Billions of Japanese yen once destined for the UK will now go to China in the coming years, according to a United Nations report on overseas investment.
Foreign spending in the UK fell by a half in 2001, while China increasingly found favour as a location for manufacturing operations, said the UN Conference on Trade and Development.
Inward investment to the UK fell from £84bn to £38bn last year, signalling an end to the era of the Japanese electronics or car plant on greenfield sites which the UK attracted in the 1980s and 1990s.
UNCTAD said that world foreign investment flows into developed countries fell by 40 per cent compared with 2000, from £909bn to £531bn, because of a slowdown in economic growth and a drop in cross-border mergers and acquisitions. There is little prospect of the decline being recouped in 2002, the report said.
While Japan spent more abroad, it cut the amount going to the UK and Europe and increased investment in Asia.
China regained its place as the largest recipient of investment in the developing world, with inflows last year of £33bn.
UNCTAD said this trend is expected to continue, especially after China joins the World Trade Organisation.
A quarter of Japanese multinationals are increasing or expect to increase investment in China. A fifth plan to relocate production to China.
A spokesman for the government agency Invest UK said that although assembly operations were being relocated to lower-cost areas, a trend to locate more high-value added operations could be seen.
‘The face and type of inward investment are changing. Panasonic may have stopped assembling telephone handsets here, but it has created more jobs at its Thatcham R&D plant than were cut. Fujitsu is setting up a nanotechnology R&D centre here. Big greenfield manufacturing opportunities are being superseded by higher-value, higher-technology manufacturing and R&D.’
Nick Matthews, principal fellow at Warwick Manufacturing Group, said: ‘Assembly operations where all the technology and know-how is imported will migrate over time to lower-cost environments. The fact that the UK is outside the euro and the strength of sterling has affected investment decisions such as Ford at Dagenham and Vauxhall at Luton. There is a countervailing effect – in Ford’s global job cuts the higher-value production at Jaguar and Land Rover escaped unscathed. The challenge is providing the skilled people and technology to sustain these higher-quality developments.’
EEF chief economist Stephen Radley said: ‘Our long-term worry is that the number of manufacturing projects coming to the UK are declining because of the sterling/euro exchange rate and increased regulation.’
He added: ‘If a company sites R&D here that’s very positive. There have been a lot of closures in the electronics industry because they were assembly operations, with the R&D remaining in the host country. But we’re particularly vulnerable in the UK – as so much manufacturing is foreign owned it’s important to get the R&D climate right.’