China pulls in lion's share of FDI flows
More foreign funds enter mainland and HK than US as emerging markets become top target for global capital for first time, UN body finds
Hong Kong and the mainland saw the world's biggest foreign direct investment inflows last year, taking in a combined US$196 billion and eclipsing the US$168 billion invested in the United States.
For the first time, emerging markets attracted more long-term capital than developed economies.
The decisive shift in capital flow came as FDI to developed economies plummeted to almost a 10-year low amid economic weakness, particularly in crisis-ridden Europe, according to the 2013 World Investment Report by the United Nations Conference on Trade and Development (UNCTAD).
Fragile macroeconomic conditions and policy uncertainty may continue to constrain global FDI growth this year, with UNCTAD forecasting only a modest increase - to up to US$1.45 trillion this year, compared with US$1.35 trillion last year.
Investors would likely regain confidence in the medium term, with flows expected to reach about US$1.6 trillion next year and US$1.8 trillion in 2015, the agency said. But it warned that significant risks remain.
"Factors such as structural weaknesses in the global financial system, the possible deterioration of the macroeconomic environment, and significant policy uncertainty in areas crucial for investor confidence might lead to a further decline in FDI flows," UNCTAD said.
FDI inflows to developed economies dropped 32 per cent to US$561 billion, while global FDI fell 18 per cent. The European Union accounted for almost two-thirds of the global FDI decline, UNCTAD said.
Outflows from developed economies, meanwhile, shrank by 23 per cent to US$909 billion, close to the trough reached in the 2009 global financial crisis.
Japan bucked both trends, with inflows turning positive last year after two years of net divestment and the country retaining its position as the world's second-biggest outbound investor. Large declines in outward FDI from Europe and North America aided Japan's improvement.
FDI to developing economies proved to be more resilient, recording their second-highest level. Even though they declined by 4 per cent to US$703 billion last year, these flows accounted for 52 per cent of the global total, UNCTAD data showed.
Investment outflows from developing countries was US$426 billion last year, a record 31 per cent of the world total.
The mainland moved from sixth place to become the third-largest investor last year, behind the US and Japan.
"Chinese companies remained on a fast track of internationalisation, investing in a wide range of industries and countries," the report said.
While the mainland remained a top investment destination, FDI inflows dropped 2 per cent to US$121 billion last year amid rising production costs, the agency said. Hong Kong attracted US$75 billion in investment.