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China bucks waning FDI
trend
By Gustavo Capdevila
GENEVA - China will surpass the United States
this year as the number one recipient of foreign direct
investment, say forecasts released here on Thursday by
the United Nations Conference on Trade and Development
(UNCTAD).
But China's ascent stands in stark
contrast to the sharp decline in the global flow of
foreign direct investment (FDI), which this year will
total about US$534 billion, a whopping 27 percent less
than last year, according to UNCTAD's preliminary
figures. The sharp reduction will have greater economic
effects in industrialized countries, where FDI is
expected to fall 31 percent, than in developing
countries, which are to see a lesser - but still
noteworthy - decline of 23 percent. In contrast, the
emerging economies of Central and Eastern Europe will
suffer a mere 1 percent FDI reduction, the UN body said.
Direct investment is defined as the purchase of
a company's shares, which gives the buyer a position of
control and responsibility in running the company. FDI
is differentiated from portfolio investments, which are
guided solely by criteria of profitability through
dividends and bonuses.
FDI earmarked for China
has shown accelerated growth in medium- and high-tech
manufacturing industries and services, according to
UNCTAD numbers. The investment dynamic in China
continues the momentum of its sustained economic growth
over more than a decade. This year, FDI inflows for the
giant Asian economy will likely break the record with
$50 billion. Two years ago, FDI for China totaled $41
billion. In 2001, it rose to $47 billion.
Meanwhile, the United States has recorded a
continued descent, from $301 billion in FDI in 2000, to
$124 billion last year, to this year's predicted low of
$44 billion.
The UNCTAD report underscores that
China has attracted foreign investment through its
economic liberalization process, industrial
restructuring and as a result of its accession to the
World Trade Organization, which was finalized late last
year.
UNCTAD drafted its preliminary report
based on the available figures from just 85 economies,
among which more than half are predicted to receive
fewer FDI dollars this year than they did in 2001. The
final version of the study is to be distributed next
July.
On the global scenario, the waning flow of
direct investment is related to the uncertain economic
situation and weak stock markets, which, UNCTAD noted,
"are undermining business confidence". This lack of
confidence is evident in the negative impact on
cross-border mergers and acquisitions, as well as on
plans for expanding investment in big companies.
In the case of Asia's developing countries, FDI
is expected to fall 12 percent this year, after a drop
twice as large - 24 percent - in 2001. "The slide is
largely the result of slowing FDI flows from Europe and
the United States, despite the strong economic growth of
the region's leading economies," the UN body said.
As China's FDI inflows rise, the movement of
such investment is expected to decline this year for
Hong Kong, South Korea, Thailand and Taiwan. In the big
picture, potentially dramatic reductions in FDI in most
of the region's economies will probably fail to be
offset by increases in countries like China, India,
Malaysia and the Philippines, the preliminary UNCTAD
report projected.
The outlook for Africa in
terms of FDI this year is "dramatic" in the negative
extreme, as the continent is expected to see capital
inflows drop by two-thirds, the UN body said. In 2001,
Africa took in $17 billion in FDI, while this year the
total is barely to reach $6 billion. In an explanation
of the poor regional FDI performance of Africa, the
study noted that comparison with last year is
misleading, as 2001 was an unusual situation.
Even so, Africa has suffered from the economic
slowdown in major countries around the world,
particularly the United States, that are home to the big
transnational corporations that invest in the continent.
And beyond the depressed global investment market,
geopolitical uncertainty in several African countries
has also had an impact on investor attitudes towards the
region in general.
In Latin America and the
Caribbean, meanwhile, foreign direct investment flows
are projected to decrease for the third consecutive
year. The one-year decline will be 27 percent, from
inflows of $85 billion in 2001 to just $62 billion this
year. Mexico is the focal point of the region's
plummeting FDI as inflows last year were inflated by
Citicorp's acquisition of Mexico's Banamex.
Brazil's FDI inflows remained at about $20
billion. The South American giant is poised to regain
its position as the region's top recipient of such
investment because its manufacturing industry is picking
up and attracting more foreign dollars. The financial
crisis that began to shake up Argentina in mid- 2001 cut
into FDI inflows in the first half of this year, though
total investments are expected to turn around in the
last six months of the year. Thanks in large part to the
Brazilian state oil company Petrobras, with its $1.1
billion acquisition in July of Argentina's Perez Compac,
the crisis-stricken nation is likely to record total FDI
this year of about $3.0 billion.
The countries
of Eastern and Central Europe will repeat their
performance of last year, with FDI inflows calculated at
$27 billion. These investment flows are projected to
increase in Albania, Bulgaria, Czech Republic, Latvia,
Lithuania and Slovenia, while they are likely to
decrease in Estonia, Hungary, Macedonia, Moldova,
Poland, Slovakia and Ukraine. The preliminary UNCTAD
report describes the Czech Republic as "the star
performer", as FDI is to rise from $5 billion to $9
billion. In Poland, meanwhile, it is expected to drop
from $9 billion to $6 billion, and in Russia to hold
steady at some $3 billion.
As for the
industrialized countries, in addition to the fall- off
of FDI in the United States, Britain will suffer a
pronounced decline in its inflows, from $54 billion last
year to just $12 billion in 2002. France and Germany,
however, are looking forward to a more encouraging
scenario, with FDI inflows for the first time in three
decades reaching levels comparable to that of the United
States.
(Inter Press Service)
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