Global investment is becoming less reliant on China, Citi says

The global investment cycle is set to become less dependent on China and more broadly supported as countries around the world ramp up spending to offset coronavirus damages, Citigroup said.

China alone contributed to 47% of global investment growth on average in the years from 2010 through 2019, and 33% of global GDP, Citigroup economists led by David Lubin wrote in a report. But that era of China-dependence will come to an end, they say, given the strong fiscal and monetary policy stimulus elsewhere. The contribution of advanced economies to global GDP will surpass that of emerging markets in 2021 for the first time since 2006, Citi estimates.

One important factor driving the new pattern of investment spending is the growth in economic nationalism, reflecting a desire for governments to reduce vulnerabilities in their supply chains, the economists said. This change means the link between investment and global trade will be weaker, they said.

“Considering this in the context of the sharp rise in protectionism globally, the spillovers to trade from rising global investment spending are likely to be weaker than in the past,” the economists wrote. “The flipside of a global investment cycle less dependent on China will be one less friendly to global trade.”

China is focused on its ‘dual-circulation’ strategy to boost its domestic market in the face of rising hostility from the West, while governments elsewhere are trying to localise supply chains or make them more resilient.