China’s overseas investment hits record US$214 billion. Why are US-bound flows plunging?

China recorded a record US$214 billion in outbound direct investment last year, while flows to the United States plummeted to their lowest in over a decade, amid escalating geopolitical and regulatory concerns, according to official statistics. The country, the second-largest source of global capital after the US, saw investment growth of 11.1 percent in 2025, with technology-related industries driving the surge, particularly investment in information transmission, software, and IT services, which jumped 88.3 percent to $13.1 billion.

However, direct investment to the US dropped 71.3 percent to $1.91 billion, down from about $6.63 billion in 2024 and marking the lowest level since 2011. The US represented only 0.9 percent of China's total outbound direct investment in 2025. "Political and regulatory risks in Western countries pose significant challenges for Chinese firms seeking to expand in those markets," noted David Zhang, a macroeconomics and policy analyst at Trivium China, adding that the US has become particularly difficult for Chinese firms to invest in.

In 2025, the US accounted for only 0.9 percent of China's total outbound direct investment. "The America First Investment Policy" issued by Washington in early 2025, which orders the use of "all necessary legal instruments" to restrain Chinese-affiliated investments in strategic industries, including energy and technology, further complicated the situation.

Beijing labeled the policy as "discriminatory and very unreasonable." Chinese investment in US manufacturing, the largest recipient of Chinese capital last year, declined by 55.4 percent year-on-year, while investments in wholesale and retail sectors fell 18.9 percent. Cross-border dealmaking also saw a significant slowdown, with Chinese outbound direct investment through mergers and acquisitions falling 40.3 percent to $15.3 billion.

Officials attributed the decline to heightened geopolitical tensions and increasing volatility in global capital markets. The report also suggested that stricter regulatory scrutiny at home and in major Western markets had made it more difficult to close large-scale overseas acquisitions. Despite these challenges, Chinese companies are increasingly deploying capital overseas through channels other than acquisitions, such as building or expanding new capacity.

Zhang of Trivium China observed that while the broader push to expand overseas remains strong, Chinese firms will need to balance commercial opportunities with rising geopolitical risks. Hong Kong continued to be the top destination for mainland Chinese outbound investment in 2025, attracting $137.5 billion, or 64.4 percent of the total, a 18.4 percent year-on-year increase.

Investment in the European Union also grew significantly, more than doubling to $12.2 billion, a 106.9 percent increase from the previous year. By contrast, investment in Belt and Road Initiative countries fell 9.7 percent to $46 billion, accounting for 21.6 percent of total outbound direct investment last year.