China likely to overtake US
China is expected to overtake the US as the world’s leading recipient of corporate investment in the next five years, and should become the most influential country in IT and telecoms, industrial products and mining, a new study of future global capital flows has found. However, the European economies are expected to keep their attraction for investors, with the UK maintaining a very strong position, especially in financial services.

China should receive significant investments from 24 percent of corporates surveyed in 2013/14, up from 17 percent this year. Russia can expect investments from 19 percent in five years, up from 12 percent this year, and Brazil can expect investments from 14 percent, up from 10 percent during the same period.

By contrast, the US share of investments is expected to fall by 4 percent to 23 percent, still a very high proportion of global investment, but placing it marginally behind China. The US is also expected to give up its dominance of the mining, industrial products and IT/telecoms sectors, with China taking first place in each case.

Speaking at KPMG’s 2008 EMEA (Europe, Middle East and Africa) Tax Summit in Barcelona, where the survey was launched, Sue Bonney, Head of Tax for KPMG’s EMA region  and a partner in the UK firm said: “The majority of the people surveyed saw the next five years as a return to more normal patterns of investment, after a period when the US has had a disproportionately high share of global investment funds.”

“But a return to the market conditions of say, 2003 does not explain the shift in influence that these strategists expect towards the BRIC economies. This does look like the beginning of a fundamental change in the balance of economic power.”

Although the major European economies can expect to be overtaken by the BRIC economies in their share of investment, this is only because the BRICs are doing particularly well. The UK, Spain, and Italy can all expect an increase in foreign investment, and Germany can expect to maintain its current share.

The UK should remain the most popular developed economy outside the US, increasing its share of investment by 3 percent to 17 percent. In financial services, a traditionally strong sector for the UK, the country is expected move from second place to equal first with the U.S. in terms of global investment.

“Our survey shows that corporate investors are already planning their responses to a shift in global economic power that has been happening for some time” said Sue Bonney.

“They help confirm the rise of the BRIC economies as viable alternative places to invest, taking away funds primarily from the U.S. economy. The continued strength of the European economies may come as a surprise to some, but the fact that they hold up so well suggests that we may be developing a roughly equal balance of economic power between the Americas, Europe and Asia Pacific. That would indeed herald the start of an entirely new global economic regime.”