-investment/fdi-regulatory-restrictiveness-index.html YOUTUBE VIDEOS  CNA Correspondent, "China's Belt And Road: A Debt Trap For Sri Lanka?" https://www.youtube.com/watch?v=Kx9rChH-MmA DW News, "China's Belt and Road loans are putting borrowers and Chinese banks in danger" https://www.youtube.com/watch?v=dDVGWml2nyA CFR Education, "Foreign Investment 101" https://education.cfr.org/learn/reading/foreign-investment-101