Foreign Investment Plummets During Pandemic, Except in China
October 27 2020 - 4:34AM
Dow Jones News
By Paul Hannon
Foreign direct investment in China largely held steady during
the first half of this year, even as investment inflows into the
U.S. and European Union plummeted, in a fresh sign that the world's
second-largest economy has suffered less damage from the
pandemic.
Globally, the monthly average for new investments for the first
half of the year was down almost half on the monthly average for
the whole of 2019, the largest decline on record, the United
Nations's Conference on Trade and Development said Tuesday. But
while foreign investment in the U.S. and European Union fell by 61%
and 29% respectively, inflows to China were down by just 4%. China
attracted foreign investment totaling $76 billion during the
period, while the U.S. attracted $51 billion.
The U.S. has long been the top global destination for businesses
investing overseas, while China has long ranked second.
Unctad said the modest nature of the decline in foreign
investment to China was surprising. Back in March, when China was
the epicenter of the pandemic with significant parts of its economy
in lockdown, Unctad forecast that it would be the big loser, and
expected global flows of investment to fall by 15% across 2020.
However, China's economy reopened in April just as the U.S. and
Europe were in lockdown, and the country has since contained the
virus with only localized and short-lived restrictions. By
contrast, the U.S. and Europe have seen resurgences in infections
that have slowed their recoveries. In the three months through
September, China's economy had already exceeded the levels of
output recorded at the end of 2019, according to data out last
week.
The resilience of foreign investment in China appears to
confound earlier expectations that businesses would seek to reduce
their reliance on the country as a key part of their supply chains.
But James Zhan, Unctad's director of investment and enterprise,
said it was too early to reach that conclusion.
"One of the main reasons for reconfiguration of global supply
chains is to increase resilience, which requires backup plans and
redundant capacities," he said. "A more practical approach
companies can take would be building additional production bases
outside of China, which means new investment to other countries
instead of divestment from China or moving production out of
China."
Across all developed economies, inflows of foreign investment
were down 75% in the first half from the 2019 monthly average to
total just $98 billion, a level last seen in 1994. In some cases --
such as the Netherlands and the U.K. -- that decline took the form
of a reduction in loans from the parent company to its overseas
subsidiaries, which are counted as foreign investment.
"In times of crisis, some multinational enterprises would like
to keep funds close to home," said Mr. Zhan. "Fear that Covid-19
and the quest for funds could lead to tax increase may also
accelerate the intra-firm capital movements."
Foreign investment in developing economies proved more
resilient, falling by just 16% to $296 billion.
Unctad said there were signs of a pickup in investment during
the three months through September, and it repeated its forecast
that flows for 2020 as a whole would likely be 40% down on 2019.
But it warned that the second wave of rising infections hitting a
number of developed economies could see flows down 50% for the
year.
While foreign investment in most countries fell during the first
six months, a small number saw an increase. One was Germany, which
saw inflows rise 15% to $21 billion, largely due to a small number
of foreign acquisitions of existing businesses.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
October 27, 2020 04:19 ET (08:19 GMT)
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