China toppled the US in 2014 as the world's largest recipient of FDI a position that the US had been holding almost consistently since the 1980's though with a modest increase of 3 per cent, the latest 'Global Investment Trade Monitor' report released by United Nations Conference on Trade and Development said.
The propping up of FDI in China is mainly due to an increase in FDI in the service sector, even as FDI in manufacturing sector particularly from Japan and in industries sensitive to rising labour costs fell.
The manufacturing sector in terms of net cross border mergers and acquisitions (M&A) sales recorded a decrease for India from USD 4,604 million to USD 4,172 million, the report said.
FDI flows to India increased by 26 percent in 2014 to an estimated 35 billion, with maximum growth in services sector especially in electricity, gas, water, waste management and information and communication, the report said.
This figure is one of the highest in recent years, though in 2008 FDI peaked in India with USD 47 billion investment followed by USD 35.6 billion in 2009.
James Zhan, Director of Investment and Enterprise, at UNCTAD said, "India is still a bright spot for FDI despite a global decline. It is at a significant historical high though not at the highest level of investment."
"If policy trends encourage liberalisation then we can expect more FDI in China despite a slowdown in economic growth," said Zhan referring to new draft for full foreign investment law that was proposed last week in Beijing.
The top five FDI hosts in 2014 were China (USD 128 billion), followed by Hong Kong (USD 111 billion), the US (USD 86 billion), Singapore (USD 81 billion) and Brazil (USD 62 billion).
"In 2014 global FDI inflows declined by 8 percent to an estimated USD 1.26 trillion due to fragility of the global economy, policy uncertainty and geo-political risks," the report said.
The drop in FDI in the US has been primarily due to a fall in cross-border M&A sales, particularly due to the Verizon-Vodafone deal and stood at USD 10 billion in 2014 from USD 60 billion in 2013. It had exceeded USD 222 billion in 2008, the report said.