AEC will attract more FDI to Southeast Asia: Report

The “Asia-Pacific Trade and Investment Report 2013: ‘Turning the Tide: Towards Inclusive Trade and Investment’ published by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), released on Monday, the region in 2012 attracted US$111 billion of FDI, up by 2 per cent compared to the previous year. This made it the only subregion in Asia Pacific that continued to experience FDI growth as investment from developed economies dried up.

The AEC aims to create a single market with free fl ows of goods, services, skilled labour and investments by 2015. Some of the investment went to labour intensive sectors and value chain activities in low-income countries such as Cambodia, the Philippines and Vietnam.

“One of the goals of AEC is to further improve connectivity in the subregion and integrate industries in order to promote regional sourcing. This will also likely increase FDI flows within the subregion,” the report said.

A key finding from the report is as the economic relevance and dynamism of the Asia-Pacific region is increasing, intraregional FDI flows are replacing those from the developed economies. East and North-East Asian countries have become major investors in other Asia-Pacific countries; China and the ASEAN region being the most attractive destinations.

In the year, developing countries in the Asia-Pacific region account for 33 per cent of global FDI inflows, reflecting the established position of the region as a leading investment destination. FDI inflows to the East and North-East Asian subregion were $215 billion in 2012, down 8 per cent from the previous year. The decline can be attributed to weaker inflows to China, South Korea and Hong Kong.

China, however, continues to attract impressive levels of FDI; investments in 2012 totalled $121 billion. Rising production costs and weakening export markets have been pushing foreign companies to relocate from China to lower-income countries, but China is still the leading FDI recipient in the developing world and is attracting investments from other developing countries as well.

In Japan, growth in FDI nearly tripled in 2012, with the value of FDI inflow rising to $1.7 billion. Continuing uncertainty over the Japanese economy going forward is likely to affect the volatility in FDI levels to the country in the years ahead, although recent economic stimulus measures by the Government might bring about economic growth and attract new FDI.