China ahead in foreign direct investment

OECD Observer

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China became the world’s largest recipient of foreign direct investment (FDI) for the first time in 2002.

Yet while this is impressive for a country that began reaccepting foreign investment only recently, this jump is amid declining FDI inflows to other countries. In terms of FDI per capita, China still ranks relatively low, according to a forthcoming OECD report.

Since 1996, China has attracted more FDI than other developing countries, but has still been surpassed by several OECD member countries. According to OECD statistics, in 2000 the United States, Germany and France, among others, all received more in foreign investment than China’s US$38.4 billion. In 2002, however, FDI to most OECD nations fell sharply, particularly in the US. Meanwhile, FDI into China rose to a record US$52.7 billion.

Nearly half of cumulative realised FDI in China is listed as having originated in Hong Kong, China, though this includes an uncounted amount of FDI from the overseas Chinese diaspora, Chinese Taipei and from within China itself, via “round-tripping” in Hong Kong to take advantage of fiscal incentives offered to non-mainland investors.

In terms of investment from OECD countries, China’s ranking has recently fallen. In 1995, China was in second place, but by 2000 it had dropped to fourth. Also, recalling the country’s enormous population, FDI inflows in per capita terms remain far lower in China than in all OECD member countries, except Turkey. The composition of Chinese FDI inflows is also different; since the 1990s, most of the FDI among OECD countries has been due to mergers and acquisitions, which is negligible in China’s FDI inflows.

©OECD Observer No 237, May 2003

Economic data

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