How China’s mission-oriented investment shapes industrialization in the Global South

Industrialization has remained an elusive goal for most countries of the Global South, and a new theoretical and empirical study argues that a critical missing ingredient is mission-oriented investment — investment deliberately organized around transformative developmental goals rather than short-term market signals. The research, published in the Asian Review of Political Economy, examines whether and how China’s outward investment cooperation can help mitigate the obstacles that have kept sustained industrial transformation out of reach for many developing economies.

The study, authored by Chenyang Li and Zhaoyuan Chen, identifies two persistent constraints facing late-industrializing economies: weak endogenous investment momentum and unstable financing conditions. Mission-oriented investment, the authors argue, is essential for addressing both. Such investment may originate from two broad sources — endogenous domestic initiatives and investments advanced through international industrial cooperation. Building on this distinction, the paper contends that China’s engagement in South-South cooperation can expand and strengthen mission-oriented investment in partner countries, thereby facilitating their industrial development.

The theoretical framework draws on evolutionary economics. Industrialization, in this view, is not simply a matter of allocating existing resources more efficiently; it is a process of structural transformation through which economies create new productive capacities and move into more capital-intensive and technologically complex forms of production. The authors trace the concept of roundabout production — producing tools and capital goods before final consumer goods — to Eugen von Böhm-Bawerk, and build on Mazzucato’s definition of mission-oriented investment as investment activities centered on achieving collective social goals, requiring coordinated supply-side and demand-side measures. The paper is careful to distinguish the concept from industrial policy and state-led investment: its defining feature is not government intervention per se, but orientation toward the creation of new markets and the catalysis of structural transformation.

Why do developing economies struggle to generate sufficient productive investment on their own, even though capital scarcity should in theory imply high returns? The paper cites Nurkse’s classic observation that aggregate capital scarcity does not automatically translate into attractive investment opportunities for individual firms. On the demand side, low productivity and low income constrain domestic market size and weaken investment incentives. On the supply side, many developing economies lack broad industrial bases, especially in equipment manufacturing and upstream input production, so firms face higher costs for machinery and raw materials and greater uncertainties in logistics, exchange rates, and foreign exchange availability. These conditions can offset the apparent advantage of low labor costs.

The second obstacle, unstable financing conditions, is rooted in the hierarchical structure of the international monetary and financial system. More than three-quarters of international liabilities remain denominated in U.S. dollars, and many developing countries suffer from what finance scholars call “original sin” — the difficulty of borrowing externally in their own currencies. Fluctuations in U.S. monetary policy and the dollar’s value shape global credit conditions and capital flows through the global financial cycle, so periods of dollar appreciation or U.S. monetary tightening can sharply worsen financing conditions for industrial investment. Mission-oriented investment, the paper argues, can help mitigate this problem by mobilizing more stable funding sources and reducing dependence on volatile external finance.

To substantiate the argument, the study first traces the evolution of China’s domestic industrial system to identify the origins of its mission-oriented investment capabilities. During the planned economy era, facing broad isolation from the United States and most Western countries, China pursued a “big push” strategy, developing a wide range of industries simultaneously. By 1979, industry accounted for a share of GDP that was twice the average of low-income countries and about 25 percent higher than that of middle-income countries, according to a World Bank assessment. China was largely self-sufficient in capital goods, with less than 10 percent needing to be imported, and it relied primarily on its own resources until the early 1970s. The authors argue this system generated the organizational, financial, and political-economic capacities that later made China’s outward investment cooperation possible, including state control over strategic assets, state-owned dominance in strategic sectors, an embedded central bank, and a financial system led by policy banks that supports long-horizon projects despite uncertain short-term returns.

The first case study examines industrial park development in Ethiopia, where industrial value added accounted for only 11.4 percent of GDP in 2000, less than half the average for sub-Saharan Africa excluding high-income economies. Ethiopia shifted toward a developmental-state model combined with export-oriented industrialization, and industrial parks became central to its strategy. China contributed in three main ways. Chinese enterprises directly invested in and developed industrial parks, including the Eastern Industrial Zone in Dukem, Ethiopia’s first, built by Jiangsu Yongyuan Investment Company. Chinese contractors, including CCECC, which had undertaken five federally planned industrial parks with a total contract value of USD 824 million as of August 2018, built the parks and supporting infrastructure such as the Addis Ababa–Djibouti Railway, the first electrified transnational railway in East Africa. Chinese financial institutions provided funding: Ethiopia cooperated with China on more than 70 mega-projects since 2006 and received approximately USD 14.83 billion in Chinese loans between 2006 and 2018, with 57 infrastructure projects accounting for about 82.2 percent of that lending.

The results in Ethiopia have been significant, though not unqualified, the authors note. According to a UNIDO assessment, Ethiopia’s industrial parks have played a positive role in stimulating investment and creating jobs, boosting exports and foreign exchange earnings, developing industrial clusters, promoting knowledge transfer and technology spillovers, linking to global value chains, advancing sustainable development and social equity, and supporting the national industrialization strategy. By early 2024, Ethiopia had developed sixteen state-owned industrial parks, including three integrated agro-industrial parks, as well as seven privately owned parks. The share of Chinese projects in Ethiopia’s total FDI inflows rose from 11.91 percent during 1992–2005 to 51.73 percent from 2013 to July 2020, according to research based on official Ethiopian data.

The second case study turns to Brazil, a middle-income economy facing premature deindustrialization rather than a weak industrial base. From 1992 to 2013, infrastructure investment accounted for only about 2.2 percent of Brazil’s GDP on average, lagging behind China at 8.6 percent and India at 4.9 percent. Brazil is among the world’s most hydro-dependent countries, with hydropower once accounting for about 90 percent of its electricity generation, and around 80 percent of electricity demand is concentrated in the south and southeast while much of the hydropower potential lies in the northern Amazon Basin. The Belo Monte transmission project, the largest transmission project in Brazil’s history at the time, was designed to bridge that gap. State Grid Brazil Holding secured the second phase independently in 2015 after local partners encountered financing difficulties, and the project entered operation in October 2019. China Development Bank, as the first Chinese bank to issue a Brazilian real-denominated letter of guarantee, provided credit support that reduced transaction costs and helped secure local commercial loans.

The completed Belo Monte transmission project measures 2,084 kilometers and 2,539 kilometers across its two phases, with a combined transmission capacity of 8 million kilowatts. The system can transmit approximately three-quarters of the electricity generated by the Belo Monte Hydropower Plant to southeastern Brazil, helping meet the electricity demand of around 22 million people in regions including Rio de Janeiro and São Paulo. During implementation, the project created 25,000 jobs and opened new markets for Brazil’s local electrical equipment and raw materials industries through localization of equipment and personnel. The authors caution that these outcomes do not mean Brazil’s developmental challenges have been resolved completely, and they stress that the effects of China’s outward investment cooperation are neither automatic nor uniform: they depend on host countries’ capacity to absorb technological knowledge, governance practices, and coordination mechanisms, and are shaped by domestic political structures and the international environment. The extent to which the argument travels across a wider range of developing-country contexts, the paper concludes, still requires further empirical research.

Subject of Research: The role of mission-oriented investment and China's South-South industrial cooperation in supporting industrialization in developing countries

Article Title: Mission-oriented investment and South-South industrial cooperation: theoretical foundations and empirical analysis

Article References: Li, C., & Chen, Z. (2026). Mission-oriented investment and South-South industrial cooperation: theoretical foundations and empirical analysis. Asian Review of Political Economy, 5(1), Article 19. https://doi.org/10.1007/s44216-026-00085-9

Image Credits: AI Generated

DOI: 10.1007/s44216-026-00085-9

Keywords: mission-oriented investment, South-South cooperation, industrialization, Global South, China, Ethiopia, Brazil, industrial parks, Belo Monte, infrastructure investment, development finance, state capacity