Employees work at a shoe factory in Lishui, Zhejiang province in this January 24, 2013 file photo.LANG LANG/Reuters
A sputtering global economy, rising geopolitical risks and a lack of certainty about regulatory, taxation and other policies contributed to a hefty decline in global cross-border investment last year.
But even as slow-growth developed markets become less attractive, money is pouring into emerging countries – notably in Asia – at a record clip, and China has sailed past the United States as the leading destination for foreign capital, the United Nations Conference on Trade and Development says in its annual assessment of world investment trends.
It's a trend that is bound to continue as multinationals target higher-growth markets with better demographics and increasing spending power.
While foreign direct investment (FDI) fell 16 per cent last year to $1.2-trillion (U.S.), capital flowing into China and other developing countries reached a record $681-billion, up 2 per cent from a year earlier. China alone accounted for $129-billion, an increase of about 4 per cent, the UNCTAD report says.
By contrast, industrial nations saw their share of incoming FDI fall 28 per cent to just under $500-billion. It was their lowest total in 10 years and marked the third successive decline.
Canada slid to seventh place, pulling in $54-billion. That was down from fourth the previous year at $71-billion. But among developed countries, only the U.S. (No. 3) and Britain, which climbed to fourth from ninth, attracted more cross-border cash.
The steep drop in oil and other resource prices was an obvious culprit. But things could have been worse.
Weaker commodity markets have had "some influence" on the amount of investment going into resource-rich countries, James Zhan, UNCTAD's senior director of investment and enterprise, said by e-mail from Geneva. But he added that multinational resource players "have generally maintained their investment plans."
Foreign capital flowing into Canada's energy and mining sector last year fell 38 per cent to $13-billion. But that compares favourably to average annual levels of $11-billion between 2010 and 2012. And the country remained on the radar of U.S. private equity firms and other acquisitors.
Canada ranked 11th in an UNCTAD survey of global executives' favoured destinations for their capital.
The U.S. saw incoming FDI flows plunge 60 per cent in 2014 to $92.4-billion, but not because of any new fears about the health of the world's largest economy. Most of the decline stemmed from a single divestment – the $130-billion sale by Britain's Vodaphone Group of its 45-per-cent stake in Verizon Wireless.
The United States still outpaces the rest of the world when it comes to investing in other people's markets, exceeding second-ranked Hong Kong (treated separately from China by UNCTAD) by a wide margin.
FDI from the U.S. climbed 3 per cent to $337-billion. Almost all of the new investment from U.S. multinationals consisted of reinvested earnings.
Developed countries occupy eight of the top dozen rungs, with Canada retaining its hold on seventh place just behind a fading Russia. Third-ranked China is gaining ground here too, edging past Japan as its corporate sector puts more money to work abroad, mainly in resource-related activities.
Canadian investment in other nation's mining and energy assets also picked up last year, climbing to $6.5-billion from a mere $2.5-billion in 2013.
China is not high on the Canadian list of must-have markets. Canadian direct investment in China (excluding Hong Kong) in 2013 rose 26 per cent from the previous year to $4.9-billion (Canadian), less than half the amount that went into Hungary and Bermuda.
But international providers of a wide range of services are eagerly eyeing China as it shifts its focus toward domestic consumption and away from an export-oriented manufacturing model that has little room for strong growth.
Foreign money earmarked for China's service sector grew to 55 per cent of total inflows in 2014 – mirroring a global trend to increased investment in services as barriers come down. Manufacturing only received 33 per cent, the UNCTAD report found. In 2011, the first year services in China surpassed manufacturing investment from abroad, total service-related FDI flowing into China totalled 48 per cent.