Despite multinationals’ misadventures in the People’s Republic, nearly every major company remains convinced that it must have a China strategy, and some years China attracts the biggest pool of foreign direct investment of any nation.

This part of the China story is well known.

Less understood is what happens now. For some nations, fear of China’s military power has been replaced by fear of China’s economic power.

Beijing apparently has realized that, like the United States and Japan before it, it also can utilize its economic heft to minimize fears of its rise (and even to boost its appeal in foreign nations), if it portrays its growth in a positive light such that other countries can benefit from China’s consumer power.

In pursuing this goal, China has first tried to demonstrate that as it grows, it also will become a much larger consumer of other nations’ goods, creating “win-win” economics, central to the idea of China’s rising peacefully on the world stage.

Beijing promotes the idea that China eventually will become a major source of outward investment. Chinese officials often do so by providing trade and investment and tourism targets. These targets, for five or ten years in the future, tend to be enormous and to obscure the fact that, at present, Chinese direct investment into regions like Southeast Asia and Latin America still lags far behind investment from the United States and other wealthy countries like Japan.

China’s outward investment comes partly from a national policy, not just from Chinese companies seeking profits overseas. The Chinese government encourages firms to invest in strategic industries and select countries.

During the late 1990s and early 2000s, in fact, China’s Ministry of Foreign Trade and Economic Cooperation selected some thirty to fifty top Chinese companies to take the lead in overseas investment. As they look to invest overseas, these national champions enjoy a range of benefits that will help them compete against western firms, including low-interest funding from Chinese banks, many of which are controlled by the government.

Just as it focuses on strategic industries, the Chinese government also pushes investment in strategic nations-countries on China’s borders and in regions with resources (particularly oil and gas): Latin America, North Africa, and Central Asia.

While China cannot yet challenge the United States, Europe, or Japan as a source of outward investment, it already can match other major powers as a consumer and as a trading partner. And China’s consumption is focused on the developing world: while China imports little from the United States outside of high-technology products, its imports from the developing world are worth more than seven times its imports from the United States.

Sensitive to fears of China’s economic power, Chinese officials also try to reassure developing nations by signing free trade deals and making trade concessions-another economic tool of soft power.

China is at work on more than a dozen trade agreements with countries from Chile to New Zealand. In all these deals, Beijing presents itself as committed to free trade without imposing any conditions on trade partners related to governance, environmental issues, or labor rights, a stance that plays well in many countries.

The United States, Europe, and Japan, by contrast, have to deal with more powerful and vocal domestic business interests in its trade negotiations, and with legislatures that respond to these businesses. This is one reason why the United States (unlike China) has not launched a trade agreement with all of Southeast Asia, and why Japan has been unable to complete a bilateral agreement with any Asian nation except Singapore and the Philippines.

Still a developing country, China could overplay its hand, making promises to other nations that it cannot fulfill. China’s diplomatic style of signing many agreements during foreign visits by its top leaders earns it considerable initial goodwill and positive media coverage. But often the agreements are merely letters of intent.

Indeed, after Chinese leaders make promises of new aid during visits overseas, Beijing sometimes fails to follow through with the cash. wt