{"id":66645,"date":"2021-08-23T15:15:04","date_gmt":"2021-08-23T05:15:04","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=66645"},"modified":"2021-08-23T15:00:18","modified_gmt":"2021-08-23T05:00:18","slug":"global-fall-in-foreign-investment-reflects-rise-in-geopolitical-tensions","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/global-fall-in-foreign-investment-reflects-rise-in-geopolitical-tensions\/","title":{"rendered":"Global fall in foreign investment reflects rise in geopolitical tensions"},"content":{"rendered":"
<\/figure>\n

Foreign direct investment is increasingly being seen as a threat to national security as relations between China and the West deteriorate. Twenty-five nations imposed new security regulations controlling investment inflows during the past year.<\/p>\n

There are now 34 countries screening foreign investment for national security threats. Nearly all are advanced nations, although China, India and Russia all imposed new national security barriers last year.<\/p>\n

Globally, foreign investment flows in 2020 dropped to their lowest level since 2005. While the pandemic shook confidence in the global economy, last year\u2019s investment fall extended a trend that has now been underway for four years. Global flows in 2020 of just under US$1 trillion were only half the level of 2016, according to the latest annual report on foreign direct investment<\/a> from the United Nations Conference on Trade and Development (see figure I.1).<\/p>\n

However, the impact of the new regulatory barriers and the loss of investor confidence appears to be mainly an advanced country phenomenon. Inflows to advanced nations dropped to just US$314 billion last year, having peaked at US$1.34 trillion in 2016.<\/p>\n

Outward investment flows from advanced economies have also collapsed, dropping from a 2015 peak of US$1.26 trillion to US$347 billion in 2020. Outflows from EU businesses fell to just US$91 billion, the lowest level since 1987 and 87% below the 2015 peak.<\/p>\n

Australia, which has traditionally been a major recipient of both US and UK investment, has been hit by the downturn, with global companies investing just US$20 billion last year, less than a third of the 2018 peak of US$68 billion.<\/p>\n

Both inflows and outflows of foreign direct investment among developing countries are holding up much better. Foreign investment inflows fell by only 8.3% to US$663 billion last year, which was double the investment flow in advanced nations. Foreign investment outflows from developing nations dropped 7% to US$387 billion. It is the first time that companies based in developing nations have put more money into foreign investment than companies in advanced nations.<\/p>\n

China is leading the way. Foreign investment into China actually rose last year, with a 5.8% increase to US$149.3 billion.<\/p>\n

Investment inflows to China exceeded those to the European Union for the first time and are now only 4.5% below flows into the United States.<\/p>\n

The UNCTAD report says China remains an important catalyst for foreign direct investment:<\/p>\n

Despite significant uncertainty surrounding developments related to geopolitical and commercial tensions, multinational enterprises continue to invest heavily in China, considering it an indispensable strategic market.<\/p>\n

They are also encouraged by its rising purchasing power, well-developed infrastructure and generally favourable investment climate. Some multinational enterprises may reshore or diversify away from China because of rising labour costs and the need to improve supply-chain resilience.<\/p>\n

However, the substantial flow of market-seeking FDI, particularly by multinational enterprises in technology and services industries, is cushioning any negative trend in efficiency-seeking FDI.<\/p><\/blockquote>\n

Foreign investment to Hong Kong soared 62% to US$119 billion, with global business welcoming the end of the street demonstrations of 2019. Some of the surge in investment in Hong Kong was really intended for China, though the report commented that it also reflected Chinese companies restructuring their Hong Kong affiliates.<\/p>\n

Investment abroad by Chinese companies fell by only 3% to US$132 billion last year. The growth of China\u2019s global investment over the past decade has been extraordinary.<\/p>\n

In 2010, Chinese offshore investment stood at only US$317 billion, which was 30% less than Australian companies had invested overseas.<\/p>\n

China\u2019s offshore investment now stands at US$2.4 trillion. The global spread of US enterprise is vastly larger, at US$8.2 trillion, but that reflects the activities of US multinationals over the 75-year post-war period. Outward investment from China last year was 43% larger than the foreign direct investment by US multinationals.<\/p>\n

UNCTAD comments that investment abroad by Chinese companies has been restrained since 2017 both by the rise of security screening of investment, particularly in the US, and by controls on capital outflows by the Chinese authorities.<\/p>\n

However, the report says Chinese foreign investment is being sustained by the Belt and Road Initiative and the continued expansion of Chinese multinational enterprises. Offshore mergers and acquisitions by Chinese companies doubled last year to US$32 billion. Chinese tech giant Tencent and the state-owned power company State Grid were the largest foreign investors from emerging nations.<\/p>\n

The broad trend of foreign direct investment falling in advanced nations but rising (or, during the pandemic, holding ground) in developing countries is reflected in their sharply different approaches to regulation.<\/p>\n

Historically, advanced countries have been more open to foreign investment, while developing countries, concerned about the relative weakness of their domestic businesses, have been more restrictive.<\/p>\n

However, the focus of emerging countries now is on liberalising their foreign investment regimes, with 63% of new regulations over the past year making it easier for foreign companies to invest and only 14% making it more difficult.<\/p>\n

By contrast, 85% of the new regulations affecting foreign investment in advanced countries made it more difficult for foreign companies. UNCTAD tracked 35 new regulations relating to national security concerns about foreign ownership of critical infrastructure, core technologies or other sensitive domestic assets.<\/p>\n

Some of these measures were designed to protect domestic businesses during the pandemic, but others were more directly targeted at national security. In Australia, a temporary lowering of the threshold for screening by the Foreign Investment Review Board to zero, meaning all foreign investments required approval, was designed as a pandemic measure but was then made permanent for all companies in designated \u2018national security\u2019 sectors.<\/p>\n

According to the OECD<\/a>, Australia now has the world\u2019s second most onerous foreign investment screening process after New Zealand. Other countries impose more stringent equity share limitations or place demands on use of foreign personnel.<\/p>\n

Australia is far from alone in tightening security regulations. For example, Japan lowered the threshold for foreign investment in \u2018national security\u2019-relevant businesses before requiring approval from 10% to 1%. The UK lowered thresholds for government vetting of takeovers in artificial intelligence, cryptography and advanced materials. The US requires publicly listed companies to declare that they are not owned or controlled by a foreign government and barred US citizens from investing in Chinese companies with military connections.<\/p>\n

China, India and Russia also tightened their investment rules. China now requires foreign companies to seek approval before concluding investments in the military, agriculture, energy, transport and information technology sectors. Russia added a rule requiring temporary purchases of voting stakes in strategic companies to seek approval. India, in a move clearly targeted at China, will vet all investments from businesses in countries with which it shares land borders.<\/p>\n","protected":false},"excerpt":{"rendered":"

Foreign direct investment is increasingly being seen as a threat to national security as relations between China and the West deteriorate. Twenty-five nations imposed new security regulations controlling investment inflows during the past year. There …<\/p>\n","protected":false},"author":955,"featured_media":66649,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[1182,772,1072,983],"class_list":["post-66645","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-foreign-investment","tag-geopolitics","tag-investment","tag-pandemic"],"acf":[],"yoast_head":"\nGlobal fall in foreign investment reflects rise in geopolitical tensions | The Strategist<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.aspistrategist.ru\/global-fall-in-foreign-investment-reflects-rise-in-geopolitical-tensions\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Global fall in foreign investment reflects rise in geopolitical tensions | The Strategist\" \/>\n<meta property=\"og:description\" content=\"Foreign direct investment is increasingly being seen as a threat to national security as relations between China and the West deteriorate. Twenty-five nations imposed new security regulations controlling investment inflows during the past year. 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The Oyu Tolgoi (Mongolian for Turquoise Hill) copper and gold mine is a combined open pit and underground mining project. The site, discovered in 2001, is located approximately 550 km south of the Mongolian capital, Ulan-Batar in the South Gobi Desert. Turquoise Hill Resources (Formerly Ivanhoe Mines) and Rio Tinto signed a long-term comprehensive investment agreement with the Government of Mongolia in 2009 with the deal awarding Turquoise Hill Resources, whose majority shareholder is Rio Tinto, with a controlling 66 percent interest and The Mongolian Government with a 34 percent interest in the project. Rio Tinto provided a comprehensive financing package and assumed direct management of the project under an agreement with Ivanhoe Mines. Initial production from open pit mining is currently underway and commercial production is planned to start in first half of 2013. An 85million USD investment was earmarked for education and training projects, with Mongolians expected to constitute 90 percent of the work force when production begins in 2013. When Oyu Tolgoi starts fully operating Mongolia will be set to become one of the world's top copper and gold producers with production estimates of 450,000 tons of copper and 330,000 ounces of gold annually. Mongolia is currently the world's fastest growing economy with its GDP increasing by more than 17 percent last year and an estimated $1.3 trillion in untapped mineral resources. Oyu Tolgoi is Mongolia's largest foreign investment project and the country's biggest economic undertaking to date, which is projected to add one-third of future value to the country's GDP by 2020. 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