While global foreign direct investment (FDI) dipped in 2018 for a third consecutive year, Asia bucked the global trend with rises nearly across the board, including record inflows to Southeast Asia’s booming economies.
New United Nations Conference on Trade and Development (UNCTAD) data released today (June 12) shows total worldwide FDI fell 13% to US$1.3 trillion in 2018, as global economic uncertainties grew over the US and China’s increasingly antagonistic trade and investment policies, particularly in strategic sectors such as digital and mobile technology.
But “developing Asia”, a region encompassing most of the continent aside from wealthy countries such as Japan, saw a 4% rise in foreign direct investment to $512 billion, representing 39% of the global total, according to UNCTAD’s 2018 World Investment Report.
Southeast Asia in particular saw a new FDI record in 2018, with $149 billion flowing into the ten members of the Association of Southeast Asian Nations, $10 billion more than went to China minus Hong Kong, the data shows.
Around half of the Southeast Asian total went to the tiny city-state of Singapore, long a magnet for banking and finance giants seeking an affluent hub in a region made up of bigger, often resource-rich but mostly poor to middle-income economies.
Singapore’s influx was substantially greater than the FDI attracted by all of Africa combined and far exceeded giant neighbors such as India ($42 billion) or Indonesia ($22billion).
But Indonesia, along with Thailand and Vietnam, saw significant increases in FDI last year, the latter possibly benefiting from production shifts caused by the China-US trade war and the former two bouncing back after recent years of declines.
Some of the region’s so-called digital or tech “start-ups” were the focus of big investments, with Western and Asian venture capitalists lining up to pump billions of dollars into the likes of Indonesian ride-hailing app Go-Jek and online marketplace Tokopedia.
Some of those same businesses are contributing to growing intra-regional investment, with Go-Jek facing off against Singaporean rival Grab, as well as some smaller local variants, in around half a dozen countries in Southeast Asia.
While Asia’s poorest nations received fractions of the investment of their bigger counterparts, set against the inflows into the world’s poorest they fared relatively well.
Only 1.8% of total world FDI went to the world’s 47 least developed countries, and of that $24 billion total nearly half went to Bangladesh, Cambodia and Myanmar combined — three low-wage Asian economies with large apparel and footwear manufacturing sectors that are fueled by preferential export arrangements into Western markets.
Overall Southeast Asian investment trends suggest a growing role for China, the region’s biggest trade partner. By 2017, investment from China had nearly caught up with that from the US, after the American share shrunk by a third over the previous five years.
The Belt and Road Initiative, a mammoth infrastructure blueprint aimed at making China the focal point for regional transport and logistics, is likely to spur future increases in Chinese investment in the region. But in the meantime, however, increasingly acrimonious US-China rivalry could drive investment shifts within the region.
US census bureau data shows imports from Vietnam were up 38% for the first four months of 2019, with Bangladesh, South Korea and Taiwan also showing double-digit increases in sales to America.
But while countries such as Vietnam have boosted their shipments to the US, it is unclear to what extent that owes to companies in Vietnam increasing market share or Chinese production relocating to avoid US tariffs.
“Anecdotally, we do hear of a significant number of companies, foreign relocating or diversifying away from China, and Chinese, looking to relocate,” said Rob Carnell, head of research and chief economist for the Asia-Pacific at ING Economics.
Rising wages in China have nudged businesses into looking around Asia for lower-cost manufacturing sites, Carnell added, a pre-existing trend that makes it initially difficult to measure the impact of the trade war on current investment flows.
“You don’t relocate a factory unless you anticipate this being a decision that you are still comfortable with five to ten years down the track, so it is early days to anticipate seeing much impact from the trade war,” said Carnell.
In the early phase of the trade war, speculation was rife that the dislocation caused by China’s manufacturers being priced out of the US due to high tariffs could see its Asian neighbors swamped with new investments as factories moved.
Even US President Donald Trump argued as much in a recent tweet, posting that “Many Tariffed companies will be leaving China for Vietnam and other such countries in Asia.”
Trump has typically portrayed tariffs as a means to encourage US businesses operating abroad to reestablish production in America, and, according to UNCTAD data, last year’s overall dip in FDI owed in large part to US tax policy changes that prompted American multinationals to repatriate their investment earnings.
Despite Trump’s predictions, Asian countries have not yet seen a large-scale influx of production shifting from China. “A wave of investment into emerging Asia was expected but that hasn’t yet panned out,” said Neil Shearing, group chief economist at UK-based Capital Economics.
The first half of 2019 has seen US-China trade tensions intensify compared to 2018, the period covered by the UNCTAD data. Still, indications are that the increasingly acrimonious superpower face-off is prompting businesses to pause rather than jump into new investments.
“Business investment in emerging Asia as a whole has slowed considerably in the last two quarters, particularly true in countries that are bound up in supply chains,” said Shearing.
He said that businesses are likely adopting a “wait and see” stance due to the unpredictable Sino-American trade war and the possibility of more tariffs coming into play later this year.