Foreign direct investment by emerging economies surged by almost a third last year as companies in China and elsewhere sought new opportunities offshore as a respite from slowing growth at home, according to new UN figures to be released on Monday, according to Financial Times.
The data highlight one of the big developing trends in the global economy. Once a target for multinational companies eager to invest and reap the benefits of their rapid growth, emerging economies are becoming rivals to the US and Europe as a source of investment.
The flow of FDI from emerging economies hit a record $484bn in 2014, an increase of 30 per cent on the year before, according to new figures compiled by the Geneva-based UN Conference on Trade and Development, or Unctad.
But that surge was driven almost entirely by Asian investors, with Developing Asia accounting for $440bn in outbound investment last year and overtaking North America and Europe as the world’s biggest regional source of foreign direct investment.
Behind that is a big shift in China in particular, said James Zhan, the head of investment for Unctad.
Together, mainland China and Hong Kong accounted for $266bn in outbound investment in 2014, putting China second only to the US in the national league tables for foreign direct investment.
That status is a reflection of a remarkable shift in China’s place in the world. A decade ago, mainland China saw 18 times more inbound than outbound investment, said Mr Zhan, but last year, for the first time, outbound investment overtook that coming into China.
Mr Zhan said the importance of China as a source of investment was only likely to grow in the years to come.
The advent of a new China-led Asian Infrastructure Investment Bank and Beijing’s plans to promote a new Silk Road through central Asia to Europe would inevitably bring more investment by companies. “Eventually the investment will by carved out by firms,” he said.
But slowing growth at home was also acting as an incentive for Chinese companies to look abroad, he said, and the same was true for investors from other emerging economies such as Russia. Despite the ratcheting up of sanctions and the crisis in Ukraine, Russian companies invested $56bn offshore in 2014, the same as France.
Investments by multinational companies in developed economies such as the EU, US and Japan were flat last year at $792bn. While there had been “modest increases” in investment by European and US companies, offshore bets by Japanese companies fell 16 per cent in 2014, according to the UN.
The composition of investments in 2014 was also telling.
More than half of the investments made in 2014 by companies from developing economies were in equity and amounted to new projects or acquisitions. However, as much as 80 per cent of the FDI outflows from companies based in developed countries were in the form of reinvested earnings and the result of record cash reserves held by their foreign subsidiaries, according to the UN figures.
There are signs that investors’ confidence is increasing, Mr Zhan said. A survey by McKinsey, the consultants, due to be released next month alongside UNCTAD’s global investment report, had found rising sentiment among companies in even developed economies, he said.