Asian developing economies have recently emerged as dynamic international investors. While North America remains the main destination of Asian FDI outside the region, Europe increasingly appeals to Asian firms as evidenced by research in an forthcoming UNCTAD publication. The European Union represents a mere 5 percent in FDI outflows from Asia, but this share on the upsurge. It could be further stimulated through a more comprehensive European Union-wide treatment of FDI, that would be comprehensive, increase transparency and reduce transaction costs.
A detailed analysis by the UNCTAD secretariat of Asian direct investment in the European Union is expected to be released in January 1997. This publication, undertaken at the request of the Government of Thailand, will complement a study published jointly by the UNCTAD secretariat and the European Commission in March on direct investment of the European Union in Asia (see TAD/INF/2643). Both reports are undertaken within the framework of a recently established working group of the ASEM (Asia-Europe Meeting) which brings together governments and the private sector on investment issues. They met in Bangkok on 7-9 July and in Paris on 14 October.
Asian interest in Europe forms part of the investment dynamism of the new industrializing Asian economies, which have increased their share from 2 per cent of worldwide investment outflows during the first half of the 1980s to more than 10 per cent during the first half of the 1990s. At least three of them - Hong Kong, the Republic of Korea and Taiwan Province of China - are now net outward investors.
About a quarter of Asian developing-economy investments in Europe is held by Hong Kong. Hong Kong was in 1995 the fourth largest international investor in the world, after the United States, the United Kingdom and Germany. Most of Hong Kong FDI in the European Union is in wholesale and retail trade. The Republic of Korea ranks as the second largest investor from developing Asia in the European Union, and firms from that country are expanding their investments in many parts of Europe, as well as in Central and Eastern Europe. About one tenth of Korean FDI is now located in Europe. Korean firms have also started a few very big projects in Central and Eastern Europe recently, most of which are not yet reflected in flow and stock data. The overwhelming bulk of Korean outward FDI is undertaken by large Korean firms, chaebols. The primary motive of chaebols in investing beyond Asia has been to gain market shares in host countries or gaining access to new technologies and skills. The United Kingdom is the most favoured investment destination of Korean companies in the European Union.
Sectorally, the data suggest that manufacturing and services are of similar importance in the outward investment of Asian newly industrializing economies. For other Asian developing economies, the largest share of FDI in Europe is in services, much of it of a trade-supporting nature. Investment in the manufacturing sector is heavily biased towards the electronics industry, accounting for three quarters of all manufacturing investments of the four newly industrializing economies in the European Union. Trade-related investments figure prominently, but FDI in financial services industries is equally important.
According to the UNCTAD secretariat, pull factors of FDI investment in Europe include the need for a direct presence in a large and rich market, and access to advanced technology and skills.