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China top FDI destination; India slips to 15th spot

China, with its robust economy, has overtaken the United States for the first time in becoming the hottest destination for foreign direct investment, a FDI Confidence Index released showed.

Meanwhile, India fell eight spots to the 15th position, with a 20 per cent decline in the likelihood of receiving FDI.

According to the results published by A T Kearney, one of the world's biggest business strategy consultants, China scored 1.99 in a scale from zero to three, while the US ranked second with 1.89, and India scored 1.05.

The A T Kearney report says: "Estimates suggest that India will maintain a 5 per cent economic growth rate this year, and that it will open more sectors to foreign investors."

"However the shimmering conflict with Pakistan over Kashmir undoubtedly deters potential investment. Meanwhile, budget deficits and poor infrastructure have further constrained its attractiveness."

"Although India's ranking drops among most major investor countries, its position among US and Japanese investors - the second and the third most important investors in the Indian market - is holding steady."

The FDI Confidence Index is based on surveys of executives at the world's 1,000 biggest companies, which contributes about 70 per cent of FDI flows and generates $18 trillion in annual sales.

"However, India's attractiveness improved significantly in non-financial services, whose investment likelihood increased 28 per cent over 2001. After September 11, India's high-quality and low-cost IT talents have attracted more IT-related outsourcing services such as medical transcription and back-office operations for financial services and airline companies," the index says.

"Telecom and utilities investors consider India as their 25th most attractive investment destination. This is probably stimulated by new policies and regulations, including allowing telecom service providers to carry forward losses and unabsorbed depreciation, measures that facilitated the merger of Birla Tata AT&T and BPL Communications in June 2002."

"India's ranking also improved among wholesale and retail executives and easing of restrictions on foreign retailers," the index says.

The results indicates that while most nations' power to attract investment is in decline, China's continues to grow. Increasing numbers of investors are expressing interest and confidence in the Chinese market.

Several factors contributed to China's number one position, including its populous market, continued economic growth, stable political situation, sound investment environment, World Trade Organisation membership and successful bid for the Olympics, said managing director of global business policy council of A T Kearney Paula Laudicina.

The study, dated this month, said nearly one in three corporate executives cited China as their preferred first-time destination for investment, more often than any other market.

"Investors in all regions and sectors ranked the state of the US economy as their primary source of unease and biggest likely driver of future investment decisions," Kearney said.

China attracted $29.54 billion in foreign direct investment during the first seven months of 2002, jumping 22 percent year on year, according to official data.

Apart from India, other emerging markets such as Mexico and Poland too dipped in terms of their attractiveness when compared with the last survey, conducted in February 2001.

The United States, Britain, Germany and France rounded out the top five, with Brazil falling to 13th place this year from third last year.

Kearney polls executives from the world's 1,000 top revenue-generating companies annually.

Additional inputs: PTI, Reuters

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