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China surpassed the US last year as the world’s best destination for new foreign direct investment, as the Covid-19 pandemic intensified an eastward shift in the center of gravity of the world economy.
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New investments by overseas companies in the US, which for decades have been the no. 1 occupancy, according to UN figures released on Sunday, fell by 49% in 2020 as the country struggled to curb the spread of the new coronavirus and economic output declined.
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The United Nations Conference on Trade and Development said foreign investment by foreign companies rose by 4% in China, which came in second place. Beijing has used strict barriers to largely curb Covid-19 after the disease first emerged in a central Chinese city, and China’s gross domestic product has grown, even though most other major economies did last year pulled together.
2020 investment figures underscore China’s move to the center of a long-dominated US economy – a shift that was accelerated during the pandemic as China reaffirmed its position as the world’s factory floor and its share of world trade expanded.
While China attracted more new inflows last year, the total stockpile of foreign investment in the US remains much larger, reflecting the decades it has spent as the most attractive place for foreign businesses looking to expand outside their home markets.
FILE – In this file photo on January 15, 2021, residents are enjoying the sunset along the riverbank in Wuhan in Hubei Province in central China. Couples go on dates, families go to restaurants, shoppers flock to shops. Face masks aside, people go a
US foreign investment peaked at $ 472 billion in 2016, when foreign investment in China reached $ 134 billion. Since then, investment in China has continued to rise, while in the United States it has fallen every year since 2017.
The Trump administration has urged U.S. companies to leave China and relocate to the United States. It also informed Chinese investors that acquisitions in the US would be re-examined for national security reasons, which would diminish Chinese interest in making US transactions.
The sharp drop in foreign investment in the US last year reflects the broader economic downturn due to the effects of the coronavirus pandemic, said Daniel Rosen, founding partner of Rhodium Group, an independent research firm in New York. China economic ratio.
“I do not think one can confidently say anything about the impact of the FDI downturn in the US, compared to all the other hits on the US economy,” he said.
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It is natural that foreign investment will fall sharply under the circumstances in the US because it has an open market economy, while China does not, said Mr. Rosen said. Looking ahead, he said: “There is no reason to worry about the prospects for the FDI in the United States, provided the US adheres to its basic open market competitive system.”
Foreign direct investment keeps catching up, such as building foreign companies, new factories or expanding existing operations in a country, or acquiring local companies.
In China, the flow of investment by multinational corporations continued despite the turmoil of the pandemic, with companies from US industrial giant Honeywell International Inc. and the German sportswear manufacturer Adidas AG, which has expanded its operations there.
Unctad does not expect that there will be a significant revival of foreign direct investment this year, globally or in countries that would fall in 2020.
“Investors are likely to remain cautious about committing capital,” said James Zhan, Unctad’s director of investment and business. He does not expect a real setback until 2022. Even then, he said, “the road to full foreign exchange recovery will be bumpy.”
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While the sharp decline in foreign investment in the U.S. was due to the pandemic, it also makes businesses think about future investments, said Joseph Joyce, professor of international relations and economics at Wellesley College.
“Companies are reviewing their policies on global supply chains, on foreign markets, on their own use of technology,” Joyce said. “The pandemic makes all these companies rethink the most basic assumption about where they are located.”
The White House did not immediately respond to a request for comment.
The Unctad numbers show a strong divide between East and West in the world economy. In 2020, East Asia attracted a third of all foreign investment worldwide, which is the largest share since records began in the 1980s. India experienced a 13% increase, mainly driven by rising demand for digital services.
In the West, the European Union fell by 71%. The United Kingdom and Italy, which have suffered from high mortality rates and deep economic contraction, have not attracted any new investment. Germany, which fared better on both points, fell by 61%.
When the pandemic began for the first time last year, Unctad expected that China would experience a sharp drop in foreign investment and that the US would be largely intact. But China’s economy reopened in April, just as the US and Europe began a series of ongoing closures and disruptions.
Beijing’s ability to quickly control the coronavirus within its borders has helped its economy recover relatively quickly and strengthen China’s appeal – even ahead of President Biden’s inauguration, which, according to some investors, marks a new era of less stormy ties between the United States and China could be introduced.
After FDI plunged into China in the first few months of 2020, Chinese officials scrambled to reassure foreign investors and satisfy their problems. “We need to implement targeted policies to halt the shift in foreign trade and foreign investment,” China’s Prime Minister Li Keqiang told the country’s cabinet in March.
Some foreign companies have suspended their China expansion plans and in some cases started withdrawing their investments. But as China’s recovery gained steam and the rest of the world began to look increasingly rocky, foreign companies poured more money into China, viewing the country as a production base and as a critical growth market for its products.
Walmart Inc. announced at an investment conference hosted by the city government in Wuhan, the city that was the center of the pandemic, that it would invest 3 billion yuan, equivalent to $ 460 million, over the next five years. Starbucks Corp. is investing $ 150 million to build a barbecue and innovation park in the eastern Chinese city of Kunshan.
Tesla Inc. meanwhile expands capacity at its Shanghai plant and adds a research facility, while Walt Disney Co. continues to build a new theme area for its Shanghai Disneyland park – despite a second consecutive year of lower attendance at the park. .
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Medical and pharmaceutical investments are particularly active as the coronavirus has hit the world economy. Chinese state broadcaster Chinese Central Television reported in April that several global pharmaceutical companies are continuing their expansion in China, including AstraZeneca PLC, which is amid the establishment of regional headquarters in at least five Chinese cities.
The resilience of foreign investment in China is at odds with foreign expectations that foreign companies would try to reduce their large dependence on the country as an important part of their supply chains, because they saw the disruption due to new tariffs on trade between the country and the USA
Seoul Semiconductor Co., a South Korean chipmaker with extensive operations in China, illustrates the difficulty of leaving China, despite numerous incentives to do so. In 2017, the company began looking at moving a production of its light-emitting components to Vietnam.
“We were very dependent on China,” said Hong Myeong-ki, the company’s co-CEO. But although the company manufactures about half of its products in Vietnam, Mr. Hong does not intend to move out of China.
The same trend can be seen among Japanese companies operating in China, of which only 9.2% said they were moving or considering moving production out of China in a survey by the Japanese Foreign Trade Organization in September, the lowest level in five years.
“They need to reduce the over-reliance on supply chains in a single market,” said Ding Ke, a Jethro researcher in Tokyo. “But the bigger risk they have identified is losing the China market.”