Globalization backwards? Global capital flows have shrunk by 2/3
Aug 22, 2017

Globalization backwards? Global capital flows have shrunk by 2/3

A recent McKinsey study noted that global cross-border capital flows have shrunk by 65% since the global financial crisis in 2007.

In a "go global" era, such data should not be surprising: the old capitalist countries no longer ran all over the world have made generous investment, and "XX first" slogan. Domestic workers and jobs are more important than overseas investment.

Foreign investment in developed countries has stalled, while China is still taking their place. In recent years, the scale of foreign investment in developed countries has dropped from US $1 trillion and 800 billion to nearly US $1 trillion, while the scale of China's foreign direct investment has been increasing day by day. However, China's export of foreign capital seems to have encountered resistance to domestic regulation recently. China's overseas acquisitions shrank by nearly half compared with the same period last year.

The world's cross-border capital flows are changing dramatically. 10 years ago, China was the world's largest trading surplus, and its current-account surplus and capital account surplus made other countries envious. Now, in Europe's repeated anti-dumping charges against China, the United States claimed to launch a trade war against China, Germany replaced China as the largest surplus country of current account.

Going global: cross border capital flows are healthier?

This trend towards globalization is not necessarily a bad thing. Susan Lund, a partner at McKinsey and a co-author of the report, said in the report that cross-border capital flows had shrunk significantly, largely because of the disappearance of cross-border lending. While cross-border lending has always been one of the causes of the financial crisis intensified in a country -- a country in crisis, the first cross-border capital of fashion, to withdraw from the country, so that the crisis intensified. In this sense, today's cross-border capital flows are much healthier than they were 10 years ago.

Although cross-border lending has shrunk, the share of FDI (direct foreign investment) in cross-border capital has been expanding. Some economists argue that FDI growth is too violent and not a healthy one. Multinationals have been greedy for lower tax rates, and governments have had to bow to them, which has led to an arms race for tax cuts, the biggest beneficiary of which is capital.

At the same time, FDI does not necessarily mean transnational capital to invest and build factories in other countries. Much of the money may have gone into other countries for tax avoidance purposes only, and is reflected in the FDI project.

IMF warns that investors' pursuit of high returns has reduced financing costs for developing country issuers, which has led to higher debt ratios in developing countries. Investors should be aware of the risks involved.

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