China overtakes US as world’s leading destination for foreign direct investment

China overtook the US as the world’s top destination for new foreign direct investment last year, as the Kovid-19 pandemic exacerbates a retrospective shift in the global economy’s center of gravity.

New investment by foreign businesses in the US, which ranked No. 1 for decades, fell 49% in 2020, according to UN data released on Sunday, as the country halted the spread of new coronoviruses and economic output Was struggling

The United Nations Conference on Trade and Development has long seen China at No. 2, with direct investment by foreign companies climbing 4%. Beijing used a strict lockdown that primarily included the Kovid-19 after the disease first surfaced in a central Chinese city, and China’s GDP also rose as did most other major economies contracted last year.

The number of 2020 investment moves toward the center of China’s global economy, which has long dominated in the US — China has steadily strengthened its position as the world’s factory floor during the epidemic and has become the leader of global trade. Has expanded its share.

While China attracted more new inflows last year, the total stock of foreign investment in the US is very high, reflecting for decades that it has been spent as the most attractive location for foreign businesses outside of its domestic markets Want to expand.

Foreign investment in the US was $ 472 billion in 2016, when foreign investment in China was $ 134 billion. Since then, investment in China has steadily increased, while in the US it has fallen each year since 2017.

The Trump administration encouraged American companies to leave China and re-establish operations in the US. It also gave notice to Chinese investors that acquisitions in the US would face new scrutiny on national security grounds – cooling Chinese interest in making US deals.

The steep decline in foreign investment in the US last year reflects the macroeconomic slowdown caused by the effects of the coronovirus epidemic, said Daniel Rosen, founder of Rhodium Group, an independent research firm in New York that has long analyzed the US-China Economic Relations.

He said, “I don’t think anyone can say anything about the impact of the FDI recession in America compared to all the other hits on the US economy.”

It is but natural that foreign investment will decline sharply under the circumstances in the US because it has an open, market economy, while China does not, Mr. Loose said. Looking ahead, he said, “There is no reason to be concerned about the outlook for FDI in the United States provided that the US is sticking with its basic open market competitive system.”

Foreign direct investment occupies such things as the creation of new factories of foreign companies or expansion of existing operations in a country or acquisition of local companies.

In China, investment flow continued despite the turmoil of the epidemic, with companies from the US industrial company Honeywell International. Inc.

And German sportswear manufacturer Adidas AG

We are expanding our operations there.

Unctad does not expect a significant revival of foreign direct investment this year globally or in countries that see a decline in 2020.

“Investors are likely to be cautious in investing capital,” said Unctad’s director of investment and enterprise James Zan. He does not expect a real rebound until 2022. Even then, he said, “the path to full FDI recovery will be bumpy.”

Unctad numbers show a marked division between East and West in the global economy. In 2020, East Asia attracted one-third of all foreign investment globally, its largest share since the record began in the 1980s. India saw growth of 13%, driven by increasing demand for digital services.

In the West, the European Union suffered a 71% decline. The UK and Italy, which have faced high mortality and deep economic contraction, have not attracted any new investment. Germany, which has outperformed in both cases, saw a 61% drop.

When the epidemic first came early last year, Yuktakt expected China to experience a large decline in foreign investment and the US is largely dissatisfied. But China’s economy reopened in April, as the US and Europe began a series of continuous lockdowns and disruptions.

Beijing is giving Washington a concession in trade talks: rules that would level the playing field for foreign companies in China. But there are doubts about Beijing’s true commitment to open its market. Photo: Johannes Isle / AFP via Getty Image

Beijing’s ability to quickly control coronoviruses within its borders helped its economy grow relatively quickly and strengthened, even to China’s appeal – before President Biden’s inauguration, which some investors hope is less powerful US-China may enter a new period of relations.

In the first few months of 2020 after FDI’s arrival in China, Chinese authorities scrambled to reassure foreign investors and accommodate any concerns they might have. China’s chief Li Keqiang told the country’s cabinet in March, “We should implement targeted policies to arrest the slide in foreign trade and foreign investment.”

Some foreign companies stopped their China expansion plans and in some cases started withdrawing their investments. But as China’s recovery accelerated and began to look increasingly rocky to the rest of the world, foreign companies started pouring more money into China, leaving the country as a production base and an important growth market for their products saw.

Walmart Inc.

An investment conference organized by the city’s government in Wuhan said that the city was the first epicenter of the epidemic, which would invest 3 billion yuan in Wuhan equivalent to $ 460 million over the next five years. Starbucks Corp.

Is investing $ 150 million to build a roasting plant and innovation park in the eastern Chinese city of Kushan.

Tesla Inc.

Meanwhile, is expanding capacity at its plant in Shanghai and adding a research facility, via Walt Disney Co.

A new subject area for its Shanghai Disneyland Park continues to be built – despite a second straight year of reduced attendance at the park.

Medical and pharmaceutical investments have been particularly active as coronoviruses have affected the global economy. Chinese state broadcaster Chinese Central Television reported in April that several global pharmaceutical companies are moving ahead with their expansion in China, including AstraZeneca plc, which is in the midst of establishing regional headquarters in at least five Chinese cities.

The flexibility of foreign investment in China contradicts earlier expectations that foreign businesses want to reduce their heavy reliance on the country as a major part of their supply chains, causing some disruption as a result of new tariffs on trade between countries Has been observed. America

Seoul Semiconductor Co.

A South Korean chipmaker with extensive operations in China, despite many incentives to do so, shows the difficulty of exiting China. The company began transferring some production of its light-emitting components to Vietnam in 2017.

“We were very dependent on China,” said Hong Myeong-ki, the company’s co-CEO. But although the company makes about half of its products in Vietnam, Mr. Hong now has no plans to move out of China.

The same trend can be seen among Japanese companies operating in China, only 9.2% of whom said they were considering moving out of China or boosting production in a September survey by the Japan Foreign Trade Organization, which The lowest level in five years.

“They need to bring more scarcity on the supply chain in the same market,” said Ding Ke, a Tokyo researcher with Jetro. “But the greater risk they identified is losing the Chinese market.”

Write Paul Hannon at [email protected] and Young Jong at Yoon-young

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