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FDI INFLOWS TO SOUTH, EAST, AND SOUTH-EAST ASIA ACHIEVE NEW HIGH

UNCTAD/PRESS/PR/2006/031
15 October 2006


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Foreign direct investment (FDI) inflows to South, East, and South-East Asia, including Oceania, reached a new high of US$165 billion in 2005, a 19% increase over 2004, according to UNCTAD´s World Investment Report 2006, FDI from Developing and Transition Economies: Implications for Development (1) . With continued high economic growth, the region has become more attractive to market-seeking FDI. Furthermore, it has become a hot spot for transnational corporation (TNC) investments in financial services and high technology industries.

China was again the largest recipient of FDI in the region (figures 1 and 2a) as well as among all developing countries worldwide. Its inflows increased to US$72 billion. Non-financial FDI alone was US$60 billion, registering a slight decline, while flows into financial services rose to US$12 billion, driven by large investments in Chinese banks. Hong Kong (China) and Singapore retained their positions as the second- and third-largest recipients in the region, attracting FDI of US$36 billion and US$20 billion, respectively. A number of Association of South East Asian Nations (ASEAN) member states also experienced their highest growth in FDI inflows. For example, inflows to Indonesia surged by 177% to US$5.3 billion. Large, cross-border mergers and acquisitions (M&As), such as the acquisition of Sampoerna by Philip Morris, accounted for the jump.

The region is increasingly attracting "high-quality" FDI aimed at high value-added and knowledge-intensive activities. Intel is expanding its assembly and testing facilities in China and Malaysia and plans to invest US$300 million in Viet Nam to build the country´s first semiconductor factory. In China, FDI in the manufacturing sector has been shifting towards more advanced technologies. Airbus plans to build an A320 assembly line in China.

Following a surge in 2004, FDI outflows from the region declined by 11% in 2005. However, they still remained relatively high (US$68 billion). According to World Investment Report 2006, which pays particular attention to the emergence of developing countries and transition economies as significant sources of FDI (UNCTAD/PRESS/PR/2006/027), the recent rise of TNCs from developing countries and transition economies has been driven mainly by firms based in developing Asia. East and South-East Asia are home to almost four-fifths of the top 100 TNCs from developing countries (see table 1 for the top 10 Asian TNCs).

Asia´s newly industrializing economies, namely Hong Kong (China), the Republic of Korea, Singapore, and Taiwan Province of China, remained the main sources of FDI from developing countries, despite a significant decline in their total outflows in 2005 (figure 2b). Meanwhile, the rise in China´s foreign currency reserves stimulated a rapid growth in outward FDI from the country, helping to reshape the pattern of flows from Asia.

Outward FDI from South, East, and South-East Asia still focuses on services, but a growing share of capital outflows from the region has been targeting manufacturing and natural resources. In terms of cross-border M&As, the combined share of the manufacturing and primary sectors rose significantly, from 29% in 2004 to 54% in 2005. Asian energy companies, in particular those from China and India, have intensified their efforts to acquire oil assets. China National Petroleum Corp. (CNPC) acquired PetroKazakhstan for US$4.2 billion in August 2005 -- by far the largest deal in the oil and gas industry by companies from developing countries and transition economies.

Rapid economic growth in South, East, and South-East Asia shows few signs of slowing, and a further expansion of FDI into and from the region is expected. FDI inflows to India have been gaining momentum in recent years, and the country´s prospects for attracting FDI are promising. FDI is also likely to continue its upward trend in South-East Asia, especially in relatively low-cost countries. Outflows from Singapore are likely to rebound. With a strengthening of Government support and some large M&A deals expected, the surge in outward FDI from China is likely to continue.

The World Investment Report and its database are available online at http://www.unctad.org/wir and http://www.unctad.org/fdistatistics

ANNEX

Tables and figures

Figure 1. South, East and South-East Asia and Oceania: FDI inflows and their share in gross fixed capital formation, 1995-2005

Figure 1. South, East and South-East Asia and Oceania: FDI inflows and their share in gross fixed capital formation, 1995-2005
Source: UNCTAD, World Investment Report 2006

Figure 2. South, East and South-East Asia: FDI flows, top 10 economies,a 2004-2005 (Billions of dollars)

Figure 2. South, East and South-East Asia: FDI flows, top 10 economies,a 2004-2005 (Billions of dollars)
Source: UNCTAD, World Investment Report 2006

Note: a Ranked on the basis of the magnitude of the 2005 FDI flows.

Table 1. The 10 largest non-financial TNCs from developing Asia, ranked by foreign assets, 2004 (Millions of dollars)

Table 1. The 10 largest non-financial TNCs from developing Asia, ranked by foreign assets, 2004 (Millions of dollars)
Source: UNCTAD, World Investment Report 2006




Endnotes

1. The World Investment Report 2006, FDI from Developing and Transition Economies: Implications for Development (WIR06) (Sales No. E.06.II.D.11, ISBN 92-1-112703-4) may be obtained from the United Nations sales offices at the addresses below, or from the United Nations sales agents in many countries. Price: US$80.00; for residents of developing countries: US$40.00. These prices include both the book and the CD-ROM. Customers who wish to buy the book or the CD-ROM separately or to obtain quotations for large quantities should contact the sales offices. Please send orders or enquiries for Europe, Africa and West Asia to United Nations Publication/Sales Section, Palais des Nations, CH-1211 Geneva 10, Switzerland, fax: +41 22 917 0027, e-mail: unpubli@un.org; and for the Americas and East Asia, to United Nations Publications, Two UN Plaza, DC2-853, New York, NY 10017, USA, tel: +1 212 963 8302 or +1 800 253 9646, fax: +1 212 963 3489, e-mail: publications@un.org . Internet: http://www.un.org/publications .





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