China's outbound investment soared between 2012 and 2016, including investment in countries participating in the Belt and Road Initiative and some developing countries. However, it declined by 19.3 percent in 2017 year-on-year and by 9.6 percent in 2018 with the downward trend continued last year.

Although this is partly due to China proactively controlling the outbound investment growth to reduce risks, the continuing decline in outbound investment is more a result of new changes in the international political and economic situation.

First, the overseas investment activities worldwide declined against the backdrop of the continued downturn in the global economy. According to the World Investment Report published by the United Nations Conference on Trade and Development (UNCTAD) in 2019, ODI worldwide has fallen for three consecutive years. In 2018, global ODI flows were only $1.3 trillion, down 13 percent year-on-year, the lowest point since the financial crisis. OECD data also show that global ODI in the first half of 2019 fell by 20 percent year-on-year. In this context, China's outbound investment also inevitably declined.

Second, the foreign direct investment screening by all countries in the world, especially the developed countries, are also becoming stricter. According to UNCTAD's 2019 World Investment Report, 55 economies around the world introduced a total of 112 policy measures against inbound investment, of which restrictive measures increased from 22 in 2016 to 31 in 2018. The European Union formally issued a framework for the screening of FDI from non-EU countries in April 2019, with the aim of strengthening the scope and intensity of FDI reviews, especially for investment from China. Under this circumstance, according to China's Ministry of Commerce, China's direct investment in the EU in 2018 was only $6.59 billion, a year-on-year decrease of 64.3 percent. Data from McKenzie and Rhodium Group show that in the first half of 2019, China's investment in advanced economies in Europe and North America was only $12.3 billion, a year-on-year decrease of 18 percent.

Third, Chinese investment in the United States has fallen sharply. The Sino-US trade frictions have increased the uncertainty in Sino-US relations, and the US has also tightened its scrutiny of investment from China. According to data from Rhodium Group, China's direct investment in the US in 2018 dropped from $29 billion in 2017 to $4.8 billion, a decline of nearly 84 percent, the lowest value since 2011. In the first half of 2019, China's outward investment in the US was less than $5 billion after the US tightened its review of investment from Chinese companies on national security grounds. In August 2018, the US president signed the Foreign Investment Risk Review Modernization Act to restrict Chinese companies' access to key US technologies through investment channels.

In this new situation, China urgently needs to adjust its previous outbound investment concepts and construct new ideas for outbound investment.

First, it is necessary to learn the lessons from the past, consolidate the fruits of existing outbound investment projects, strengthen policy communication with the host country and guide Chinese enterprises to make rational outbound investment.

Second, outbound investment should shift from growth to quality, thereby promoting China's economic transformation and upgrading. In advancing the Belt and Road Initiative, China should clarify the goals and demands, allaying suspicions. At the same time, the construction of the Belt and Road should highlight its key values of being green, transparent, inclusive and reciprocal and help countries participating in the initiative solve problems such as infrastructure construction and employment gaps.

Third, we should balance the regional investment structure. In the past, China has paid more attention to investment in developed countries and countries with natural resources. In the future, it should pay more attention to investment in areas with greater development potential, especially those neighboring countries participating in the Belt and Road Initiative. For example, Southeast Asia has low labor costs, cheap land prices, and great potential for investment in manufacturing and infrastructure. Western Asia and Central and Eastern Europe need industrialization or re-industrialization, and their demand for infrastructure investment is relatively large. Moreover, developed countries are often reluctant to invest in these countries. China's ODI reflects its efforts to share its development fruits and experience with the world. However, it needs to be cautious about various types of risks.

Fourth, the form of outbound investment should be more diversified. In addition to traditional forms such as mergers and acquisitions and green field investment, we need to think about how to drive investment through the construction of overseas industrial parks. UNCTAD's 2019 World Investment Report specially discusses the role of special economic zones in outbound investment. China has established 21 national-level overseas industrial parks. Through the construction of these parks, Chinese enterprises can be promoted to go global and Chinese trade enterprises can engage in manufacturing in the park. This can not only create employment for the host country, but also reduce China's trade surplus.

Finally, more attention should be paid to the support services for outbound investment, including financial services, information services and think tank services. For example, Chinese-funded financial institutions need to actively cooperate to organize syndicated loans and improve their capital supply capabilities. They must become hubs for various types of information and resources, and provide comprehensive financial services to enterprises. Another suggestion is to speed up the development of high-end overseas consulting service agencies, so as to provide higher quality consulting services related to local conditions. In addition, it is necessary to establish relevant think tanks and strengthen cooperation between Chinese and foreign think tanks. When implementing large projects, forming international expert team to discuss the risk is also necessary.

The author is an associate researcher at the Institute of Economics at the Chinese Academy of Social Sciences.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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