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Here at the ChinaMed Project, we are pleased to announce that we recently updated our database, ChinaMed Data, with the latest figures on Chinese foreign direct investment (FDI) in the wider Mediterranean region. In this edition of the ChinaMed Observer, we will delve into this data and analyze emerging trends.
Starting with a region-wide perspective, China’s FDI stock in the wider Mediterranean continued to grow in 2022, hitting a record high of USD 48.5 billion. This 5% increase from the previous year's recorded value of USD 46.2 billion is relatively contained when compared to the rapid expansion witnessed between 2008 and 2018 but aligns with the pace observed over the past five years.
Breaking down these overall figures into sub-regions reveals that the Middle East is the main driver behind the growth of Chinese investment in the wider Mediterranean. China's FDI stock in the Middle East surged from USD 28.2 billion in 2021 to 31.5 billion in 2022 (+12%). Conversely, Southern Europe experienced a decline from USD 10.9 billion to 10.4 billion (-5.2%), while North Africa and the Horn of Africa saw a decrease from USD 7.1 billion to 6.6 billion (-6.6%).
These developments align with the trends observed over the past half-decade, wherein Chinese investments in the Middle East have significantly and consistently grown. In contrast, Southern Europe, North Africa and the Horn have witnessed a relative stagnation in the value of their Chinese FDI stock. These trends likely underscore enduring Chinese interest in the energy-rich and strategically important Middle East. They also suggest a level of caution among Chinese investors concerning escalating political tensions with the European Union and the ongoing instability in the African continent.
However, it must be stressed that this hypothesis, along with those outlined in subsequent sections of this article, relies on informed conjecture as it remains difficult to trace the origin of shifts in Chinese FDI flows. The data provided by China’s Ministry of Finance is based on the OECD Benchmark Definition of Foreign Direct Investment, encompassing all the investments where a Chinese investor owns at least 10% of the shares of a project. However, as outlined in the appendix of the annual reports, the data collection efforts involve coordination among numerous central and local, private and state-owned organizations. Additionally, there could be other endogenous and/or exogenous factors influencing the calculations that may also explain the sudden jumps in reported values throughout the dataset.
While the Middle East as a whole experienced a boom in Chinese investment in 2022, zooming in reveals that not all Middle Eastern states witnessed a surge of their value of Chinese FDI stock. Several countries, including Egypt and Saudi Arabia, even experienced a decline in Chinese FDI stocks in 2022.
Israel, notably, saw its Chinese FDI stock plummet to a seven-year low of USD 3.4 billion in 2022, down from its 2018 peak of 4.6 billion. As outlined in our 2022 report, Tel Aviv has been facing mounting pressure from Washington to curb its economic and scientific ties with Beijing. In response, Israel established the Advisory Committee for Evaluating National Security Aspects of Foreign Investments. According to a 2022 article by Assaf Gilad for the Israeli newspaper Globes, this committee’s efforts have been responsible for a significant drop in Chinese investments and the withdrawal of much Chinese capital from the country.
Another Middle Eastern country experiencing a similar situation is Iran. Since 2018, when the Trump administration initiated its "maximum pressure" strategy on Tehran, particularly by withdrawing from the JCPOA nuclear deal, Chinese investment in Iran began to stagnate. While one may question the accuracy of figures provided by the Chinese government, as Beijing may have an interest in not reporting its violations of the US sanction regime, our coverage of the Iranian media debate reveals growing domestic disillusionment with the lacking economic results of the Iran–China 25-year Cooperation Program signed in March 2021, which was supposed to bring in USD 400 billion of Chinese investment.
The Iranian case also serves as a reminder that Beijing’s political and diplomatic support does not always translate into meaningful economic engagement. This trend is further evident in Syria and Palestine, where China's reported FDI stock in the former for 2022 amounted to the relatively minuscule amount of USD 13 million, while in the latter, it remained at zero.
Despite the drops reported in the aforementioned countries, the overall value of China’s FDI stock in the Middle East went up due to massive increases in select Middle Eastern states. For instance, Iraq saw an uptick from USD 1.9 billion to 2.5 billion. This surge can be attributed to Beijing's sustained interest for investing in and consuming Iraqi oil and the so-called 2019 China-Iraq "oil-for-reconstruction" deal.
Although the specific details of this agreement remain undisclosed, available information suggests that, in exchange for 100,000 barrels of oil exports per day, Chinese firms are participating in Iraqi reconstruction and infrastructure projects. We also know that in 2022, Iraq’s Secretariat of the Council of Ministers announced one of this deal’s first projects, the construction of one thousand schools by Chinese companies Power China Group and Sinotech.
Türkiye also experienced a notable rise in Chinese FDI stock, going from USD 1.9 billion to 3 billion, which can be attributed to the growing Chinese investments in its energy sector, manufacturing capacity, and infrastructure. Regarding manufacturing, Chinese firms have reportedly keen on establishing production facilities in Türkiye to enhance their access to the EU market. Meanwhile, on the issue of infrastructure, China, in the wake of the Ukraine War, has allegedly begun to shift its Belt and Road Initiative investments away from Russia, favoring instead Ankara’s proposed "middle corridor".
The growing value of Chinese FDI in their countries may be behind Ankara and Baghdad’s confidence that Chinese firms will participate in their proposed infrastructure initiative, the “Development Road”, which connects via rail and road the Port of Basra to Europe through Türkiye. This is despite China’s apparent declining willingness to participate in massive international infrastructure projects.
Turning to the United Arab Emirates, it stands head and shoulders above the rest, having experienced a surge of Chinese FDI stock that brought it from USD 9.8 billion in 2021 to 11.9 billion in 2022 (a 20.1% increase that has it to surpass the value reported for the entirety of Southern Europe). This increase and the consistent and rapid growth reported over the last decade can be attributed to Emirati efforts to attract Chinese investment to diversify the UAE economy away from energy and towards manufacturing, telecommunications, artificial intelligence and tourism. An example of such efforts is the China-UAE Industrial Capacity Cooperation Demonstration Zone, which in 2022 witnessed its first operational project.
The continuing violence and instability across North Africa and the Horn of Africa in 2022 are the most probable factors that contributed to the stagnation and decline of the value of Chinese FDI stock in this area of the world. During 2022, the Tigray War reached its brutal culmination, fighting erupted in Tripoli, and Sudan experienced growing instability following the October 2021 coup d'état, ultimately leading to the outbreak of civil war in April 2023.
As a likely consequence, from 2021 to 2022, the value of Chinese FDI stock declined in Ethiopia from USD 2.8 billion to 2.6 billion, in Libya from USD 139 million to 88 million, and in Sudan from USD 1.1 billion to 0.9 billion.
Remarkably, amid the political and security upheaval triggered by the May 2021 coup in Mali and the subsequent expulsion of the French-led military mission “Operation Barkhane”, Mali emerged as one of the few countries in this subregion to experience an increase in Chinese FDI stock in 2022, climbing from USD 439 million to 478 million (a possible explanation could be ongoing Chinese acquisitions of and investments in Mali's lithium mines).
To conclude, let us take a quick look at Southern Europe. The most striking development is a sudden decrease in Chinese FDI stock in Italy, dropping from USD 3.4 billion to 2.5 billion – a nearly USD 1 billion plunge within a year. This downturn can be partly attributed to the Draghi government’s frequent use of the so-called "golden power" to obstruct Chinese acquisitions in strategic sectors of the Italian economy. While this policy might have deterred Chinese firms from further investments in Italy, Giorgia Meloni’s victory in the October 2022 general elections may have also contributed, given her critical stance on China during the electoral campaign and her government's expressed intent to withdraw Italy from the BRI.
Italy is not the only EU member state adopting a more hostile position on economic engagement with China. This shift in attitude within the EU might be behind Chinese firms’ increasing interest in the extra-EU Western Balkan states. Serbia, in particular, has experienced a rapid surge of Chinese FDI which reached a record high of USD 557 million in 2022. Notably, Chinese companies are channeling their investments into the Serbian mining, metal manufacturing, and the automotive sectors.
In a year marked by fervent debates on the state of the Chinese economy, the future of the Belt and Road Initiative, and the “end of globalization”, the available data instead indicates that Chinese outward investment has continued to grow in the wider Mediterranean region, albeit at a more measured pace and increasingly directed to the Middle East.
Despite past data suggesting that Chinese diplomatic engagement may not necessarily translate into surges of FDI (and vice versa), Beijing has dedicated considerable efforts throughout 2023 to enhancing its profile in Middle Eastern politics. These efforts include facilitating the reconciliation between Iran and Saudi Arabia and expanding the membership of both the Shanghai Cooperation Organization and the BRICS to numerous states in the region. At the same time, 2023 has also been marked by outbreaks of violence in Sudan, Israel, and Palestine, along with escalating tensions between China and the West.
As we wait for the release of 2023 data next year, it is conceivable that the evident diplomatic centrality of the Gulf will likely be accompanied by deeper economic interactions between China and the countries of this area, including through increasing investments. However, the situation in other parts of the wider Mediterranean remains uncertain due to ongoing instability and geopolitics.
If you are interested in delving deeper into these figures and exploring additional data on China's trade, energy and security relations with the countries in the wider Mediterranean region, check out ChinaMed Data for more.
