China pulls in lion's share of FDI flows

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.