Foreign direct investment (FDI) inflows reached new records in the subregions of East Asia and South-East Asia in 2011, UNCTAD’s World Investment Report 20121 reveals. FDI records were also set for the year in major host economies such as China, Hong Kong (China), Singapore, and Indonesia (see figure 1).
The World Investment Report 2012 , subtitled “Towards a New Generation of Investment Policies," was released today.
Total inflows to the region rose 14 per cent to $336 billion, accounting for 22 per cent of the global total, compared with the level of about 12 per cent before the 2008 global financial crisis. Within the region, South-East Asia is catching up: with inflows of $117 billion, up 26 per cent, it continues to experience faster FDI growth than East Asia, which is still dominant at $219 billion, up 9 per cent.
Among the Association of Southeast Asian Nations (ASEAN) economies, four – Brunei Darussalam, Indonesia, Malaysia and Singapore -- saw considerable rises in FDI inflows in 2011. The relatively low-income ASEAN countries, namely Cambodia, the Lao People’s Democratic Republic and Myanmar, also performed well in terms of attracting investment. Overall, as East Asian countries, particularly China, continue to experience rising wages and production costs, the relative competitiveness of ASEAN in manufacturing has been enhanced. According to an annual survey undertaken by UNCTAD in 2012, the rankings of Indonesia and Thailand among the top priority host economies chosen by transnational corporations (TNCs) have risen significantly, and prospects are promising for further increases in FDI inflows to the two countries.
In East Asia, FDI flows to China reached a historic high of $124 billion in 2011. The second largest recipient in the subregion, Hong Kong (China), saw its inflows increase to $83 billion, also a record. In China, FDI flows to services surpassed those to manufacturing for the first time as the result of a rise in flows to non-financial services and a slowdown in flows to manufacturing. FDI in finance is also expected to grow as the country continues to open its financial markets and as foreign banks expand their presence through mergers and acquisitions (M&As) and through organic growth.
Partly as a result of the significant appreciation of the Japanese yen in 2011, TNCs from Japan have increased their investments abroad, particularly in low-cost production locations in South-East Asia. TNCs from Europe, meanwhile, have slowed their pace of expansion in East and South-East Asia. The investment activities of TNCs based in the United States have varied. Some TNCs, in industries such as home appliances, have been relocating production facilities back to the United States of America, while others, in industries such as automotive manufacturing, continue to expand in Asia.
FDI outflows, after a significant increase in 2010, dropped 9 per cent from East Asia but recorded a 36 per cent rise from South-East Asia, the report says. FDI from Hong Kong (China), the region’s financial centre and largest source of FDI, declined in 2011 by 14 per cent to $82 billion (see figure). Outgoing FDI from China declined by 5 per cent to $65 billion. In contrast, outflows from Singapore grew substantially, while those from Indonesia and Thailand surged.
The overall stagnation of FDI outflows from the region was mainly the result of a 12 per cent decline in the value of overseas greenfield projects – that is, ground-up investments by firms based in the region in new ventures abroad. This decline was offset only partly by cross-border M&As. M&A purchases worldwide amounted to $68 billion in 2011, slightly higher than the previous record set in 2010. The region’s cross-border M&A activities demonstrated diverging trends – total purchases in developed countries increased by 31 per cent to $46 billion, while those channelled to developing countries declined by 33 per cent to $22 billion. The rise in M&As from the region in developed countries as a whole was driven mainly by surges in Australia, Canada and the United States, while the value of total purchases in Europe decreased slightly.
Figure 1 - Top five recipients and sources of FDI flows in East and South-East Asia, 2010 and 2011
(Billions of dollars)
Source: UNCTAD, World Investment Report 2012.
Note: Countries ranked on the basis of the magnitude of 2011 FDI flows.