GENEVA — Buoyed by the improved climate in the world economy, in particular for the Asia-Pacific region and major industrialized countries, global foreign direct investment is forecast to rebound in 2004 to around $600 billion, the U.N. Conference on Trade and Development said last week.

The projected increase would follow three years of successive declines. In 2003, FDI inflows to host countries declined by 18 percent to $560 billion, according to UNCTAD. This followed contractions by 17 percent in 2002 and 41 percent in 2001.

FDI is a critical component of economic development, for although poor nations often have ready sources of willing labor, they lack the capital needed to start businesses.

Last year, the report said, China was effectively the world’s largest recipient of FDI, with $53.5 billion. Technically, that lagged the $87.5 billion invested in Luxembourg, but the report noted that most of that money was promptly reinvested in other countries, whereas the investment into China went into new businesses in that nation.

Flows to the U.S., traditionally the top-ranked destination, plunged last year to only $29 billion, compared with $63 billion the year before.

Karl Sauvant, chief of UNCTAD’s investment division, said, “World FDI flows have seen a dramatic shift towards the services sector. That’s where the action is.”

Overall, UNCTAD estimates that services account for about 60 percent of FDI stock, up from about 50 percent a decade ago.

China’s FDI patterns do not correspond with the trend for the rest of the world, noted the 191-member-country agency’s “World Investment Report 2004.”

About 70 percent of China’s total FDI is still concentrated in manufacturing activities, said James X. Zhan, chief of UNCTAD’s international arrangements section. He said he expects the amount of FDI earmarked for manufacturing to remain between 60 and 65 percent for the next few years.

Sauvant said FDI flows in the Asia-Pacific region are set to rise, and he noted that “FDI in manufacturing should increase with improved world demand and growth of industrial activities.”

This story first appeared in the September 28, 2004 issue of WWD. Subscribe Today.