China picks up speed, overtakes US as largest recipient of FDI

Despite being the first nation to be hit with the deadly coronavirus, China has managed to largely get pandemic under control within its borders, resulted an inflow of foreign direct investment (FDI) into the nation rising to a record high in 2020, the fastest growth rate in five years.

According to the the United Nations Conference on Trade and Development report, China brought in USD163 billion in inflows last year, compared to USD134 billion attracted by the United States. In 2019, the US received USD251 billion in inflows and China received USD140 billion.

But, overall, the report found that FDI performed poorly globally, as the Covid-19 pandemic brought countries large and small to virtual stand-stills. It plunged 42% in 2020, to USD859 billion, a 30% drop from even the depths of the 2009 financial crisis.

Investment in the US fell 49%, slightly less than the developed country average of 69%. FDI in developing countries fell a comparatively moderate 12%. China, included on that list, actually saw a small increase of 4% in its inflows.

Also, according to the report, the European Union saw FDI decline by two-thirds, with the United Kingdom seeing no new inflows as it has been particularly hard hit by the coronavirus.

Since the start of the pandemic, China has had fewer than 100,000 confirmed Covid-19 cases and suffered about 4,800 deaths from the disease, according to Johns Hopkins University data. The US which has a much smaller population, has had nearly 25 million cases and more than 400,000 deaths.

Although in 2020 China has overtaken the US in the inflow of foreign direct investment, the total stock of foreign investment remains much larger in the US than in China, according to data compiled by the Organization for Economic Cooperation and Development.

Other economic data have also shown that China has handled the pandemic better than its peers. Beijing reported 2020 GDP growth of 2.3% earlier this month, and is expected to be the only major economy to report a positive annual growth rate.

Foreign investment in China’s service sector rose 13.9% in yuan terms in 2020, while investment in hi-tech industries and hi-tech services grew 11.4% and 28.5%, respectively. Overseas investment in eastern Chinese provinces – the country’s most advanced areas economically – increased 8.9% from a year earlier and accounted for 88.4% of the national total.

Although tensions between China and the United States deteriorated further during the pandemic, Beijing has been stepping up its engagement of foreign investors in recent years. China added a further 127 areas to its list of industries in which foreign investment is allowed, mainly in investment-starved areas in China’s central, western and northeastern regions, taking the total to 1,235.

Despite being keen to attract more international firms, China has also tried to tighten its regulations as Chinese investments have been placed under greater scrutiny abroad.