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FDI 2010 dips in India, rises in China

January 18, 2011

Foreign Direct Investments, the green that fuels many developing economies, saw a spurt in inflows in 2010 as developed economies pumped increasing investments into developing economies. Realizing a balancing out between the developed and developing nations, FDI into developing countries accounted for 53 percent of the 2010 total, as inflows to east Asia and Latin America surged. China once again reigned as the most attractive destination for FDI in Asia, flooding the market with liquidity, raising bank lending rates and putting pressure on the central bank’s policy of restraining yuan appreciation. For the first time since records began in the 1970’s, foreign investment in China amounted to more than US$100 billion, rising by 6.3 percent from 2009. Consequently, FDI in India fell almost 32 percent to US$23.7 billion from US$34.6 billion in 2009.

Foreign direct investment can take a number of forms, including mergers and acquisitions, building new facilities from scratch as part of what are known as greenfield investments, reinvesting profits earned from overseas operations and making loans from the parent company to overseas operations.

The United Nations Conference on Trade and Development (UNCTAD) estimated that businesses invested US$1.122 trillion outside their home countries last year, up very slightly from the US$1.114 trillion they invested in 2009. UNCTAD expects foreign investment in developed economies to recover this year, and sees the global total rising to between US$1.3 trillion and US$1.5 trillion.

While UNCTAD’s investment and enterprise division chief, James X Zhan, who prepared the investment report said that there was no insight into why FDI into India has fallen, he also said that FDI flowing into China signaled a strctural change as huge investments were being made in China’s R&D facilities and by multinationals taking advantage of China’s Go West Policy.Additionally, corporates still maintain their confidence in China. Afterall, China in 2009 overtook the U.S. to become the world’s biggest car market, passed Germany as the largest exporter and likely surpassed Japan to become the second-biggest economy in 2010. It may overtake the U.S. as the largest economy by 2027, according to Goldman Sachs Group Inc. chief economist Jim O’Neill.

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