Brexit uncertainty causes the nation to tumble down China Going Global Index

The United Kingdom is likely to lose its appeal to Chinese investors due to a grim economic growth forecast brought on by Brexit, according to new research.

The China Going Global Investment Index 2017, a listing released every two years by London-based research company Economist Intelligence Unit, ranks 59 major economies in terms of their attractiveness to Chinese businesses.

The UK recorded the steepest fall of any country in this year's index, plummeting down the rankings from 12th position in 2015, to 40th this year.

Fung Siu, regional manager for Asia at the Economist Intelligence Unit, said pessimistic expectations for the UK's economic growth brought on by the country's decision to leave the European Union has made the country less attractive to Chinese investors.

"The forecast for the UK economy over the next five years is not rosy, it's very weak because of Brexit," Siu said. "And there is a downside risk that financial services won't be as strong as they were pre-Brexit."

The Economist Intelligence Unit expects the UK's real GDP to slow to 1.5 percent in 2018, compared with an anticipated 1.6 percent in 2017. Real GDP will slow further, to 1.4 percent in 2019.

Several other developed economies have also fallen down the index, as Chinese investors have responded to incentives to invest in economies that are part of the Belt and Road Initiative, China's signature international infrastructure and development program.

Singapore rose to the top spot, ahead of the United States. And Malaysia climbed to fourth from 20th position in 2015. The report says Malaysia has emerged as a "key node" in the Belt and Road region.

"This year's index includes a new indicator, which assesses if a country is part of the Belt and Road Initiative," Siu said. "Everything moves relatively – those countries that are part of the initiative get a more positive assessment, so that's another reason the UK has fallen."

Non-financial direct investment from China into the UK reached 18 billion pounds ($24 billion) in 2016, according to the Chinese embassy. Last year, the UK attracted more foreign direct investment projects than any other European nation, according to professional services firm EY.

However, the rate of increase in the number of projects coming into the UK was slower than the rate in the rest of Europe. The number of projects that came into the UK in 2016 increased by 7 percent year-on-year, compared to 15 percent for Europe.

The UK Department for International Trade found that, in 2016, the number of Chinese investment projects in the UK was 13 percent lower than the year before.

The authors of the EY report concluded that: "Brexit may be starting to color investors' views of the UK."

But Britain is maintaining its strength in financial services, according to the Economist Intelligence Unit index, which placed it ninth in an individual industry ranking. And Chinese banks have continued to expand their presence in London.

In terms of total outward investment from China, flows surged by a record 44.1 percent in 2016, to $170 billion, and then slumped by 40.9 percent in the first 10 months of 2017, according to the Chinese commerce ministry.

The Chinese government rolled out policies designed to curb "irrational" overseas investment starting in late 2016, as part of a broader bid to contain destabilizing capital outflows.

Going forward, the authors of the report expect China's overseas direct investment flows to return to growth in 2018, as drivers of investment from China – including a desire to gain global market share and acquire technology, brands, and resources – remain in place.

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