Foreign Companies Abandon US Investments In Favor Of China

Global foreign direct investment (FDI) fell 42 percent in 2020, and the pandemic will continue to affect it this year, a report from UNCTAD says, as China reaps more foreign money than the U.S.

The report says the FDI fell from $1.5 trillion in 2019 to $859 billion last year.

The last time a level that low was seen was in the 1990s, and the number is over 30 percent less than the investment trough following the financial crisis from 2008.

The U.S. has seen a 49 percent decline, the report says, while China became the world’s biggest FDI recipient, with flows rising 4 percent to $163 billion.

And, despite the projection being for the FDI to recover this year, the uncertainty of the ongoing pandemic, still infecting at high levels every day, could jeopardize that.

“The effects of the pandemic on investment will linger,” said James Zhan, director of UNCTAD’s investment division, according to the report. “Investors are likely to remain cautious in committing capital to new overseas productive assets.”

The FDI, according to the report, hit the developed countries hardest, with flows to North America falling 46 percent. In Europe, the investments began to dry up, the report says, with flows falling by two-thirds. Australia saw a 46 percent fall.

Meanwhile, Israel and Japan saw increases in FDI. Israel went from $18 billion to $26 billion, while Japan increased from $15 billion to $17 billion, according to the report.

PYMNTS wrote last September that the U.S. could have a path to follow China’s economic recovery from the pandemic. China’s economy was able to come back faster in part because of its early response to the virus, including testing and contact tracing schemes along with building entire new hospitals.

In addition, the Chinese economic plan involved cost-cutting measures that would benefit peoples’ wallets, including tax exemptions, lower bank interest rates and lower utilities prices.

U.S. analysts were optimistic, saying there would be a “swift recovery” there too, as people began to spend more readily.