FDI leaving China for Asean, India

India and Asean are tipped to benefit from China’s struggle to keep foreign direct investors (FDIs) in the country, according to the China-Asean Business Council Chinese Secretariat.

Citing a report from The International Business Times, the trade body, through its newsletter, said that China has been the major recipient of foreign direct investment in the developing world over the past 20 years.

This has played a big part in China’s rise from being a poor rural backwater to an economic powerhouse, but rising costs due to higher wages and the phasing out of super-preferential tax policies are pushing multinationals, mainly labour-intensive manufacturers, to relocate, it added.

“And China’s neighbours India and Southeast Asian countries stand to benefit the most as they have large pools of labour and strong domestic markets,” the report stated.

Robert Atkinson, the president of the Information Technology and Innovation Foundation in the US, was quoted in the report as saying that “the Chinese monopoly on foreign direct manufacturing investment is over”.

“They are still obviously in a very strong position, but you are going to see more dispersion of those kinds of investments.”

The newsletter added that China’s FDI fell in 2012 for the first time since the height of the global financial crisis in 2009, according to figures released on January 15 by the country’s Ministry of Commerce.

For the full year, inbound FDI registered at US$111.7 billion (about Bt3.3 trillion), 3.7 per cent lower than 2011, which sums up a bad year for global FDI overall, it added.

A new report released by the United Nations Conference on Trade and Development (Unctad) showed that worldwide FDI inflows fell by 18 per cent to an estimated $1.3 trillion, down from a revised $1.6 trillion in 2011, the trade body said.

This was due mainly to macroeconomic fragility and policy uncertainty among investors, it added.

It also quoted UNCTAD statistics, which showed that despite an overall 7-per-cent decline in FDI inflows to the Asean member states, some countries in the 10-member regional bloc appear to be on a bright spot with preliminary data showing that inflows to Cambodia, Myanmar, the Philippines, Thailand and Vietnam grew in 2012.

By Unctad’s measure, China was still the second largest recipient of FDI in the world after the US, but capital is always searching for the highest return possible, it added.

Although many countries can now compete with China on labour costs, it is countries elsewhere in Asia, which are able to take advantage of strong infrastructure and existing supply chain networks, that will be the main beneficiaries of China’s move out of low-end manufacturing, an Asia specialist at Capital Economics, Gareth Leather, was quoted as saying.