China surpasses the US as the world’s leading foreign direct investment destination

China, which has long been in second place, saw foreign direct investment increase by 4%, the United Nations Conference on Trade and Development said. Beijing used strict blockades to contain much of Covid-19 after the disease first emerged in a central Chinese city and China’s gross domestic product grew even as most major contracted economies did. last year.

2020 investment figures underscore China’s shift to the center of a long-held U.S.-dominated global economy, an accelerated change during the pandemic, as China has consolidated its position as a manufacturing plant. of the world and has expanded its share of world trade.

Although China attracted more new flows last year, the total stock of foreign investment in the United States remains much larger, reflecting the decades that have passed as the most attractive location for foreign companies that want to. expand outside their home markets.

Foreign investment in the US peaked at $ 472 billion in 2016, when foreign investment in China was $ 134 billion. Since then, investment in China has continued to increase, while in the US it has declined every year since 2017.

The Trump administration encouraged U.S. companies to leave China and resume operations in the U.S. He also warned Chinese investors that acquisitions in the United States would face new scrutiny for reasons of national security, cooling Chinese interest in making U.S. deals.

The sharpest drop in foreign investment in the United States last year reflects the broader economic slowdown due to the effects of the coronavirus pandemic, said Daniel Rosen, a founding partner of Rhodium Group, an independent research firm in New York , which has long been analyzed by the US. China’s economic relationship.

“I don’t think anything can be said with certainty about the impact of the FDI recession in the U.S., compared to all the other successes on the U.S. economy,” he said.

It is natural for foreign investment to decline sharply in the United States under the circumstances because it has an open market economy, while China does not, Rosen said. Looking to the future, he said, “There is no reason to worry about the outlook for FDI in the United States, as long as the United States stays with its basic open market competitive system.”

Foreign direct investment captures things like the construction of new factories by foreign companies or the expansion of existing operations in a country or its acquisitions of local companies.

In China, the flow of investment from multinational companies continued despite the pandemic, with companies from the American industrial giant Honeywell International Inc.

and the German sportswear manufacturer Adidas AG

expanding its operations there.

UNCTAD does not expect to see a significant revival of foreign direct investment this year, globally or in countries that saw falls in 2020.

“Investors are likely to be cautious when it comes to committing capital,” said James Zhan, Unctad’s director of investment and business. He does not expect a real rebound to arrive until 2022. Even then, he said, “the road to full FDI recovery will be bumpy.”

Unctad numbers show a strong divide between East and West in the global economy. In 2020, East Asia attracted a third of global investment globally, its largest share since records began in the 1980s. India experienced a 13% increase, driven mainly by rising demand for digital services.

In the West, the European Union fell by 71%. The UK and Italy, which have suffered high mortality rates and deep economic contractions, did not attract any new investment. Germany, which has fared better on both points, recorded a 61% drop.

When the pandemic began early last year, the UNCTAD hoped that China would experience a sharp drop in foreign investment and that the United States would be largely unscathed. But China’s economy reopened in April just as the U.S. and Europe began a series of ongoing blockades and disruptions.

Beijing’s ability to quickly control the coronavirus within its borders helped its economy rebound relatively quickly and bolstered China’s attractiveness, even before President Biden took office, which some investors expect which could usher in a new period of less stormy ties between the United States and China.

Following the fall in FDI to China in the early months of 2020, Chinese officials have struggled to reassure foreign investors and respond to any concerns they may have. “We need to implement specific policies to stop the fall in foreign trade and foreign investment,” Chinese Premier Li Keqiang told the country’s cabinet in March.

Some foreign companies suspended their plans to expand from China and, in some cases, began to withdraw their investments. But as China’s recovery gained strength and the rest of the world began to look increasingly rocky, foreign companies began pouring more money into China, seeing the country as a production base and as a critical growth market for their products.

Walmart Inc.

said at an investment conference organized by the city government in Wuhan, the city that was the first center of the pandemic, that it would invest 3 billion yuan, equivalent to 460 million dollars, in Wuhan over the next five years . Starbucks Corp.

invests $ 150 million to build a roasting plant and innovation park in the Chinese city of Kunshan in the east.

Tesla Inc.,

meanwhile, it is expanding capacity to its Shanghai plant and adding a research center, while Walt Disney Co.

construction of a new theme area for its Shanghai Disneyland park continues, despite a second consecutive year of lower park attendance.

Medical and pharmaceutical investments have been especially active, as the coronavirus affected the global economy. Chinese state-owned China Central Television reported in April that several global pharmaceutical companies were pushing forward its expansion in China, including AstraZeneca PLC, which is in the midst of establishing regional headquarters in at least five Chinese cities.

The resistance of foreign investment in China is contrary to previous expectations that foreign companies would try to reduce their heavy dependence on the country as a key piece of their supply chains, after seeing some alterations such as the results of new tariffs on trade between the country and the US

Only Semiconductor Co.

, a South Korean chip maker with extensive operations in China, illustrates the difficulty of leaving China, despite numerous incentives to do so. The company in 2017 began studying the relocation of some of its light-emitting components to Vietnam.

“We were very dependent on China,” said Hong Myeong-ki, the company’s co-executive director. But even though the company manufactures about half of its products in Vietnam, Mr. Hong now has no plans to leave China.

The same trend can be seen among Japanese companies operating in China, only 9.2% of whom said they were moving or were considering withdrawing production from China in a September survey. ‘Japan’s Foreign Trade Organization, the lowest level in five years.

“They need to reduce over-reliance on supply chains in a single market,” said Ding Ke, a Tokyo-based Jetro researcher. “But the biggest risk they identified is losing the Chinese market.”

—Stella Yifan Xie and James T. Areddy contributed to this article.

Write to Paul Hannon to [email protected] and Eun-young Jeong to [email protected]