In 2020, China passed US as globe's top destination for FDI

15 February 2021 4 min. read
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China received more than $160 billion in foreign direct investment (FDI) last year – marking 4% growth and placing it as the largest FDI recipient in the world. This is according to the United Nations Conference on Trade & Development.

The US usually holds the top spot for global FDI, although the country suffered at the hands of Covid-19 and the resultant economic slowdown. In fact, China is among the anomalies worldwide, with most economies seeing a crippling squeeze in FDI for 2020.

According to UNCTAD, global FDI fell from $1.5 trillion in 2019 to just under $860 billion last year – a 40% plus decline. The developed world faced the brunt of this hit. In the US, FDI inflows fell by nearly 50% – from over $250 billion in 2019 to $134 billion in 2020 – losing its top spot as a result.

FDI inflows by region, 2019-2020

Europe ended up in a deficit, where outflows exceeded inflows by $4 billion. Key economies such as the UK and Italy saw a complete freeze of incoming investments, while Germany saw a decline of more than 60% and France felt a 40% drop. On the whole, double figure declines were clocked around the world, including Latin America, the Caribbean and Africa.

Resilient Asia

Amid all this, developing Asia limited its FDI decline to 4% – supported by a resilient China and India. China knocked the US off its global perch, jumping from $140 billion in 2019 to more than $160 billion last year. The numbers are stellar, considering the country kicked off the year as the epicentre of the virus.

Among the earliest to feel the economic brunt of the crisis, China also led the way in containing the infection and gradually reopening its economy. What resulted was an economic rebound – something that most markets are yet to achieve since the pandemic.

Changes in FDI inflows for selected economies

“A return to positive GDP growth of 2.3% and the government’s targeted investment facilitation programme helped stabilise investment after the early lockdown,” noted the UNCTAD report. Per the research, China’s cross-border merger & acquisition activity jumped by 54%, largely focused in the IT and pharma sectors. FDI in high-tech industries was also up by more than 10%.

India saw a similar investment composition, with a heavy concentration in the IT sector. FDI inflows in the country grew by 13% to $57 billion for 2020 – making it the fastest growing FDI market in the world. A nearly $6 billion deal between Reliance Jio and Facebook was a big factor in this performance.

Strong inflows in India took FDI growth for all of South Asia up by 10%, which combined with China’s resilience to limit the damage to developing Asia as a whole. Southeast Asia was not as lucky – facing a 31% contraction led by crippling dips in Malaysia (68%) and Thailand (50%), with smaller declines in Singapore (37%), Indonesia (24%) and Vietnam (10%).

FDI inflows by grouped economies

That said, the region still managed to draw $107 billion in FDI, while developing Asia as a whole leveled out at nearly $480 billion. The knock-on effect is that the developing economies globally drew more than $600 billion in FDI last year, feeling a relatively mild 12% contraction.

This – combined with dire investment figures across North America and Europe – has reshuffled the global trade flow so that developing economies now account for over 70% of global FDI. With China well on its way to economic recovery and other major economies still grappling with the crisis, the UNCTAD figures have tremendous significance when it comes to trade and FDI in the post-pandemic world. 

Asia-Pacific already accounts for one quarter of global private equity investments according to Bain & Company, a position that might well be cemented by pandemic-induced economic trends.