China Overtakes U.S. as World’s Leading Destination for Foreign Direct Investment

A new report by the United Nations Conference on Trade and Development (UNCTAD) has revealed that the People’s Republic of China has overtaken the United States as the world’s top destination for new foreign direct investment.

The report shows that new investments into America from overseas companies fell by almost half last year, leading to the loss of its number one status.

In contrast, UN figures show direct investment into Chinese firms climbed 4%, putting it number one globally.

The top ranking shows China’s growing influence on the world economic stage.

China had $163bn (£119bn) in inflows last year, compared to $134bn attracted by the US, the UNCTAD said in its report.

In 2019, the US received $251bn in new foreign direct investment while China received $140bn.

While China may be number one for new foreign investment, the US still dominates when it comes to total foreign investments.

This reflects the decades it has spent as the most attractive location for foreign businesses looking to expand overseas.

But experts say the figures underline China’s move toward the centre of the global economy which has long been dominated by the US, the world’s biggest economy.

China, currently involved in a trade war with the US, has been predicted to leapfrog it to the number one position by 2028, according to the UK-based Centre for Economics and Business Research (CEBR).

“For some time, an overarching theme of global economics has been the economic and soft power struggle between the United States and China,” says the CEBR report. “The Covid-19 pandemic and corresponding economic fallout have certainly tipped this rivalry in China’s favour.”

China was the only major economy in the world to avoid a GDP contraction last year

Foreign investment in the US peaked in 2016 at $472bn, when foreign investment in China was $134 billion.

Since then, investment in China has continued to rise, while in the US it has fallen each year since 2017.

The Trump administration encouraged American companies to leave China and re-establish operations in the US.

It also warned Chinese companies and investors that they would face new scrutiny when investing in America, based on national security grounds.

While the US economy has been struggling since the Covid-19 outbreak last year, China’s economy has picked up speed.

Last week, China’s National Bureau of Statistics announced the country’s economy measured in gross domestic product (GDP), grew 2.3% in 2020.

This makes China the only major economy in the world to avoid a contraction last year. Many economists have been surprised with the speed of its recovery, especially as it navigated tense relations with the US.

Overall, global foreign direct investment (FDI) dropped dramatically in 2020, falling by 42%, according to the UNCTAD report. FDI normally involves one company taking control of an overseas one, typically through a merger or acquisition.

Meanwhile, American think tank, the Peterson Institute for International Economics has announced that China is falling short of its commitment to buy an extra $200bn (£146bn) worth of US goods over 2020 and 2021.

China agreed to buy the goods in a trade deal with the US agreed last January in exchange for reduced tariffs on $120bn worth of goods.

The agreement was seen as phase one of a deal aimed at resolving the trade war between the world’s biggest economies.