This comes as no surprise. In the rare moments when foreign investors do make major news, the headlines are invariably negative (and China-related, in recent years). For example, in 2020, US President Donald Trump forced TikTok’s Chinese owners to sell their US operations, while UK Prime Minister Boris Johnson banned Huawei from the the country’s 5G network.
The public’s perception of Chinese investment has not been helped by the popular Netflix documentary American Factory, which highlights the cultural tensions between an Ohio-based Chinese factory and its local employees. The anti-globalist rhetoric and policy of Trump (and other world leaders) over the past five years has only served to sully the reputation of foreign investment all the more.
It is fair to say that, for most people, foreign investment isn’t the sexiest topic of conversation, especially at the dinner table. In fact, for many, those two words probably draw a blank, a snooze, or at best, some vague notion of Chinese companies snapping up national treasures.
While it is true that Chinese investment into certain strategic parts of the economy, such as tech, does carry risks, the positives get much less attention. Take, for example, the fact that China was the UK’s third-largest export destination and source of imports in 2019, after the US and EU, and that up to 149,000 full-time jobs in the UK are currently upheld by Chinese trade, investment, tourism and students.
London simply would not be the global financial capital it is today were it not for foreign investors.
How foreign investors boost the UK
There seems to be a perception issue, or knowledge gap, when it comes to the understanding of foreign investment. What do those words even mean?
This article is focused on foreign direct investment (FDI), which is more development-friendly than its sibling, foreign portfolio investment (which takes in intangible assets such as stocks and currencies).
FDI is when a company acquires (or merges with) an already existing company abroad – such as when France Telecom bought UK-based Orange – or establishes brand new operations abroad, such as Japan’s Nissan building its Sunderland factory.
FDI (not just from China) is of huge value to the UK’s economy. For example, in the 2019–20 financial year it created a total of 56,117 new jobs, while 9,021 jobs were safeguarded, according to data from the Department of International Trade.
In the UK, businesses that received FDI were 74% more productive than those that did not between 2012 and 2015, according to data from the Office of National Statistics. In 2018, foreign-owned companies spent more on R&D (£13bn) in the UK than domestically owned businesses (£12bn). Meanwhile, venture capital from foreign corporates pumps billions of dollars into British start-ups. This is particularly valuable since the UK is in the midst of what some describe as a decade-long productivity crisis.
The UK receives larger gains from FDI than most other developed economies, which is why London is frequently lauded as the world’s leading city for FDI. In fact, London simply would not be the global financial capital it is today were it not for foreign investors.
How foreign investors boost the US
In his campaigning in 2016 and throughout the four years of his presidency, Trump frequently rallied against globalisation and the loss of US manufacturing jobs to China. This, however, was only half the picture.
Take, for example, the remarkable fact that foreign multinationals created 80% of all new manufacturing jobs in the US between 2013 and 2018, according to a recent study of Bureau of Economic Analysis (BEA) data by the Global Business Alliance (Gba), a trade association that represents the interests of foreign investors in the US.
Other figures amaze too, since jobs created by foreign companies have a disproportionately positive impact on the US economy. Although foreign multinationals employed 7.8 million US workers in 2018 – just 6% of all private sector jobs in the US – they account for a massive 22% of all manufacturing employment, 24% of exports, and 15% of all private sector R&D, according to the GBA.
Foreign companies pay Americans better too, with an average compensation of $82,600 per worker – 20% more than the average annual salary in the US private sector, according to BEA data.
Like the UK, the US cannot take FDI for granted, as it has in recent years. The Trump presidency was unsettling and disruptive for international investors (much like Brexit has been for investors in the UK). The two countries’ initial poor handling of the Covid-19 pandemic has dealt investors another blow, as reflected by the fact that 2020 saw China dislodge the US as the world’s leading spot for FDI (for the first time ever).
The bottom line? The UK and the US must stop resting on their laurels when it comes to foreign investment. ASAP.