Foreign investment in China tops $61bn

China Travel Services

By Frances Williams in Geneva
Published: September 29 2005 19:42 | Last updated: September 29 2005 19:42

Foreign direct investment in Asia reached record levels in 2004, surging to $148bn, and a further increase is expected this year, a United Nations study said on Thursday. FDI flows into China rose from $54bn in 2003 to a new high of $61bn in 2004, making it the third largest investment destination in the world after the US ($96bn) and the UK ($78bn), according to the UN Conference on Trade and Development in its annual world investment report.

China and Hong Kong accounted for two-thirds of all foreign investment coming into the Asian region. India, Australia, South Korea, Vietnam and several other countries also saw record inflows last year.

A big upward revision in US inflows for 2003, originally estimated at just $30bn and now put at $57bn, means that, contrary to earlier reports, the US has never ceded its lead to China as an investment destination.

But much of the jump in FDI into the US and UK last year was accounted for by increased merger and acquisitions activity, which is highly volatile, rather than the “greenfield” investments that predominate in Asia.

Increased investment in the UK and US last year also contrasted with a steep drop in overall FDI flows to industrialised countries, which fell 14 per cent to $380bn. Instead, dynamic FDI inflows to developing countries, up 40 per cent last year to $233bn, were the driving force behind a modest 2 per cent increase in global FDI.

Of the $648bn world total, a third is now accounted for by developing economies, led by China, Hong Kong and Brazil. Unctad says it expects a continuing rise in FDI flows to poorer nations, fuelled by the growing demand from China and India for raw materials that has led to Chinese investments in Latin America and Africa.

But rising oil prices are a threat to Asian economies.

Indonesia's President Susilo Bambang Yudhoyono is to announce on Friday details of a plan to increase fuel prices from tomorrow and most analysts expect Jakarta to raise prices by 40-60 per cent. Past price rises have sparked protests.

While the biggest outward investors remain the US and the UK, companies based in the developing world, especially in Asia, are increasingly active in rich countries as well as poor ones. Unctad highlighted last year's acquisition of Canadian brewer Labatt by Ambev of Brazil, and the takeover by China's Lenovo of the personal computer division of IBM. China's accumulation of US dollars is also likely to stimulate further attempts by Chinese companies to buy US corporate assets rather than more US Treasury bonds, the report suggests.

Fu Chengyu, chief executive of CNOOC, said on Thursday that the oil company planned to pursue foreign acquisitions in spite of the rejection of its controversial bid for Unocal of the US.

Unctad also noted a shift towards developing countries, especially those in Asia, as a destination for investment in research and development. More than half the world's top R&D spenders are conducting R&D in China, India or Singapore, it said.