China now the world’s top destination for foreign investment

The US was overtaken by China as the world’s top destination for new foreign direct investment (FDI) in 2020, as the coronavirus pandemic amplified the shift in the world’s economies.

New investments by overseas businesses fell 42 per cent globally in 2020 to an estimated US$859 billion (compared to US$1.5 trillion in 2019), according to figures by the United Nations Conference on Trade and Development.

The US, which for decades held the number-one spot, has been the country hit hardest by the coronavirus pandemic, with its economy continuing to suffer with 25.7 million confirmed cases of COVID-19 and 429,490 deaths. New President Joe Biden is trying to push through the Senate a US$1.9 trillion economic stimulus program.

China, long ranked second behind the US, saw direct investments by foreign companies increase four per cent. The country used strict lockdown measures to largely contain COVID-19 outbreaks, and now its economy is going gangbusters as most other major economies contracted last year.

High-tech industries in China saw an increase of 11 per cent in 2020, and cross-border mergers and acquisitions (M&As) rose by 54 per cent, mostly in information communications technology and pharmaceutical industries.

"A return to positive gross domestic product growth (2.3 per cent) and the government’s targeted investment facilitation program helped stabilise investment after the early lockdown," the UNCTAD report states.

India, another major emerging economy, also recorded positive growth of 13 per cent, boosted by investments in the digital sector.

The 2020 investment numbers underline China’s move towards the top of the global economy dominated for decades by the US. FDI flows to North America declined by 46 per cent to $166 billion, while the US alone fell 49 per cent to an estimated US$134 billion in 2020.

Europe fared worse, with flows down by two-thirds to negative US$4 billion. In the UK, foreign direct investment fell to zero, and declines were recorded in other major countries. However, Europe had isolated bright spots. Sweden saw foreign investment more than double from US$12 billion to US$29 billion. Direct investment by foreign companies in Spain increased 52 per cent due to several acquisitions, such as private equities from the US.

Elsewhere, Israel saw direct investment by foreign companies increase from US$18 billion to US$26 billion, and Japan from US$15 billion to US$17 billion.

Globally, the UN agency expects FDI to remain weak in 2021 due to uncertainty over the evolution of the coronavirus pandemic.

"The effects of the pandemic on investment will linger," said James Zhan, Director of UNCTAD’s investment division. "Investors are likely to remain cautious in committing capital to new overseas productive assets."

While China attracted more new investment last year, the total stock of foreign investment in the US remains much larger, reflecting the decades it has spent as the most attractive location for foreign businesses looking to expand outside their home markets.