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Global FDI shrinkage caused by multiple reasons

Enlarged font  Narrow font Release date:2018-06-16  Browse number:10
Note: The latest world investment report, released by the China World Trade Center development conference, shows that last yea
 The latest world investment report, released by the China World Trade Center development conference, shows that last year's global foreign direct investment (FDI) flow declined for two consecutive years, changing the trend of a year's fall of FDI in a year and a surprise. More noteworthy is last year's global FDI flow of only $1 trillion and 430 billion, back to 5 years ago, a 23% drop from $1 trillion and 750 billion in the previous year. The big drop is a rare phenomenon in the post financial crisis era, and is in sharp contrast to the acceleration of global GDP and trade growth.
Foreign direct investment in the world has dropped sharply. The apparent reason is that both cross-border mergers and acquisitions and greenbelt investment have shrunk dramatically. Last year, cross-border mergers and acquisitions decreased by 22% worldwide and green space investment decreased by 14%. For example, European countries' foreign investment in 2017 dropped by 21%, to $418 billion. Among them, the foreign investment of Holland enterprises was a "cliff type decline", from 149 billion US dollars in 2016 to 23 billion US dollars in 2017. The sharp decline in global foreign direct investment led to a sharp fall of 37% in developed countries' FDI last year, to $712 billion. Meanwhile, the number of FDI flowing into the UK has dropped by 92% to 15 billion US dollars, which has led the UK to fall out of the top 20 in the world.
The analysis shows that there are still several deep-seated reasons for the sharp decline in foreign direct investment worldwide. The first is the decline in the global return on investment. At present, the return on investment in various regions of the world is decreasing, and the return on investment in Africa, Latin America and the Caribbean is the largest. According to the data released by the joint China World Trade Center conference, the average return rate of FDI in the world in 2017 was 6.7%, significantly lower than 8.1% in 2012. The decline in foreign investment returns makes the interest of multinationals and other investors less interested in expanding foreign investment, which is the main cause of the sluggish FDI flow last year, and this may affect the long-term prospects of FDI.
The second is that the speed of international production expansion is slowing. At present, cross-border production and production factors transact from tangible mode to invisible mode. One of its performance is that sales of overseas branches of multinational corporations continue to grow, but the growth rate of assets and employees has slowed down significantly. Transnational corporations are the main force of the global FDI. The slowdown in the growth of overseas assets not only directly restricts the growth of global FDI flow, but also has a negative impact on the investment of developing countries in attracting investment in production capacity.
The third is that the expansion of the global value chain tends to stagnate. The value of foreign added value in Global trade, that is, the value of imports and services included in the total exports of all countries, has reached a peak of 31% from 2010 to 2012 after 20 years of sustained growth. The United Nations Global Value Chain database showed that the proportion of foreign trade added value decreased by 1 percentage points from 2016 to 2017 to 30%. Research shows that in recent years, the growth of all developed and developing regions in the global value chain has been significantly reduced compared with the previous 10 years. As we all know, the global value chain is positively related to FDI, and the slowing down of global value chain restraining the global FDI traffic.
Fourth is the spillover effect of cross-border bank loans. In recent years, cross-border bank loans and securities investment are in active stage, becoming a prominent feature of cross-border capital flows. There is a certain complementary relationship between bank loans and securities investment and FDI. Last year, the global total capital flow of cross-border capital accounted for GDP share from 5.6% in the previous year to 6.9%. Its main driving force is bank loans and securities investment. This also enables the international capital to enter developing countries to maintain moderate growth, representing a share of GDP from 4% in 2016 to 4.8% last year. Of course, FDI is still the largest external source of funds in developing economies, accounting for nearly 40% of the total.
Moreover, investment protectionism is on the rise and is not conducive to the development of foreign direct investment. In 2017, some countries tended to have a clear tendency to discriminate against foreign investment, with a strict review of foreign investment on the grounds of sensitive industries or sensitive areas, which led to the failure of a number of cross-border mergers and acquisitions to be examined and approved by the host countries and forced the transaction to fail. (Economic Daily - China economic net reporter Xu Huixi)
 
 
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