China Takes the Lead from US in Foreign Investment

Published on Author Sam Wilson

In 2014, China took the edge over the US in foreign direct investment, a feat that no country has been able to achieve since the US took hold in 2003.  Looking at the charts, we can tell that China has had a relatively steady increase over the past twenty years and shows stability. Whereas looking at the US chart, it is very easy to see that there is much more volatility and drastic changes from year to year on how much money is invested in the country.

The article goes on to explain that this is partially due to a “long-term trend in foreign investment away from developed and toward developing economies.” Even with this fact the US still remained in the top five recipients of foreign investment, wherein which it was the only developed economy.

James Zhan, director for investment and enterprise at Unctad, explains the increase in China by reasoning that its economy “has been steady with modest growth over the past few years, and it is expected to continue.” Zhan also points to the fact that “there have been structural changes in inflows to China, from manufacturing toward services, and from labor-intensive to tech-intensive.” These as well as other factors have caused China’s economy to grow to the second largest in the world.


2 Responses to China Takes the Lead from US in Foreign Investment

  1. As you note, what calls out for explanation is not the increase in China but the decrease in the US. One factor may be the sharp appreciation of the US dollar amidst steady (but not accelerating) growth. It’s now quite expensive for a European or Japanese company to invest here – and as the absolute levels have on average been high, most are already here, some since the 19th century. (As an example, most Honda’s and Toyota’s are built in the US, Toyota alone has 14+ factories in NAFTA.) On the Chinese side, the RMB has not shifted relative to the dollar, and in the last decade there’s been no boom-bust cycle: steady as she goes. However China restricts FDI in several major sectors (such as banking); the US does not. Otherwise we might see more FDI in China.

    Addendum: how the statistics are compiled may matter. If a foreign company sells an operation inside the US is that counted as negative FDI? I suspect that these are “gross” and not “net” flows, but without foreign exchange controls there’s no need for a firm to report FDI to anyone, and China has restrictions while the US does not. Data quality may be lower for the US than for China.

  2. Note Jonah in the first post of the term made the claim that in the aggregate, DFI in Southeast Asia exceeded that in China itself. Since in the aggregate ASEAN is smaller than China, in both GDP and population, that suggest a high level, and while some may be large, lumpy investments in natural resource development, not all is of that sort.