US Investors Shift Focus
   Date :03-Jun-2021

US Investors Shift Focus_
 
 
By SUBRATA MAJUMDER :
 
In 2019, US investment in China was more than double of India – US$ 7.4 billion in China against US $ 3.6 billion in India. The sudden reversal of US investors in 2020, focusing on India as an important destination as against China, reflects a new perceived investment strategy of US investment in Asia.
 
AMERICAN investors splurge investment in India in 2020, despite COVID 19 battered the economy. India’s GDP recorded big decline in 2020 but US investment in India surged by over 297 per cent in 2020 (up from US $ 3.6 billion in 2019 to US $14.3 billion in 2020). In contrast, US investment in China plateaued, despite the positive growth in the Chinese economy. In 2020, GDP in China grew by 2.3 per cent. In 2019, US investment in China was more than double of India – US$ 7.4 billion in China against US $ 3.6 billion in India. The sudden reversal of US investors in 2020, focusing on India as an important destination as against China, reflects a new perceived investment strategy of US investment in Asia. The aim was to cope with COVID 19 affected China and trade tension. Recent surveys by USA suggest that firms may be increasingly circumspect about China’s short and long term perceptions on foreign investment in the wake of trade tensions, hike in wages in China and protectionism. The paradox of US investors between India and China lies with India’s new generation of economy vis-à-vis China losing significance as a major supply chain source.
 
US investors were allured by India’s jumpstart of digitisation and a market of 1 trillion US Dollar by 2025. India is the second largest internet connection nation in the world. With nearly half a billion internet connections and the second most smartphone users, India has emerged a global leader for digital economy. In contrast, China lost sheen for global supply chain, implicated by COVID 19. It forced US investors to rethink their overdependence on a single nation for supply chain. In 2020, USA was the second biggest foreign investor in India, after Singapore. More than one third of USA investment in India flowed in the digital economy. Google was the engine for trigger in USA investment in India. More than 90 per cent of investment in the digital economy was made by Google. Against these backdrops, China was losing the significance for US foreign investment.
 
According to a survey by Kearney, last year, some US companies were rethinking their supply chain operations after the tariff war and rising wages in China. They were trying to convince their Chinese partners to re- shoring the manufacturing in part to South East Asia or opt out of China. The survey unveiled three dimensional changes in US investment in China. First, four years ago, cost was the main criterion for US investment in China. Second, Trump led trade war shadowed US investors’ zeal to invest in China. Third dimensional change was downturn in supply chain behemoth due to COVID 19. As a result, manufacturing imports from China declined substantially. As substantial imports from China by USA were made from American invested companies in China. Imports fell from 24.3 per cent in 2018 to 20.8 per cent in 2020. In the wake of tariff war and losing sheen for low cost country (LCC), imports were replaced by other LCC. Eventually, share of other LCC in US imports increased from 12.8 per cent in 2018 to 14.0 per cent in 2020, according to the survey. LCC were mainly led by Vietnam, Thailand and Taiwan. Given these, many US companies are considering “China plus” strategy – that is, continue to rely on China for bulk supply and also generate additional partners that can mitigate the risk of overdependence on China.
 
Notwithstanding, euphoria over China’s global FDI attraction hyped in media, despite the outbreak of corona virus. In 2020, China made a sharp growth in foreign investment, toppling USA – the biggest receiver of foreign investment. China received FDI worth US$ 163 billion in 2020 as compared to US $ 134 billion received by USA. In 2019, it was FDI worth US$ 140 billion poured in China, against US $ 251 billion in USA. Several reasons were cited for the revival in China’s FDI potential, such as successful containment of corona virus, re-opening of factories and uptrend in GDP growth. The factor behind this growth in FDI in China was boom in ASEAN FDI. ASEAN was never a major source of FDI in China. In 2020, FDI from ASEAN increased by 65.2 per cent. The meteoric rise in ASEAN FDI in China owes to the launch of RCEP (Regional Comprehensive Economic Partnership). China has a big stake in RCEP. It provides biggest market in the trade block. In 2019, it accounted for 38 per cent of RCEP import market. Incidentally, India’s standpoint on South East Asia and East Asia witnessed a volta- face with the withdrawal from RCEP in November 2019. This raised eyebrows of the analysts and futurists over the economic partnership under Act East policy. Former Foreign Secretary Shyam Saran was flummoxed and quipped “is India retreating from Act East policy?” Correspondingly, surge in US investment in India opened a new look to its FDI potential. FDI is an integral part of Indian economy.
 
The COVID 19 induced pandemic and widespread lockdown leveraged digital transformation in India – a new look to its economy and FDI attraction. It ensured business continuity in India. Time has ripened for Look West. FTA with USA could be an important challenge to pave the way. USA is the largest trading partner of India. It toppled China, which seized trade power for over five years. Trade buoyancy with USA was generated by India’s more export to USA than imports, just opposite to China where trade swelled by India importing more and exporting less. It resulted a mounting adverse trade balance, causing pressure on BOP. For years, India shot down the FTA with USA. USA was eager and India was cool. Former US Ambassador to India Kennth Juster mulled an FTA with India but that was not followed up. Perhaps. The time is now. (IPA)