Global foreign direct investment slumps in 2020; China beats US as top recipient

Global foreign direct investment plunged in 2020 to the lowest level since the 1990s amid the coronavirus pandemic, as China became the largest recipient of FDI last year, overtaking the U.S., according to a report by the United Nations Conference on Trade and Development.

Investment flows across the world slumped 42% to about $859 billion in 2020, more than 30% below the trough seen after the 2009 global financial crisis.

China's foreign direct investment rose 4% last year to $163 billion, compared with $134 billion in U.S. inflows, which reflected a 49% collapse year over year.

"The effects of the pandemic on investment will linger," James Zhan, director of the United Nations Conference on Trade and Development's investment division, said Jan. 24. "Investors are likely to remain cautious in committing capital to new overseas productive assets."

FDI flows to developed economies cratered 69% to their lowest levels in about 25 years, as investment in Europe fell by two-thirds to negative $4 billion, while developing economies saw a 12% drop in FDI.

The U.K's FDI fell to zero, while that of India rose 13% on the back of investments in the digital sector, according to the report.

Despite hopes for the global economy to recover in 2021, the United Nations Conference on Trade and Development projects FDI flows to remain weak this year due to uncertainty over the evolution of COVID-19, with an FDI recovery not expected to start before 2022.

"For developing countries, the prospects for 2021 are a major concern," Zhan said.

The U.N. agency expects any increases in global FDI flows in 2021 to come from cross-border M&A, especially in technology and healthcare, rather than from new investment in productive assets.

"Although [the two industries'] investment activity slowed down initially in 2020, they are now set to take advantage of low interest rates and increasing market values to acquire assets in overseas markets for expansion, as well as rivals and smaller innovative companies affected by the crisis," according to the report.

European companies are expected to account for more than 60% of technology deals in value terms.