The US-China face off and the Ukraine war added a new layer of FDI culture in the world. Economic factors, like, low cost production and global network of supply chain, are outweighed by political conflict and a currency war. De-dollarization is emerging as an additional shine for the FDI boost in the world. China poured substantial investment in Russia in Chinese yuan and India opened the gate for local currency investment by UAE, the third largest trade partner of India.
A new dynamism in currency predominance is taking shape in the global market. The US dollar is eroding pre-eminence and the Chinese yuan or local currencies are gaining steam. According to an IMF survey, the dollar share in central bank foreign exchange reserves declined from 71 percent in 1999 to 59 percent in 2021. The US dollar has been alleged as a political weapon than trading purposes. Eventually, de-dollarization become an additional factor for FDI diversification.
Given this, de-coupling and de-risking are gaining prominence in making a new trend in FDI, leaving behind economic factors. Till now, China was one of the main destination for USA, Japan, and EU investment. Chinese hegemony is in retreat and outplaced by India in East and South East Asia with the advent of de-coupling and de-risking. FDI growth in China nosedived to 4.5 percent in 2022, after a spurring growth by 21.2 percent in 2021
De-coupling and de-risking do not have any academic or institutional definition by UNTACD, WTO, the World Bank or IMF. In colloquial term, “de-coupling” means exiting investment from China and “de-risking” refers to China+1 investment strategy.
Morgan Stanley – the global leader for financial services and investment banking – portrayed India as the most attractive destination for foreign investment in Asian emerging markets. It upgraded India from the 6th position to top in the region. The factors attributed to the increase in the ranking were macroeconomic stability, which was supportive of better earnings. The analysts were upbeat about India emerging as the next global destination for FDI, in contrast to China witnessing an eroding in attraction.