Companies are giving up the United States and betting heavily on China

Companies are giving up the United States and betting heavily on China

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Direct investment in the US by foreign companies plunged 49%, to $ 134 billion last year, according to a report released on Sunday by the United Nations Conference on Trade and Development. In contrast, foreign direct investment in China grew by 4%, to $ 163 billion in 2020.

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

Although Covid-19 was a big factor in the fall in foreign direct investment in the United States – and in most places in the world – the fall in American investments by foreign companies started well before the pandemic.

After hitting a $ 440 billion high in 2015, according to the U.S. Department of Commerce, foreign investment in the U.S. is in a sharp decline. The autonomous trade policies of former President Donald Trump have hurt foreign investment – mainly from China, which has represented the sharpest drop in U.S. investment in recent years. Increasing economic uncertainty around the world has also contributed to the decline.

Last year, the decline in foreign direct investment in the US was more prominent in wholesale trade, financial services and manufacturing, the report said. International mergers and acquisitions, as well as sales of US assets to foreign investors, fell 41%.

Meanwhile, China’s explosive economic growth – and the rapid recovery from the pandemic – helped foreign investment there. China’s economy grew 2.3% last year, when most of the world’s major economies shrank. The country has imposed strict restrictions and population-tracking policies designed to contain the virus, and has set aside hundreds of billions of dollars for major infrastructure projects to fuel economic growth.
China’s ability to control the spread of the virus “helped to stabilize investment after the initial blockade,” the report noted.
Foreign direct investment in India also skyrocketed, from less than $ 25 billion in 2014 – before Prime Minister Narendra Modi took power – to $ 57 billion last year, according to the UN report. Much of this growth was driven by policies that allowed global brands like Ikea and Uniqlo to open stores, as well as Modi’s “Make in India” campaign to increase the country’s manufacturing base.

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

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

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

The attractiveness of the United States as a safe and robust place for foreign companies to invest has been one of the most powerful driving forces behind America’s economic growth in recent decades. But the UN said the circumstances that prevent the flow of foreign direct investment to the United States and other countries will remain in effect this year.

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

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