China Foreign Direct Investment

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

According to a United Nations Conference on Trade and Development report released on Sunday, China has overtaken the U.S. as the world’s top destination for new foreign direct investment.

Foreign direct investment in the United States dropped by 49% in 2020 while investment in China rose 4%, making China the largest recipient of foreign inflows for the first time. China received $163 billion in inflows last year, making it obtain top position while the U.S. received $134 billion, giving it second position.

In 2019, the U.S. received $251 billion in foreign direct investment while China received $140 billion.

Effects of COVID-19

The coronavirus pandemic had a significant impact on the global economy with most countries recording lower gross domestic product (GDP) rates. However, China’s economy picked up speed, recording a 2.3 % growth in GDP 2020. China’s growth can be attributed to the immediate response to the COVID-19 pandemic, with China’s government instituting strict, large-scale lockdown measures in early 2020 while the United States’ response was far less centralised and far less effective in curbing the spread of the virus.

Foreign direct investment fell by 42% across the globe in 2020, from $1.5 trillion in 2019 to $859 billion in 2020. Most of that decline occurred in developed countries, the U.N. said.

Despite increasingly discouraging relations between the U.S. and China, western firms continue to pour their resources into the rapidly growing economy. Last month, Goldman Sachs took full ownership of its Chinese joint venture partner. JPMorgan did the same in November, Tesla is also increasing production in China, and early last year, PepsiCo bought a Chinese snack brand worth $705 million.

The U.N., however, expects the foreign investment overall to remain weak in 2021.

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