UNCTAD’s latest World Investment Report pointed to the growing trend of companies diversifying their production bases, especially from China. For instance, Apple and Intel reduced their assets in China by 20% and more than 80%, respectively.
Countries such as India are scouting for such investment opportunities, with the Modi government getting Apple vendors to relocate some of their plants to the country. Through the PLI (production-linked incentive) scheme, the government is hoping to tap into this growing breed of companies.
The report also highlighted three instances of Chinese companies withdrawing investment proposals due to national security reasons. The list included Canada blocking Shandong Gold Mining’s plans and Germany prohibiting EMST, controlled by a Chinese company, buying a radar maker. China Mengniu Dairy also withdrew a proposed acquisition in Australia in 2020.
Security screening of investment proposals adopted by countries — ranging from Australia, Korea and Japan to the UK, the US and Canada — are also meant to target Chinese companies after coronavirus was first detected in Wuhan. The list includes India, which introduced a requirement for prior approval of all FDI proposals from China and other neighbouring countries that share a land border with it.
“The trend towards more investment regulations and restrictions related to national security intensified in 2020 and in the first quarter of 2021, including in reaction to the pandemic,” the UNCTAD report said. The 34 countries that have imposed the security screening account for 50% of the FDI flows and 69% of the stock.
The report further said that policy tightening by countries was undertaken due to national security concerns about foreign ownership of critical infrastructure, core technologies or other sensitive domestic assets.