China overtook the U.S. as the world’s top destination for new foreign direct investment last year, as the Covid-19 pandemic amplifies an eastward shift in the center of gravity of the global economy. New investments by overseas businesses into the U.S., which for decades held the No. 1 spot, fell 49% in 2020, according to U.N. figures released Sunday, as the country struggled to curb the spread of the new coronavirus and economic output slumped.
China, long ranked No. 2, saw direct investments by foreign companies climb 4%, the United Nations Conference on Trade and Development said. Beijing used strict lockdowns to largely contain Covid-19 after the disease first emerged in a central Chinese city, and China’s gross domestic product grew even as most other major economies contracted last year.
The 2020 investment numbers underline China’s move toward the center of a global economy long dominated by the U.S.—a shift accelerated during the pandemic as China has cemented its position as the world’s factory floor and expanded its share of global trade.
While China attracted more new inflows last year, the total stock of foreign investment in the U.S. remains much larger, reflecting the decades it has spent as the most attractive location for foreign businesses looking to expand outside their home markets.
Foreign investment in the U.S. peaked in 2016 at $472 billion, when foreign investment in China was $134 billion. Since then, investment in China has continued to rise, while in the U.S. it has fallen each year since 2017.
The Trump administration encouraged American companies to leave China and re-establish operations in the U.S. It also put Chinese investors on notice that acquisitions in the U.S. would face new scrutiny on national security grounds—cooling Chinese interest in American deal making.
The sharper drop in foreign investment in the U.S. last year reflects the broader economic downturn due to the effects of the coronavirus pandemic, said Daniel Rosen, founding partner of Rhodium Group, an independent research firm in New York, who has long analyzed the U.S.-China economic relationship.
“I don’t think one can say anything confidently about the impact of the FDI downturn in the U.S., compared to all the other hits on the U.S. economy,” he said.