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The coronavirus pandemic caused great losses for economies worldwide, however, in China, where the virus first emerged from, they have managed to bounce back firmly to become the only major economy that saw growth in 2020. On the other hand, the U.S. has struggled to deal with the pandemic, causing a halt in economic growth for the world’s current largest economy.
Increase in foreign direct investment in China booms…
China has now surpassed the U.S. as the top destination for Foreign Direct Investment (FDI), with a growth of 4 per cent in 2020 in China, and a sharp drop of 49 per cent in the United States. According to a new report released by the United Nations Conference on Trade and Development. U.S. FDI in 2019 was $251 billion, but then dropped significantly down to $134 billion in 2020. As the U.S. saw such a drastic drop in numbers, China’s growth of 4 per cent allowed them to comfortably taker over the no.1 spot.
Despite the China – U.S. trade war that has been unfolding over the past few years, several established companies from the U.S. have ramped up their involvement, and presence in China. JPMorgan, Goldman Sachs, and Tesla are only a few who took the opportunity to benefit from China’s economic stability in 2020 when the situation was crumbling in the United States. Two popular sectors for investment in China was the high-tech sector, which grew by 28.5 per cent in 2020, and the service sector, which grew by 13.9 per cent.
How did COVID-19 affect the situation…?
The pandemic meant economic crisis on a global scale last year, with other countries such as the UK seeing FDI drop to zero in 2020. According to a United Nations report, worldwide foreign investment dropped by 42 per cent to $860 billion, when it was previously well over $1 trillion. It is expected that this will be an ongoing trend, as the world strives to recover from the damage done by the pandemic. This is especially true for the U.S, as they still struggle to control the spread of the virus, already having 330,00+ deaths and 18.5+ million confirmed cases.
Despite COVID-19 first emerging in Wuhan, China, strict lockdowns, and restrictions meant that after a few months the economy in China was able to continue to grow. As China was the only major economy to grow, it became the best option for foreign investors as they turned their attention away from struggling economies. Due to the impact of the pandemic in the U.S., analysts are forecasting that their economic growth will continue to be weak over the coming decade.
The future of the world’s leading economy title…
Financial services company Nomura Holdings predicts that China will overtake the U.S and become the No.1 economy globally by 2028, or even as early as 2026. As the pandemic has slowed down economic growth in the U.S so drastically, this has given China an extra boost to claim that top spot sooner than previously predicted. Nomura Holdings predicts that one of the first things for China to overtake will be market exchange rates and that it will snowball from there.
UK based think tank, The Centre for Economics and Business Research (CEBR) released a report which forecasts an annual growth for China’s economy of 5.7 per cent 2021-25 and 4.4 per cent 2026-30. This is a stark contrast from their predictions for economic growth in the U.S, 1.9 per cent to 1.6 per cent. As the CEBR report states, “The COVID-19 pandemic and corresponding economic fallout have certainly tipped this rivalry in China’s favour.”
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