China to lag US as FDI destination

Chances of China overtaking the United States as top foreign direct investment (FDI) destination are slim in the short term even as it remains the second most attractive country for investors, UNCTAD says.

The gap between the US and China would remain despite robust momentum in Chinese FDI even though it is closing in on the FDI volumes, Zhan Xiaoning, director of the investment and enterprise division of UNCTAD, said.

China's economic growth remains high even as the US continues to be troubled by a high unemployment rate and economic slowdown. According to the organisation report, in 2009 China received $95 billion in foreign funds, which was $34.9 billion less than the investments in the US.

Still, China's FDI during the first quarter was $43.8 billion, while FDI in the US fell by 60 per cent from a year earlier to $46.1 billion during the same period, leaving a gap of $2.3 billion.

"Despite the narrowing gap, we cannot find strong enough proof to show that China could surpass the US as the most attractive destination for FDI in the short and medium term, as there is little possibility that China's FDI will grow by large margins," Zhan said.

According to Wang Zhile, director of the research centre on transnational corporations under the Chinese ministry of commerce, the USA enjoys more advantages in absorbing foreign funds than China.