China remain’s most attractive FDI destination, India fourth worldwide

It is now confirmed that China is the most attractive investment destination in the World. India comes in fourth pegged on par with America, after Central and Eastern Europe. The results are part of a survey titled ‘European attractiveness survey’ of 814 business leaders polled by Ernst and Young.

According to the survey, the attractiveness of both China and India as investment destinations began in 2008 and escalated in 2009 as US and now European markets withered.  According to the survey, China’s attractiveness hovered at approximately 40 percent, while India’s averaged about 25 percent over the last three years. Meanwhile, Western Europe’s appeal as the most attractive destination for FDI has slumped since 2006, while enthusiasm for North America has more than halved (click on chart above to enlarge).

According to E&Y, there is a clear shift in the world’s economic weight Eastwards. Western Europe, which currently ranks as the second-most popular destination for FDI, is expected to fall to the fifth place behind Brazil. “For the next three years, investors continue to see China, India and Central and Eastern European (CEE) nations as their route to future riches,” the report said.

Prized by investors for the potential of its internal market, political
stability, low-cost of operations and its ease of establishing business, China has benefited from the global downturn, assuming the mantle of emerging economic superpower. India too escaped recession in 2009 and forecasts economic growth of 7.7 percent in 2010. However, investors appear concerned that the country‘s success in attracting back-office and technology FDI exceeded expectations and capacity in some states, putting an excessive stress on some labor markets, energy supply and transportation networks.

In a sense, India and China share parallel “location” challenges. Companies have often conducted similar analyses and concluded that urban centers (for instance, on the western seaboard of China) are the most attractive targets, but a “Beijing – Shanghai – Hong Kong” or “Mumbai – Bangalore – Delhi” entry strategy may take them directly into competition with most of their competitors. There are 49 cities in China with population in excess of 1 million, and an estimated 43 in India. Some companies are therefore exploring “tier-two” urban entry strategies to build critical mass before approaching larger markets.

Of the 814 leading global investors more than half said they had no plans to invest in Europe, unchanged from 2009. Worries over debt-stricken euro zone countries unemployment and weaker investment as banks stay cautious on lending compounded the unenthusiasm in European investments. As result, China which was the third-biggest foreign investor into Europe in terms of job creation in 2009 and was eighth-biggest in number of projects suffered a 2.6 percent drop in FDI in 2009, to US$90 billion, as cash-strapped firms outside the country were affected by the financial crisis.