China Leads for Foreign Investors

China overtook Britain and the US as a destination for foreign investment last year, as cash-strapped multinationals sought low-cost economies in the wake of the dotcom crash, a United Nations report showed yesterday.

Global flows of investment plunged in 2002, falling to half the level reached in 2000 at the height of the hi-tech frenzy, according to the authoritative World Investment Report, published yesterday by the UN conference on trade and development (Unctad).

While Britain saw inward investment more than halve, from $62bn (£39bn) in 2001 to $25bn, its low-cost competitors in Asia and eastern Europe managed to attract increasing flows of foreign funds.

Direct investment into China jumped to $53bn from $47bn in 2001, beating France, the US and Britain, all of which saw inflows decline sharply - by a huge $280bn over two years, in the case of the US.

Unctad said central and eastern European countries were able to cash in on their impending membership of the European Union to boost investment flows in 2002, despite the global downturn.

With what it called a "car assembly bonanza" already attracting firms such as Renault, Toyota and Daewoo to make new investments in eastern Europe so far this year, Unctad said the region should also record strong investment in 2003.

Of the 195 countries covered in the report, 108 saw investment decline last year as the global economy cooled, share prices declined, and the corporate mega-deals of the dotcom years came to an end.

Unctad spokesman Torbjorn Fredriksson, presenting the report, pointed out that when Vodafone bought Mannesmann in 2000, that deal alone was worth around $200bn; but the biggest cross-border deal in 2002 was worth just $10bn. He said investment flows this year were unlikely to recover strongly.

"We do not see any reason to expect a big rebound this year," he said.