While much of the world saw foreign direct investment plummet during the pandemic, China and emerging Asia were recipients of much of the investment, and the trend is continuing, according to a new report by the United Nations.
“FDI flows react more strongly to crises than trade and GDP and take both more time and more policy effort to recover,” according to the 280-page “World Investment Report 2021,” published by the United Nations Conference on Trade and Development.
Covid-19 caused a worldwide plunge in foreign direct investment in 2020, with global flows falling by 35% to $1 trillion from $1.5 trillion in 2019, the report said. That was roughly 20% below the trough amid the 2009 global financial crisis.
But while foreign investments to developed economies fell 58%, and 8% for developing ones, China had a 6% increase in 2020, to $149 billion. The report attributed China’s performance to controlling outbreaks within its borders and its “resilient economic growth, investment facilitation efforts, and continuing investment liberalization.”
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The top recipients of foreign direct investment in 2020 were the U.S., China, Hong Kong, Singapore, and India, according to the report.
China’s robust performance was years in the making—particularly compared with the U.S., which has long been the top destination for foreign direct investment. China’s growth “was driven by technology-related industries, e-commerce, and research and development,” the U.N. said.
China has maintained a leading position in the first quarter this year. Government data show that foreign direct investment to China surged at their fastest quarterly pace in 13 years and surpassed prepandemic levels. From January to May this year, particularly strong FDI growth was seen in the services and high-tech industries, according to data this month from China’s Ministry of Commerce.
During the height of the epidemic, dozens of countries implemented new policies to attract FDI. China aggressively began applying its Foreign Investment Law, enacted in 2019. The policies included both rhetoric and action toward equal treatment for domestic and foreign enterprises, trial measures to promote foreign investment in the Yangtze River Delta area, and a 10% expansion of the list of industries in which foreign investment is actively encouraged, according to the report.
Specific sectors the report said that China had further opened to previously off-limits foreign investment include financial services, manufacturing, agriculture, radioactive mineral smelting, and the pharmaceutical industry.
In March 2021, China ended restrictions on foreign shareholding in life insurance joint ventures. Other sectors, such as mutual funds, have followed suit.
China also unveiled new measures that more easily allow complaints from foreign-invested enterprises, and broadened the scope of possible grievances, such as alleged technology or intellectual property theft.
The report also listed 15 major foreign acquisitions—valued at more than $50 million each—that were withdrawn for regulatory or political reasons in 2020 across the world. Chinese companies were involved in six of those, far more than any other country.
Among those, national security reasons prompted the governments of Australia, Canada, and Germany to block acquisitions of firms in their countries by China’s
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(000547: China), respectively.
Meanwhile, the decline in major investment by countries also plunged sharply nearly everywhere except in Asia. The outflows only fell 3% in China, putting the country past previous global leader Japan and making it the largest investor in the world.
The report concluded that much of the world is seeing or will see postpandemic rebounds. But Asia remains a particular hot spot.
“FDI prospects in 2021 for Asia are more favorable than the global average because of recovery in trade, manufacturing activities, and a strong GDP growth forecast,” James X. Zhan, who led the U.N. team that assembled the report, told Chinese state media.