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Tuesday, June 13, 2006

 

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China Overtakes US as World's Largest Investment Magnet

The PRC attracted $53 billion compared to $40 billion for the US last year

PARIS, France - 07/01/04 - China has surpassed the US to become the world's?largest magnet for direct foreign investment,?according to a new report released by the Organization?for Economic Cooperation and Development (OECD).

According to the report - Trends and Recent Developments in Foreign Direct Investment - China in 2003 attracted $53 billion in 2003 compared to $40 billion for the US, which saw $72 billion in FDI in 2002 and $167 billion in 2001.

"The size of domestic markets in big developing emerging economies, particularly China is attracting foreign firms, the OECD report. This, it said, "contrasts somewhat with earlier decades when OECD companies were primarily investing in developing countries to benefit from lower wages and production costs."

While the US suffered the sharpest decline among OECD countries, Canada, Germany and Britain were also hit. This is the second consecutive year that the US has been a net provider of foreign direct investment - investing more abroad than it attracts from foreign companies.

By contrast, FDI outflows from the 30 OECD countries held up better, at an estimated $576 billion in 2003 against US$567 billion in 2002, $662 billion in 2001 and $1.2 trillion in the peak year 2000.

As a consequence, net FDI from OECD countries to the rest of the world rose six-fold in 2003 to $192 billion, up from $31.7 billion in 2002, resulting in the biggest net flow to developing countries and emerging markets on record.

"The weak global economic recovery, concerns about international security, and a preference on the part of many firms to consolidate acquisitions rather than make new ones all contributed to the decline in FDI, which covers such items as mergers and acquisitions, the construction of new production plants and capital transfers to foreign-owned enterprises," the report said.

In 2003, India received $4 billion of FDI from OECD countries, but only $1 billion flowed into Russia, the lowest amount since the mid-1990s.

Foreign direct investment in Russia still goes mainly to the energy sector, and Russia could attract more FDI if it reformed the regulations affecting business in other sectors of the economy.

Across Europe, the report said, FDI inflows fell 23% but the impact varied widely among countries.

France, for example, saw FDI in 2003 total $47 billion, only marginally less than in 2002 and three times the amounts invested in Germany and the United Kingdom, which, respectively, had FDI flows fall by 64% to $12 billion, down from $45 billion from 2002, and to $14.6 billion, from $27.8 billion in 2002.

FDI fell sharply in Central Europe last year, the report said.

Foreign investment into the Slovak Republic slumped by 85% to $0.6 billion in 2003, down from $4.1 billion in 2002, and into the Czech Republic by 70% to $2.6 billion in 2003, down from $8.5 billion in 2002.

This, the report said, "was partly a result of the one-off effect of large investment projects in 2002, in the automotive and energy sectors, respectively."

Trends and Recent Developments in Foreign Direct Investment will be included as a chapter in OECD International Investment Perspectives, a new annual report scheduled for publication by the Paris-based group in September.

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