October 26, 2002	Saturday	Sha’aban 19,1423

SINGAPORE, Oct 25: China may for the first time overtake the United States to become the largest recipient of foreign direct investments (FDI) in the world.

So says the Geneva-based United Nations Conference on Trade and Development (Unctad).

China is likely to get a record $50 billion (S$89.35 billion) in FDI this year, while flows to the US are expected to drop to $44 billion, a two-thirds plunge from $124 billion last year, it said yesterday.

Unctad said the FDI growth momentum in China is continuing, “and at an estimated $50 billion, inflows will probably set a record.” Last year China received $47 billion in FDI.

Driven by the liberalization process and industrial restructuring, and the country’s entry to the World Trade Organization, China’s FDI is experiencing faster growth in the medium- and high-tech manufacturing industries and services, Unctad said.

The agency projects a decline by about 12 per cent this year in FDI flows into developing Asia, including China, following a 24 per cent drop last year.

Inflows this year are likely to be $90 billion, compared to $102 billion last year. The slide is largely due to slowing FDI flows from Europe and the US, despite the strong growth of the region’s leading economies.

Unctad expects a drop in FDI flows to economies such as Hong Kong, South Korea, Thailand and Taiwan, partly as a result of the repayment of outstanding intra-company debts held by foreign affiliates.

Overall, the possibly drastic FDI decline in most of the region’s economies is unlikely to be offset by an increase in FDI in countries such as China, India, Malaysia and the Philippines, according to the agency’s projections.

Unctad is also predicting a 27 per cent drop in FDI worldwide to $534 billion this year.

It said the decline is likely to be larger in developed countries (31 per cent) than in developing countries (23 per cent).

The uncertain economic situation and weak stock markets are undermining business confidence, with a sharp impact on cross- border mergers and acquisitions, and corporate investment expansion plans.

Overall, more than half of the 85 economies for which data is available is likely to receive less FDI this year compared to last year, Unctad said.

The intensified competitive pressure on multinational companies to keep production costs down by operating in less expensive locations is working in favour of China, and against the US.—The Straits Times/Asia News Network