The Centennial Resilience Index: Expanding Its Coverage and ...

Figure6Average inward FDI flows by geographical regions (US$ million), 2005–10Source: UNCTAD, UNCTADstat database.China, India, South Africa and Malaysia) has provento be a major equilibrating factor as they picked upthe slack created by advanced countries’ deleveraging.China, in particular, has become a major playeras regards FDI, as Chinese FDI to all emerging anddeveloping countries increased more than 10-foldbetween 2005 and 2010, increasing the impact of apotential Chinese slowdown.Such a slowdown is also likely to impact EMCs intwo other ways: first, by reducing Chinese demandfor commodities as the scale of its investment-ledstimulus of 2009 may be difficult to be repeated; andsecond, through lower Chinese growth induced by aslowdown of exports, particularly to Europe.In parallel, reduced outward European FDI mayimpact emerging and developing countries, as Europeaninvestors account for the largest share of FDI tothese countries, at 20-30% of the total, according toUNCTAD. While a decline in FDI could be problematicfor the EMCs, the major source of potential inflowvolatility due to the European crisis is linked to crossborderand local-market banking activity.Cross-border and local-market banking activityEuropean banking activity in EMCs grew steadilyuntil 2008, before experiencing a sharp contractionupon the onset of the crisis (Figure 6).European bank lending to developing countriespicked up fairly rapidly after the initial credit squeezein 2008 and early 2009 (Figure 7). 12 However, sincethe worsening of the Euro-zone crisis (second half of2011), borrowers in EMCs have felt a deteriorationof funding conditions explicitly linked to the Europeansituation, as indicated in global lending surveysby the Institute of International Finance (IIF). This12 Quoted in: The euro zone crisis and developing countries;Isabella Massa, Jodie Keane and Jane Kennan