Foreign Direct Investment (FDI) involves capital flows across boundaries. Unlike movement of humans, capital movement is unrestricted between countries. FDI flows are different foreign portfolio investments which are simply investing capital in equity and other markets. FDI capital flows usually relates to investments such as building a factory to make autos for example. Unlike FDI capital, portfolio investments are extremely risky for the receiving country as they can be pulled out overnight by investors.
Foreign investors usually prefer some countries over others at a given time. China has been a favored destination for FDI for many years now due to the abundance of cheap labor readily available for exploitation by multi-national corporations.
The Top 20 countries of FDI Inflows in 2013 and 2014 are shown below:
China was the top recipient of foreign capital in 2014. The US ranked the third in hosting FDI. This may come as surprise to some investors since usually people think of capital leaving the US for investment in other countries. But in reality the US is also a major destination for FDI as other countries try to invest and grow their businesses in the US market. In addition, compared to other countries returns can be much higher in the US due to relatively loose regulations, excellent and cheap labor pool, favorable tax system, infrastructure, etc. Only five of the top 10 FDI host countries were emerging countries.
The Top 20 countries of FDI Outflows in 2013 and 2014 are shown below:
The US was the top country in FDI outflows. China was the second top country for FDI outflows. This shows that China is not only the top host country for FDI inflows but also is also a big investor in other countries. China has huge investments in Latin American and Africa and continues to expand trader partnership with resource-rich countries.
Source: World Investment Report 2015, UNCTAD
Chinese FDI in the United States: 1H 2015 Update (Rhodium group)