‘US has benefited from a sharp decline in the share of FDI inflows into China’

New Delhi: The US and a select set of developed markets and emerging markets seem to have benefited from a sharp decline in the share of FDI inflows into China, Kotak Institutional Equities said.

China has lost 9.30 pps in the share of global FDI over CY2019-23, while the US has gained 14.3 pps over the same period. Other major countries witnessing an increasing share of FDI inflows are Brazil, Canada, Japan, Korea, Mexico and Poland.

The US has seen a massive increase in FDI in the manufacturing sector in recent years, driven by diversification (near-shoring and on-shoring) in supply chains, geopolitical tensions between the US and China, large incentives for investment under the Inflation Reduction Act and CHIPS Act and large investments in AI, Kotak Institutional Equities said.

The recent weakness in gross FDI inflows to India is also symptomatic of a slowdown in global capital flows since CY2021, the brokerage said.

Increasing geopolitical tensions between a US-led ‘economic’ bloc and China, government-funded industrial policies for strategic sectors and tightening global central bank liquidity were the key contributors to the recent weakness in capital flows. Electricity, electronics and IT & communication continue to attract strong investment interest globally, although investments seem to be trailing announcements in recent years, it added.

India has taken significant positive steps in the past five years through various reforms and incentive measures but it is yet to see a meaningful increase in investments over this period. “Nonetheless, we remain hopeful that investments in certain sunrise sectors will accelerate in the coming years. In our view, it is important for India to focus on the domestic market while increasing its presence in higher value-added goods for exports,” the brokerage said. (IANS)

Also Read: India’s outward FDI declines to $1.89 billion in October

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