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China Becomes World's Largest FDI Recipient

by Mary Swire,, Hong Kong

26 October 2012

The latest issue of its Global Investment Trends Monitor for the first half of 2012 from the United Nations Conference on Trade and Development (UNCTAD) has shown that China overtook the United States as the world's largest recipient of foreign direct investment (FDI), while Hong Kong remained in third place, despite falling inflows.

UNCTAD found that global FDI inflows reached USD668bn, a decline of 8%, in the first half of 2012, compared with the same period in 2011, as the economic recovery suffered new setbacks in the second quarter of this year. The USD61bn fall was mainly caused by a decline of USD37bn, or 39%, in inflows to the United States and a USD23bn fall in inflows to BRIC countries – Brazil, Russia, India and China.

With the substantial fall in FDI to the US to only USD57.4bn, and despite a marginal decline in its own FDI inflows from USD60.9bn to USD59.1bn, China became the world's largest recipient in the first half of 2012.

While inflows to Hong Kong declined more significantly than the FDI into China - by 26%, from USD55.2bn to USD41bn – it still retained its third position, above France and the United Kingdom at USD34.7bn and USD30.8bn, respectively.

Similarly, FDI flows to South-East Asia decreased by 55% to USD52bn. Member states of Association of Southeast Asian Nations demonstrated diverging trends: inflows to Cambodia, the Philippines and Thailand rose in the first half of 2012, while those to Indonesia, Malaysia and Singapore declined.

On the other hand, for example, FDI inflows to Latin America and the Caribbean increased by 8%, as a result of increases in South America (11%) and the Caribbean (14%) that more than compensated for a 14% decline in Central America. Offshore financial centres were the main drivers of FDI growth to the Caribbean. FDI continued to be attracted into South America by natural resource endowments and relatively higher economic growth.

Developing countries (without transition economies) for the first time absorbed half of global FDI inflows due to the steep fall in flows to the United States and a moderate decline in flows to the EU.

As a result of the above, and compared to the full-year forecast of FDI inflows published in July, UNCTAD now projects that FDI flows will, at best, level-off in 2012 at slightly below USD1.6 trillion. It was observed that “the slow and bumpy recovery of the global economy, weak global demand and elevated risks related to regulatory policy changes continue to reinforce the wait-and-see attitude of many transnational companies toward investment abroad”.

UNCTAD's longer term projections still show a moderate rise, but the risk of further macroeconomic shocks in 2013 could impact FDI inflows negatively.

TAGS: Russia | India | banking | international financial centres (IFC) | United Nations (UN) | China | Philippines | Singapore | Thailand | United Kingdom | offshore | offshore banking | Brazil | Cambodia | France | Hong Kong | Indonesia | Malaysia | United States

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