Businesses abandon the US, bet big on China

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Direct investment in the United States by foreign firms fell 49% to $ 134 billion last year, according to a report released by the United Nations Conference on Trade and Development on Sunday. In contrast, foreign direct investment in China increased by 4% to reach $ 163 billion in 2020.

2020 marked the first year in history that foreign direct investment in China surpassed that of the United States, according to the UN. China is now the world’s largest recipient of foreign business investment.

Although Covid-19 has been a major factor in the fall in foreign direct investment in the United States – and in most countries around the world – the decline in US investment by foreign companies began long before the pandemic.

After peaking at $ 440 billion in 2015, according to the US Department of Commerce, foreign investment in the United States is down sharply. The self-sustaining trade policies of former President Donald Trump have hurt foreign investment – especially from China, which has been the biggest drop in US investment in recent years. Growing economic uncertainty around the world also contributed to the decline.

Last year, the decline in foreign direct investment in the United States was largest in wholesale trade, financial services and manufacturing, according to the report. Cross-border mergers and acquisitions, as well as sales of US assets to foreign investors, fell 41%.

Meanwhile, China’s explosive economic growth – and the pandemic’s rapid resumption – has helped foreign investment soar. The Chinese economy grew 2.3% last year, as most of the world’s major economies contracted. The country has enforced strict lockdown and population tracking policies designed to contain the virus, and has set aside hundreds of billions of dollars for major infrastructure projects to spur economic growth.
China’s ability to control the spread of the virus “has helped stabilize investment after the early lockdown,” the report notes.
Foreign direct investment in India has also skyrocketed, from less than $ 25 billion in 2014 – before Prime Minister Narendra Modi came to power – to $ 57 billion last year, according to the report. ‘UN. Much of this growth has been driven by policies that have allowed global brands like Ikea and Uniqlo to open stores, as well as Modi’s “Make in India” campaign to expand the country’s manufacturing base.

This helped India’s foreign direct investment soar 13% last year.

Most of the savings have not been so lucky. Foreign direct investment in the UK and Italy fell by almost 100%. Russia’s foreign direct investment fell by 96%, Germany’s by 61% and Brazil’s by 50%. Australia, France, Canada and Indonesia – all among the top recipients of foreign direct investment in 2019 – also fell to double digits.

Overall, foreign direct investment fell 42% last year to its lowest level since the 1990s – and 30% below the lowest level reached during the global financial crisis of 2008 – 2009.

The attractiveness of the United States as a safe and secure place for foreign businesses has been one of the most powerful driving forces of American economic growth in recent decades. But the UN has said the circumstances stopping the flow of foreign direct investment to the United States and other countries will remain in place this year.

“The effects of the pandemic on investment will persist,” James Zhan, director of the investment division of UNCTAD, said in a statement. “Investors are likely to remain cautious in committing capital to new productive assets abroad.”

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