*EPF106 06/28/2004
Text: China Overtakes U.S. as Largest Investment Recipient, OECD Says
(Foreign direct investment flows to U.S. fell sharply in 2003, report says) (870)

China became the largest recipient of foreign direct investment (FDI) in 2003, surpassing the United States, which has previously enjoyed the biggest inflows of FDI, according to a new report.

In a June 28 news release announcing the publication of the report on worldwide FDI, the Organization for Economic Cooperation and Development (OECD) said China attracted $53 billion in 2003 compared to $40 billion for the U.S. economy.

The United States registered the largest fall of FDI inflows among OECD countries with the 2003 level 44 percent below the 2002 level and 76 percent below that in 2001, according to the report.

Overall, net FDI from OECD countries to the rest of the world rose six-fold in 2003, marking the largest net flow to developing and emerging economies on record, the OECD said.

The report said that the magnitude of the economy tends to be the decisive factor in OECD companies' investment decisions with large emerging economies such as China and India attracting the most FDI. This contrasts with investment decisions based primarily on production and labor costs in earlier decades, the organization said.

Following is the text of the release:

(begin text)

Organisation for Economic Co-operation and Development

Foreign Direct Investment into OECD Countries Fell in 2003 for Third Consecutive Year

28/07/2004 -- Foreign direct investment (FDI) into OECD countries fell 28 percent to US$384 billion in 2003, according to latest estimates from the OECD, down from US$535 billion in 2002 and US$662 billion in 2001 to a level less than one third of the US$1.3 trillion recorded in the peak year 2000.

The weak global economic recovery, concerns about international security, and a preference on the part of many firms to consolidate acquisitions rather than make new ones all contributed to the decline in FDI, which covers such items as mergers and acquisitions, the construction of new production plants and capital transfers to foreign-owned enterprises, according to Trends and Recent Developments in Foreign Direct Investment, a newly published OECD report.

By contrast, FDI outflows from the 30 OECD countries held up better, at an estimated US$576 billion in 2003 against US$567 billion in 2002, $662 billion in 2001 and $1.2 trillion in the peak year 2000. As a consequence, net FDI from OECD countries to the rest of the world rose six-fold in 2003 to US$192 billion, up from US$31.7 billion in 2002, resulting in the biggest net flow to developing countries and emerging markets on record. (Calculations of net FDI flows between OECD countries and the rest of the world are based on the difference between inflows and outflows.)

China overtook the U.S. in 2003 as the biggest recipient of foreign direct investment, attracting US$53 billion from OECD countries and elsewhere. The size of domestic markets in big developing emerging economies, particularly, China is attracting foreign firms, according to the OECD report. This contrasts somewhat with earlier decades when OECD companies were primarily investing in developing countries to benefit from lower wages and production costs.

India received US$4 billion of FDI from OECD countries in 2003, but only US$1 billion flowed into Russia, the lowest amount since the mid-1990s. Foreign direct investment in Russia still goes mainly to the energy sector, and Russia could attract more FDI if it reformed the regulations affecting business in other sectors of the economy.

The U.S. suffered the biggest fall among OECD countries in inward FDI, but other major economies such as Canada, Germany and Britain were also hit. In the United States, FDI fell to US$40 billion in 2003 from US$72 billion in 2002 and US$167 billion in 2001. This is the second consecutive year that the U.S. has been a net provider of foreign direct investment -- investing more abroad than it attracts from foreign companies.

Across Europe, FDI inflows fell 23 percent but the impact varied widely among countries:

-- France remained a favourite for FDI in 2003, with inflows totalling US$47 billion, only marginally less than in 2002 and three times the amounts invested in Germany and the United Kingdom. France continues to attract large amounts of "conventional" (as opposed to "new economy") FDI, partly because it is easier for foreign firms to buy French companies than it is to buy companies in many other European countries.
-- FDI flows into Germany fell by 64 percent to US$12 billion, down from US$45 billion from 2002.
-- FDI flows into the United Kingdom almost halved in 2003 to US$14.6 billion, from US$27.8 billion in 2002.
-- FDI fell sharply in Central Europe. Foreign investment into the Slovak Republic slumped by 85 percent to US$0.6 billion in 2003 from US$4.1 billion in 2002 and into the Czech Republic by 70 percent to US$2.6 billion in 2003 from US$8.5 billion in 2002. This was partly a result of the one-off effect of large investment projects in 2002, in the automotive and energy sectors respectively.

The report will be included as a chapter in the upcoming annual publication OECD International Investment Perspectives, scheduled to appear in September.

(end text)

(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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