China’s stocks rule the headlines this summer, but they are not the Chinese investment that matters most to the world. China’s investments overseas matter more, such as ChemChina’s $7.8-billion buyout of Italy’s Pirelli or Hua Capital and CITIC’s $1.9-billion acquisition of America’s OmniVision.

Chinese investment at home may slump but its global spending is set to top $100 billion this year, and keep rising. This offers sizable benefits, and poses important questions for recipient countries. Is there such a thing as too much investment? Can Chinese firms be trusted to follow the rule of law, when there is none at home?

Answering these questions requires facts, facts such as those found in the American Enterprise Institute’s and Heritage Foundation’s China Global Investment Tracker (CGIT). The CGIT documents over 750 Chinese investments around the world of $100 million or more since 2005 (excluding bonds). It also includes 800 construction and engineering contracts. The combined value of China’s global investment and construction since 2005 is $1.1 trillion, and could top $3 trillion by 2025.

Coming To America, and Nigeria

The CGIT shows the United States was again the leading recipient of Chinese investment in the first six months of this year, maintaining a streak that started in 2013. Italy was second, thanks to the Pirelli deal. The Netherlands, Australia, and South Korea rounded out the top five for the first half.

Since 2005, the United States has drawn $90 billion in Chinese investment (excluding bonds), the largest amount of any recipient country. Australia is second, followed by Canada. Chinese investors plainly like large developed economies.

In contrast, Chinese engineers will go anywhere. The top locations for Chinese construction and engineering contacts are Nigeria, Venezuela, and Pakistan. Other major recipients include China’s southeast Asian neighbors and other oil suppliers. Indeed, construction and engineering contracts seem to reflect China’s foreign policy priorities at least as much as they reflect companies looking for the most profitable international markets.

By sector, energy has drawn by far the most attention since 2005. But after a weak 2014, energy investment all but vanished in the first half of this year—the Chinese energy chase has ended. It has been replaced by more diversity. China’s real estate purchases are now winning attention and its banks are starting to invest again, after suffering heavy losses in 2008-2009. Transportation sees very heavy construction activity, from airports to high-speed rail.

Storms Across the Pacific

The CGIT also documents troubled transactions. Chinese investment and construction could be as much as $250 billion higher, if not for Chinese firms making mistakes and host country governments intervening to block deals.

The United States in particular has barred Chinese investment, starting in 2005 when China National Off-Shore Oil was discouraged from buying Unocal and continuing through various efforts to inhibit telecom firm Huawei. The problems in the past have been reciprocity—why should the United States allow more access to Chinese enterprises than China allows American companies—and the prominence of state-owned enterprises (SOEs). These issues are fading somewhat.

American hostility toward SOEs has paid off in one sense: elsewhere in the world SOEs dominate Chinese investment, but in the United States, private Chinese companies now account for the majority. This may not be a huge achievement, as the Communist Party can force private firms to do its bidding almost as easily as it can force SOEs to.

Reciprocity is supposed to be settled through a bilateral investment treaty (BIT), now being negotiated. The vicious political battle over Trade Promotion Authority and looming one over the Trans-Pacific Partnership, which is largely composed of American allies, suggests it’s foolhardy to try to get a China BIT through Congress. Yet without a BIT or reciprocity, Chinese investment in the United States has repeatedly set new annual records over the past few years.

On the Horizon

Looking forward, China Inc. has plenty of money and an increasing desire to head overseas as the home economy slows. Chinese investment of more than $1.25 trillion over the next decade, with perhaps $150 billion in the United States, is only a mildly optimistic scenario.

In this case, energy investment will diversify away from conventional oil to shale, nuclear, and alternative. Real estate investment will recede, as overly exuberant Chinese investors are burned the same way Japanese investors were burned in the 1980’s. But Chinese banks will seek more profitable opportunities overseas than are available at home. And China will continue to make progress in the agriculture and technology acquisitions it highly prizes.

Construction activity could be even more impressive. The developed world is not familiar with engineering giants such as China National Machinery (Sinomach) and China Communications Construction but the developing world is. They and sister firms, all SOEs, will see their opportunities and prominence rise if various diplomatic initiatives such as the Maritime Silk Road and the Asian Infrastructure Investment Bank proceed. Someone has to build it all.

What might derail China’s global train? Flouting the law in a country with a respected legal system. If the incident is damaging enough, it may only take one. Chinese enterprises would be tarred as corrupt at home and unwilling or unable to genuinely adhere to rules on safety, disclosure, and the like. The record to date shows this is highly unlikely, but more investment and construction means more firms involved and more opportunities for a disaster.

Flouting the law via cyber-espionage is a slow-motion disaster. The Chinese government’s refusal to change its behavior, or even acknowledge it, justifies suspicion of Chinese companies. Something has to give eventually: either Chinese cybertheft will ease or barriers will be erected to Chinese investors.

Rising Chinese investment in the world, a shift in priorities from oil to finance and real estate, the possibility of much greater construction activity in Asia and elsewhere, and pointed questions about Chinese enterprises’ capacity to follow the law make for a noteworthy mix of policy challenges. Meeting those challenges requires facts.

Derek Scissors is resident scholar at the American Enterprise Institute.

Image: Flickr/Jason Wesley Upton