| | | China surpasses U.S. as top destination for foreign investment
Jan. 25, 2021 3:50 AM ET iShares China Large-Cap ETF (FXI) By: Yoel Minkoff, SA News Editor 41 Comments
Global foreign direct investment (FDI) collapsed in 2020, falling by 42% to an estimated $859B, from $1.5T in 2019. In fact, FDI finished 2020 more than 30% below the trough after the global financial crisis in 2009, according to the United Nations Conference on Trade and Development, while further weakness is expected in 2021. The economic measure accounts for investments made by businesses in other countries, such as the construction of a factory, an acquisition of a local company or the opening of a satellite office.
Bigger picture: As the coronavirus upended the global economy, China became the largest FDI recipient, attracting an estimated $163B in inflows, followed by the U.S. with $134B. The country was also the only major economy not to contract in 2020 due to a strict centralized lockdown that reportedly contained COVID-19. The economic numbers suggest another acceleration in China's share of global trade and its position as the world's factory floor.
Some FDI examples: Walmart announced it would invest 3B yuan ($460M) in Wuhan, the city that was the first center of the pandemic, over the next five years, while Starbucks is spending $150M on an innovation park in the eastern Chinese city of Kunshan. Tesla is also ramping up production at Giga Shanghai and Walt Disney is continuing a big expansion at its Shanghai theme park. Back in December, Goldman Sachs and JPMorgan took full ownership of their Chinese joint venture partner, and earlier this year, PepsiCo spent $705M on Be & Cherry, one of China's largest snack brands.
Go deeper: Total stock of foreign investments is still larger in the U.S., but the momentum of FDI has been shifting towards China since 2017. Although the Trump administration urged American companies to leave the country, it also put Chinese investors on notice that U.S. acquisitions would face new scrutiny on national security grounds. The Biden administration will also have to contend with the rise of China, but the sheer size of its consumer market could draw in foreign investments that are betting on the nation's robust economic recovery.
China will overtake the U.S. to become the world's biggest economy by 2028, according to a recent report from the Center for Economics and Business Research. |
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