China Overtakes U.S. in Foreign Direct Investment

China overtook the United States as a recipient of foreign direct investment in 2003 as companies broadened their strategies in emerging markets, according to a report published this week.

The Organization for Economic Cooperation and Development said the United States was the worst hit by falling inflows of foreign direct investment to its 30 industrialized member countries.

Investment into the United States declined to $40 billion last year from $72 billion in 2002 and $167 billion in 2001, while foreign direct investment in China dipped only slightly to $53 billion from $55 billion — leaving China as the world's biggest recipient of investment, excluding tax haven Luxembourg.

The OECD report on foreign investment trends said total investment flows from its members to developing countries surged six-fold to $192 billion in 2003 from $32 billion the previous year.

The Paris-based organization said the sharply increased flows reflected a broadening of companies' investment goals in emerging markets, beyond simply gaining access to cheaper labor and raw materials.

"There has been an increasing tendency for companies to invest in especially the largest developing countries as part of strategies to service local clients or to acquire a strategic position in markets that could become prosperous in the future," the OECD said.

Investment into OECD countries, meanwhile, fell 28% to $384 billion, confirming a downward trend identified last year by the OECD, which had forecast a dip of between 25% and 30% based on the first half of 2003.

"This indicates that, contrary to the expectations of many at the time, there was no significant pickup in activity in the second half of 2003," Monday's report said.

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