Greenfield investment to drive FDI

Greenfield investment, a category of foreign direct investment wherein a company constructs new facilities and other assets in a foreign market, will replace mergers and acquisitions to become Chinese companies' most sought-after outbound approach amid their continued global expansion steps, according to a think tank report.

Compiled by the CF40 Institute — the research arm of the China Finance 40 Forum — "China's Economy toward a New Paradigm" was released on Tuesday as part of the Bund Summit 2026.

While going global will continue to be a major development trajectory for Chinese firms, its form will evolve from the traditional emphasis on goods exports to overseas investment, localized production and the establishment of supply chains abroad.

In other words, overseas expansion will be increasingly characterized by building new factories and production lines as well as establishing entities abroad rather than acquiring existing assets, according to the report, which addressed topics such as China's economic drivers, major economic trends and policy implications.

To make these new entities operational, companies need to build local workforces, supplier networks, financing channels, compliance systems and sales networks from the ground up. The relationship between Chinese firms and offshore economies will therefore extend beyond mere trade and into overseas production, said Guo Kai, executive president and senior fellow at the CF40 Institute.

The dominance of greenfield investment is by no means accidental but rather a result of companies' active response to the evolving global trade environment, said Guo.

Tariffs and trade barriers have mounted over the past few years, especially for automobiles, basic materials and energy — China's current major export drivers. The rising Chinese industrial competence in new energy vehicles, batteries and solar products has resulted in more tariffs, investment reviews and localization requirements, Guo added.

To preserve existing overseas markets, companies need to locate part of production closer to end-consumer markets, set up local factories, hire local workers, procure local components and establish offshore sales networks, he said.

The changing domestic market landscape has also prompted companies to attach greater importance to greenfield investment. Although China's manufacturing capacity built up over the past several years remains substantial, domestic demand growth has slowed, making it a bit difficult for Chinese companies to sustain rapid growth through overreliance on the domestic market. Real estate adjustments and fiscal pressures have also constrained the scope for rapid expansion of domestic demand.

Against this backdrop, Chinese companies with technological, cost and supply-chain advantages naturally look to overseas markets as new sources of growth. Particularly in internationally competitive industries such as automobiles, new energy, and machinery and equipment, overseas expansion is no longer simply about selling products abroad, but more about reorganizing production, supply chains and global market presence, according to the report, which added that the accelerated overseas expansion of Chinese companies will lead to a longer-term change in the foundations of the renminbi's internationalization.

While the process used to rely more on China's large trade flows, the wider use of the yuan can be spurred by Chinese companies' rising investment, production and operations in overseas markets.

"The globalization of Chinese firms could become a new driver for the RMB's internationalization," said Guo.