FOREIGN DIRECT 3 INVESTMENT TRENDS AND DEVELOPMENTS

A. RECENT TRENDS IN FOREIGN DIRECT INVESTMENT INFLOWS AND OUTFLOWS15 1. Global trends

Following what seemed to be a swift recovery from the global financial crisis in 2010-2011, global foreign direct investment (FDI) inflows have again taken a downward turn. As the world economic recovery continues to be uncertain and fragile, global FDI inflows have declined by 18%, from $1.65 trillion in 2011 to $1.35 trillion in 2012.

Inflows decreased both in developed and developing economies.16 However, while the majority of developed countries experienced a significant reduction in their FDI inflows, by 32% on average, those to developing economies remained relatively resilient, declining by only 4% on average. More importantly, for the first time developing economies alone absorbed more FDI than developed countries, accounting for 52% of global FDI inflows (figure 3.1). Asia-Pacific Trade and Investment Report 2013

FIGURE 3.1 Foreign direct investment inflows to developed and developing economies, 2003-2012 1400

1200

1000

800

600

400

Billions of United States dollars 200

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Developed economies Developing economies Source: ESCAP calculations, based on UNCTADStat.

FIGURE 3.2 Foreign direct investment outflows from developed and developing economies, 2003-2012 2000

1800 1600 1400 1200 1000 800 600 400

Billions of United States dollars 200 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Developed economies Developing economies

Source: ESCAP calculations, based on UNCTADStat Note: Due to their small share, transition countries are not shown in the figures. Mirroring global FDI inflows, global outflows In 2012, for the first time, developing declined by 17% in 2012. The continued economic uncertainty, especially in developed countries, economies absorbed more FDI than has led companies from these locations to scale developed countries, accounting for back their operations. As a result, most of the 52% of global FDI inflows. global decline can be attributed to developed economies, which saw a 23% decline in FDI outflows. Since peaking in 2007 at $2.3 trillion, global FDI outflows have decreased by almost 40%, while outflows from developed economies

28 Source: in transition countries (figure 3.2). countries compared to 83% in developed countries and 2% in developing originated outflows of 2007 thedifference isstriking. In2007,only 15% accounted for theremaining 4%.Compared to countries transition and outflows global of 65% supplied developed whereas countries outflows, developing countries provided 31%ofglobal FDI developed countries asasource ofFDI.In2012, have made advances in catching up with the investments since 2007.Developing countries slowly butsteadily increasing theiroutward dip in2009,developing economies have been were in2007.Incontrast, apartfrom asmall in 2012 amounted to less than half of what they Billions of United States dollars 2012. Although FDI volumes received in 2012 fell in inflows FDI of billion $510 attractedcountries Asia-Pacific climate. economic challenging the Asia-Pacific region, the to attributed be can countries Much oftherelative success ofdeveloping 2. FIGURE 3.3 100 200 300 400 500 600 0

17 ESCAP calculations, basedon UNCTADStat. Regional trends whichhasshown notable resilience in 3%

A 3% frica

Foreign direct investment inflows to major world developing regions and 4%

their share ofglobal foreign direct investment inflows, 2010-2012

Latin AmericaandtheCaribbean 13% 2010

ein con fr 3 o goa inflows countries inAfrica (figure 3.3). global of America andtheCaribbean,4%share of 33% for compared to the18%share ofcountries inLatin Asia-Pacific account the in region countries developing The companies looking for investment opportunities. a as Pacific the leading investment destination for transnational and Asia of position reflects solid This the world. the in regions developing other outpaced Asia- significantly developing has region the Pacific inflows, FDI of terms In exceeded theannualaverage for thedecade. short oftherecord setin2011($550billion), they 15% 2011

(billions ofUnited States dollars andpercentage) Asia-Pacific region account for 33% Asia-Pacific regionaccountfor33% The developingcountriesinthe investment destination. region’s solidpositionasaleading of globalFDIinflows,reflectingthe 2012 18%

30%

29%

33%

29

CHAPTER 3 Asia-Pacific Trade and Investment Report 2013 FDI outflows from the region in 2012 totaled $481 stated that this law has brought about regulatory billion compared to $484 billion in 2011. The uncertainty that weakens Mongolia’s position in share of the Asia-Pacific region in total world attracting FDI.18 FDI outflows increased from 29% in 2011 to 35% in 2012. Not only are the Asia-Pacific countries The South-East Asian subregion is exhibiting proving to be attractive investment destinations a robust growth trend, which is supported by in the current economic climate, they are also labour-intensive FDI and value chain activities becoming increasingly important as sources of in low-income countries, such as Cambodia, investment. the Philippines and Viet Nam. In 2012, inflows amounted to $111 billion, up by 2% compared 3. Subregional trends to the previous year. This makes it the only subregion in Asia and the Pacific region that has Among the developing Asia-Pacific subregions, continued to experience FDI growth despite the East and North-East Asia continues to attract slowdown of the global economy. the largest amount of FDI inflows, although the South-East Asian subregion is progressively In 2012, FDI inflows to South-East Asia catching up (figure 3.4). FDI inflows to the East increased by 2%, making it the only and North-East Asian subregion reached $215 Asia-Pacific subregion that continued to billion in 2012, down 8% from the previous year. experience FDI inflows growth. The decline can be attributed to weaker inflows to China, Hong Kong, China and the Republic of The year 2012 proved to be tough for South and Korea. Mongolia attracted large FDI inflows in South-West Asia, as FDI inflows to the subregion 2010 and 2011, mainly driven by investments in dropped by almost a quarter. This development the mining sector. In 2012, however, it witnessed can be largely attributed to India, given its size in a 6% reduction in FDI inflows. This may be the subregion, although several other countries due to the new Strategic Foreign Investment in the subregion also suffered declines in FDI Law passed in March 2012, stating that the inflows. For example, Sri Lanka and Turkey both parliament must approve foreign takeovers in saw their FDI inflows fall by a little more than strategic sectors, such as mining. Investors have 20%, whereas those of Pakistan fell by 36%.

FIGURE 3.4 Foreign direct investment inflows to Asia-Pacific developing subregions and developed economies, 2010-2012

250

200

150

100

50 Billions of United States dollars

0 East and North-East South-East Asia South and South-West North and Central Asia Developed economies Asia Asia

2010 2011 2012

Source: ESCAP calculations, based on UNCTADStat. Note: Due to the small share of inflows to the Pacific subregion, that subregion is not represented in this figure.

30 Note: Source: LDCs, namely CambodiaandMyanmar, to the largest FDI recipient countries among the developed $ least Asia-Pacific countries (LDCs) reached anew to peak ofalmost inflows FDI FDI inflows as well. Northern MarianaIslandsexperienced larger Samoa, althoug be mainly attributed to Papua New Guinea and can inflows in Growth billion. $2 over slightly to to inflows 2012, the subregion increased by6%andamounted In region. Asia-Pacific the in countries developing to inflows FDI of 1% than less attracts subregion Pacific developing The industries. the tourism, communications andtransportation in were projects greenfield announced largest has natural resources sector, Kazakhstan althoughin2012the 2012. in traditionally attracted large 1% investments inthe to by inflows grew Kazakhstan, which is FDI for destination subregional developments. Anotherimportant the Russian Federation has a major impact on billion. Accounting for a70%share ofin subregion fell by and North- East after East Asia inflows FDI of amount North andCentral Asiaattracts thethird largest 5.5 billion in 2012. Driven by increasinginflowsby Driven 2012. in billion 5.5 FIGURE 3.5

Due to thesmallshare ofoutflows from the Pacific subregion, that subregion isnot represented in thisfigure. Billions of United States dollars 100 150 200 250 ESCAP calculations, basedonUNCTADStat. 50 0 , and South-East Asia. Inflows to the to Inflows Asia. South-East and ,

East &North-EastAsia h theMarshall Island 5% in2012,to avalue of$74

South-East Asia developing subregions anddeveloped economies, 2010-2012 s andthe inflows to

South &South-WestAsia flows, Foreign direct investment outflows from Asia-Pacific 2010 201 1 areas such as minin commodity prices meanthatinvestments into fallin however, attractive; highly be to proven billion in2012.Australia’s resource sector has among developed countries, drawing in$57 inflows for destination largest the as dominate reached $1.7 billion. Australia continues to scaling down their investments, FDIinto Japan previous year. After two years offoreign investors the than inflows FDI higher attracted onlyJapan the three developed countries intheregion, countries fell by9%to $62billionin2012.Of developed Asia-Pacific the to inflows FDI world, Similar to other developed countries in the year. although they fell, somewhat, from theprevious the region remained atahighlevel of$26billion, to landlocked developing countries (LLDCs)in inflows FDI 10%. almost by increased group the from the subregion at $214 outflows total with 2012, in 63% to 2011 in 59% Recently, itsshare hasedgedupfurtherfrom Asian outflows from developing countriesand North-East in the region. East subregion accounts for thelion’s share oftotal The 3.5). (figure uniform not from is countries Asia-Pacific developing outflows FDI of division subregional The their peak(Capital Economics, 2013a). 2012

North &CentralAsia g could have already reached

Developed economies billion. A similar g 31

CHAPTER 3 Asia-Pacific Trade and Investment Report 2013 increase has taken place in the South-East Asian steps to become more market-friendly and to subregion, with its share of total outflows from improve infrastructure. However, recent rising developing Asia-Pacific countries increasing production costs and weakening export markets from 16 to 18%. Outflows from the subregion now have pushed foreign companies to relocate amount to $61 billion. FDI outflows from both from China to lower-income countries. This is South and South-West and North and Central reflected in the lack of increase of inward FDI to Asia have declined. the country. Despite this, China is still the leading FDI recipient among developing countries and The developed countries continue to be a notable competes with the United States for the position source of FDI, increasing their share of outflows of the largest destination for FDI in the world. from the whole region from 26% in 2011 to 29% in 2012. This increase is largely the result of an A critical change is the country’s increasing increase of outflows from Japan, which contrary engagement in higher value-added activities. FDI to other developed countries in the world has into its high-tech and advanced manufacturing boosted its outward investments. Japan is almost sectors has been on the rise with the country solely responsible for investments from the looking to directly compete with more advanced developed countries in the Asia-Pacific region. countries, such as Japan or the Republic of Japanese overseas investments have been Korea. This development is due to the country’s characterized by being weighted towards the wide-open FDI stance, which has proven to Asia-Pacific region, particularly in the member attract valuable new technology and know-how countries of (ASEAN), and focused heavily on (Capital Economics, 2013b). manufacturing projects. FDI outflows from each of the developing Despite rising production costs and subregions are highly influenced by one weakening export markets, China dominating economy, just as with FDI inflows. remains the leading recipient of FDI in For East and North-East Asia the dominating the developing world and is attracting economy is China, along with Hong Kong, investments from developing countries. China. In South-East Asia, Singapore remains the largest investor, although outflows from China receives an increasing amount of Malaysia are on the rise. In South and South- investments from developing countries, West Asia, India accounts for 65% of outflows. especially those in Asia (China Ministry of However, Turkey is catching up, increasing its Commerce, 2013). Moreover, foreign companies outflows by 73% in 2012 and now accounting are opting for a wholly controlled ownership for 31% of total outflows from the subregion. In structure as opposed to previously mandated North and Central Asia the Russian Federation joint ventures with Chinese partners (Li, 2013). has an even stronger hold on the top position as This development may be a reaction to a more liberal investment environment. Additionally, its share of total outflows is over 90%. Together, it may be an indication that foreign companies these five so-called “FDI giants”19 supply 73% are becoming more familiar with the business of FDI originating in the developing Asia-Pacific culture in China.20 region. In recent years, FDI out of China has mirrored trends in FDI inflows to China. In the past decade 4. Country highlights FDI outflows from China have grown from a meagre $2.9 billion in 2003 to more than $84 CHINA billion in 2012 (figure 3.6). This now makes China the third largest source of FDI in the world, after China continues to attract high levels of FDI. the United States and Japan. Investments in 2012 remained at the level of $121 billion, falling slightly short of the peak State-owned enterprises continue to be the most of $124 billion reached in 2011. Abundant active investors from China, although private low-cost labour and close proximity to trade companies are also showing interest in investing networks have been major factors in attracting abroad. While Chinese state-owned enterprises FDI into China. The country has also taken are motivated with the need to secure access

32 significant 29% in 2012, which is a much bigger much a is which 2012, in 29% significant 2012. However, in inflows Asia to the South-West country dropped and by South to inflows FDI of India continued to be the dominant recipient INDIA market (UNCTAD, 20 in theBrazilian mergers andacquisitions(M&A) to the active involvement ofChineseinvestors Caribbean, ChineseFDIinBrazil hasrisendue projects inAfrica. Asfor LatinAmerica andthe infrastructure upgrading andconstruction but Chineseinvestors are alsoinvolved inseveral investments have beenmainly resource-seeking, investments inAfrica remain strong. These Asia (Hong,2013).Atthesametime,Chinese expand to into new markets prefer looking to invest inSouth-East investors countries; Asian Chinese investors still largely target other companies (Economist Intelligence Unit,2013). attractive asinvestment destinations for Chinese brands, whichmakes developed countries more gaining access to new technology andbuying Many private companies are also interested in looking into accessing new andgrowing markets. to natural resources, private companies are Source: Source: FIGURE 3.6

Billions of United States dollars 100 120 140 20 40 60 80 ESCAP calculations, basedonUNCTADStat. 0

2003 13a).

2004 Foreign direct investment inflows andoutflows ofChina,2003-2012

2005

2006 Inflows

2007 complex policiesandcumbersome procedures that notes country the into flows FDI on India of research study conducted bytheReserve Bank inflation. high In additionto theoverall economic situation,a to related risks with struggled its slowest growth inadecade in2012,andalso developing Asia-Pacific countries (-7%). The economy of India experienced and (-4%) economies decline thantheaverage for alldeveloping 2013). These policyreforms, while preserving of companies hasbeenapproved (India,Department rules for 100% foreign ownership intelecommunication its relaxed FDI inaviationandtelevision broadcasting and also has India refining. to 49%FDIinsingle-brand retail orpetroleum government approval isnolonger neededfor up Also, firms. Indian small from products of 30% sourcing of requirement the reach to years five than onemillioninhabitants. They are alsogiven retailers are allowed to invest incitieswithless governing multi-brand retail relaxed, foreign under certain conditions. Withtheconditions Government allowed FDIinmulti-brand retailing liberalization of FDI policy. InSeptember 2012, the recently addressing theseissues withgradual for example. TheGovernment ofIndiahasbeen land acquisition and environmental regulation, to relates This flows. FDI dampened have could Outflows

2008 Industrial Policy andPromotion, 2012and

2009

2010 (billions ofUnited States dollars)

2011

2012 33

CHAPTER 3 Asia-Pacific Trade and Investment Report 2013 a desirable policy space to ensure long-term interest in investing in developed countries. developmental benefits from FDI, together However, the value of greenfield projects also with complementary initiatives to improve the fell by 28%. A large share of Indian investment investment environment, will be important to is channeled through financial centres, such as attract FDI flows with high impact in the future. Mauritius, Singapore and the Netherlands. This India would also greatly benefit from upgrading round-tripping, whereby funds are sent out of its infrastructure and strengthening of ties with a country and through another country to take key investment and trade partners. advantage of fiscal measures before returning to the country of origin, over-represents these countries as investment destinations. The recent efforts of India to reform According to the Reserve Bank of India (2012), FDI policy and simplify investment in recent years Indian companies have become procedures could not stop FDI inflows increasingly interested in the resource sectors falling by 29% in 2012. in Australia, Indonesia and Africa. In 2012, some of the largest greenfield projects have been the The services sector continues to account for $4.5 billion investment in coal extraction by the largest share of FDI equity inflows to India Adani Enterprises in Australia and the $2 billion (India, Ministry of Commerce and Industry, investment in natural gas manufacturing by 2013). Ongoing efforts to open economic sectors, Bharat Petroleum in Mozambique. such as retailing, are likely to increase inflows to services. Inflows to manufacturing are JAPAN AND THE REPUBLIC OF KOREA expected to increase as well, with a number of major investing countries, including Japan and Following two consecutive years (2010 and 2011) of the Republic of Korea, establishing country negative foreign investment flows (disinvestment or industry specific industrial zones in India by foreign investors exceeded FDI inflows), Japan (UNCTAD, 2013b). In fact, during 2012 some of experienced significant growth in FDI in 2012. the largest greenfield projects in India originated This brought the value of FDI inflows back into from the Republic of Korea and Japan, targeting the positive range at $1.7 billion. Despite this, the manufacturing industry. Additionally, in 2012 the latest figure is still very weak compared to single-brand Swedish retailer IKEA announced the levels in the period 2007-2009 (ranging from that it is planning to invest almost $1.5 billion in $12 billion to $24 billion). Continued uncertainty opening stores in India. over the Japanese economy is likely to influence Investors from Mauritius top the list of investors the volatility in FDI flows in the years ahead. in India, accounting for 38% of cumulative inflows However, the Government’s recent economic since 2000. This is mainly due to fiscal incentives stimulus measures show signs of bringing about that make it advantageous to funnel FDI through renewed growth and could potentially boost FDI Mauritius to India. Singapore and the United flows. Kingdom also increased their investments, taking the second and third place on the list of The inflow of FDI remains relatively resilient in investing countries and accounting for 10% and the Republic of Korea, with a mild 3% drop in 9% of cumulative equity inflows, respectively 2012. This is less than the average decrease in (India, Ministry of Commerce and Industry, 2013). East and North East Asia, which was 7% for the same period. In the years ahead, FDI is expected India continues to be the leading source of FDI to gradually rise as investors take advantage of outflows from the South and South-West Asian the United States-Korea Free Trade Agreement subregion. It accounts for 65% of the total, that came into effect in early 2012 and removed despite a 31% decline in outflows in 2012. tariffs across many sectors. According to the Reserve Bank of India (2012), outward investments from India tend to take Japan and the Republic of Korea are also the form of M&A when targeting developed important sources of FDI to the rest of the region. countries and the form of greenfield investments when targeting developing countries. In 2012, the value of M&A deals by Indian companies dropped by over a half, suggesting a reduced

34 2012. in Cyprus to going outflows net of this, 43% showing confirm (2013) Federation Russian the Bank of the Central from Data originate. inflows outflows mostly target the same countries where recycled back into the home country. Therefore, investments from theRussian Federation is Federation Russian billion. Asdiscussed above, alarge partof the from decreased by24%in2012,amountingto $51 outflows FDI abroad. and motor vehicles alsoattracts investments from for activity financial and retail wholesale The inflows. of the investments, manufacturing sectors attracted alarge share inward of Federation. Interms ofsectoral distribution have become large investors intheRussian Germany, Luxembourg andtheNetherlands, European Unionmembers, suchasFrance, Additionally, significant. be to continue Cyprus, as theBahamas,BritishVirgin Islands,and such economies, from inflows FDI net that show Central BankoftheRussian Federation (2013) redirect investments elsewhere. Data from the events have encouraged Russian investors to tripping location, althoughrecent economic Traditionally, Cyprushasbeenafavoured round- fiscal for beneficial reasons. this companiesfind hub, andthenbackto thehomecountry. Many Federation to another country, usually a financial involves therecycling offundsfrom theRussian FDI into theRussian Federation. Thisprocess Round-tripping isoneofthecharacteristics of the country. 2012 isanticipated to attract new investment into accession oftheRussian Federation to WTO in availability of natural resources. Additionally, its consumer market, skilled labour forceof and size the by helped term; long the in steadily expects FDIintheRussian Federation to rise The Foreign Investment AdvisoryCouncil (2012) the than higher average over thelast ten years ($39billion). significantly still is it 2008, in than thecountry’s record highof$75billion lower is figure latest the Although investments. and financial The billion. manufacturing sectors received themost $51 fell in to 7% Federation by Russian 2012 the to inflows FDI Following anotable 28%increase in2011, RUSSIAN FEDERATION intensive FDIandvalue-chain activities.In2012, an attractive destination, especially for labour- added to this increase. Cambodia proves to be Myanmar, thePhilippines andVietNamalso to low-income countries suchasCambodia, Inflows billion. $57 to 1% than more slightly by rose which Singapore, to flows higher by partly increased by2%in2012to $111billion,fuelled ASEAN to Inflows further. benefit to poised are Singapore, Malaysia,ThailandandVietNam common trade market in 2014,Indonesia, the dynamism to subregion. With the opening of the ASEAN-5 adding intensified, in2012. Recently, economic integration growth inASEANhas inflow FDI enjoy to Pacific the subregion was the only subregion in Asia and As mentionedearlier, theSouth-East Asian NATIONS ASSOCIATION OFSOUTHEASTASIAN due to itslarge andgrowing population. industries. Indonesiabecame astar attraction, in 2012, particularly intheautomotive andmetals investments greenfield of levels high Indonesia andThailand continued to attract sector dominates FDIinflows. sector, and in Myanmar the natural resources Democratic Republic tend to target the service services and agriculture. Investments in theLaoPeoples’ financial manufacturing, garment on estate and service sectors. Cambodiafocuses manufacturing industries, andalsointhereal mainly attracts investments inexport-oriented regional neighbours. As mentioned, VietNam advantage andnatural endowments relative to sectors, depending oneachcountry’s comparative specific in FDI attracting in specialize each membercountry of ASEANappears to Co-operation andDevelopment (OECD,2013), According to theOrganisation for Economic order to attract more FDI. attention to reforming investment policiesin inthe previous year.than VietNamwould have to paymore in 2012 higher were flows FDI this, thepeak below remains of almost $10 billion reached in 2008. Despite Nam Viet to of inflows The level by73%. rose Cambodia to inflows in FDIinflowstoASEAN2012. important contributorstothegrowth Philippines andVietNamwere Cambodia, Myanmar,the

of the

35

CHAPTER 3 Asia-Pacific Trade and Investment Report 2013

Box 3.1 Increase in the number of multinationals from Thailand Over the last decade Thai companies have become increasingly international. This expansion abroad began in the 1990s, but was interrupted by the Asian financial crisis in 1997. In recent years, outward FDI from Thailand has surged (see figure below) as Thai companies look to invest abroad. With this, Thailand is beginning to take on the characteristics of a developed country by becoming a net investor. Foreign direct investment inflows and outflows to and from Thailand 2005-2012 14

12

10

8

6

4

Billions of United States dollars 2

0 2005 2006 2007 2008 2009 2010 2011 2012

Inflows Outflows Source: ESCAP calculations, based on Bank of Thailand (2013). The changing position of Thailand can be linked to broader developments taking place in the Asia- Pacific region. Due to the emergence of global value chains and increased economic integration, intraregional investment flows have increased in significance. As countries’ industries advance and move up the value chain, they start outsourcing and looking for investment opportunities in other countries. Thai investors have chiefly been targeting other member countries of ASEAN, of which Singapore has been a major destination. Thai investments have been driven by companies looking for expansion into new markets, as well as the need to improve efficiency by relocating to countries with lower labour costs.

Additionally, a number of Thai companies have joined the ranks of what may be called the emerging- market multinational enterprises. These companies originate from emerging markets and have acquired a significant international presence. Despite lagging behind countries such as China and India in terms of international expansion, some major Thai companies have been involved in large M&A deals in recent years. These include PTT, Banpu PLC (both in the energy industry), The Siam Cement Group and Thai Beverage PLC. One of the largest deals to date involved PTT buying a stake in a Canadian oil sands project for $2.3 billion in 2011. PTT also bought a United Kingdom-based platinum and nickel exploration company, Cove Energy PLC, in 2012 for close to $2 billion following a bidding withdrawal from Royal Dutch Shell. Through this purchase, PTT gained access to natural gas reserves in Mozambique. Another large deal was Thai Beverage PLC’s acquisition of a $2.2 billion stake in a Singaporean producer and seller of soft drinks, Fraser & Neave Ltd, in 2012. In addition, in 2010 Banpu PLC purchased an Australian coal mining company for $1.6 billion.

While most Thai companies still aim to expand to other markets and look to improve production efficiency by investing in neighbouring countries, there is a rising number of Thai enterprises that focus on international expansion in order to move up the value chain, acquire strategic assets and become global players in their industry. While some companies have already established a strong foothold in international markets, there are many others with the potential to follow. Sources: Bream (2012), Pananond (2012), Bank of Thailand (2013), Thomson Reuters Datastream Professional database.

36 attractive destinations (figure 3.7). In fact, due to the member countries ofASEANbeing themost and China with countries, Asia-Pacific other in Asian countries have become majorinvestors bulk ofFDIintheregion. East andNorth-East the developed from economies. Thesehave traditionally suppliedthe those replacing are flows FDI intraregional increases, region Asia-Pacific As the economic relevance and dynamism of the DIRECTINVESTMENT B. INTRAREGIONALFOREIGN throughout theregion. therefore beapolicypriorityfor Governments and working to ensure itsinclusive impactshould important role invirtually allAsianeconomies, strategy of regional economies. FDI plays an and remains, acritical component ofthegrowth These developments show thatFDIhasbeen, subregion (seebox 3.1). acquiring strategic assets from outsidethe companies have shown growing interest towards Thai however,lately countries; neighbouring its in investor significant a is Thailand billion. $12 by 45%in2012andreaching arecord-breaking Thailand have alsobeenontherise,increasing fromRecently, outflows 2015. FDI in Community with the establishment of the ASEAN Economic ASEAN. Thishaspotential to increase further years, especially among membercountries of recent in increased have flows IntraregionalFDI Nam have been steadily increasing since 2005. far havevolatilebeen past,the in outflows from Viet although Philippines tripled over the course of one year and 2012, in the from flows WhileSingapore. of those behind outflows increasing Philippines andVietNamalsowitnessed accounted flows, FDI for 38%ofthetotal from thesubregion. The outward to contributor a new record of$61billion.Singapore, amajor outflows reached of valueNevertheless, the 3%. slowed compared to the previous year from 24 to increased in2012,althoughthegrowth rate has FDI outflows from the South-East Asian subregion country (Ernst andYoung, 2012). purchasing andconsumption power withinthe million people, indicating increases indomestic class hasexpanded from 81millionto 131 Also, inthelast decade thecountry’s middle trillion GDPinpurchasing power parityterms. growth rate ofabout6%year-on-year, and$1.4 Furthermore, it is a G20 country with an annual 21 t billion in 2012,pushing it into third place. Over than doubled from 2011to 2012,reaching $17 Greenfield FDI into the real estate industry more $44 billion,ashare of11%total investments. metals industry for thisthree-year periodwere the in Investments FDI. greenfield intraregional natural gas,accounting for a16%share oftotal to 2012,$66billionwasinvested incoal, oiland gas industry, metals, andreal estate. From 2010 of intraregional FDIare thecoal, oil,andnatural The three industries to attract thelargest share central player intheinvestment landscape. rising levels ofintegration, ASEANisbecoming a period, andmember countries ofASEAN received that in Korea of Republic the from FDI in billion $11 to close attracted China Korea. of the Republic from originated Pacific the greenfield and Asia intraregional in FDI total $43 of 2010-2012, (10%) the period billion in of intraregional FDI; greenfield source significant a remains in 2010 to $13billionin2012.However, the thecountry billion $20 from from declined Korea flows of Republic FDI greenfield Intraregional Thailand ($9billion)andVietNam($8billion). region are Indonesia($11billion),followed by main investment destinations withintheASEAN from Japanduringtheperiod2010-2012.The which attracted over $44 billion in greenfield FDI also shown muchinterest intheASEANregion. billion in 2010-2012. Japanese investors have Japanese investments, whichamounted to $30 China isoneofthemaindestinations for (OEM) holdingthetop investment position. automotive originalequipmentmanufacturing other component production industries, with have targeted automotive industries aswell as total intraregional FDI.Japaneseinvestments accounting for a26%share ($108billion)of continues to bethemainsource of investments, amounted to $414billionin2010-2012.Japan flows FDI greenfield intraregional total Overall, share oftotal intraregional greenfield FDI. the real estate industry totaled $35billion,a9% he period 2010-2012, greenfield investments in investments greenfield 2010-2012, period he FDI flows. region hasboostedintraregional and dynamismoftheAsia-Pacific The increasedeconomicrelevance 37

CHAPTER 3 Asia-Pacific Trade and Investment Report 2013 $13 billion in investments. India was also a major China were less than half of those in 2011. China investment destination, attracting $9 billion of is a large investor in the ASEAN region, reaching greenfield FDI from the Republic of Korea during $21 billion in investments over the course the period 2010-2012. Korean companies have of 2010-2012. One of the main destinations, been especially attracted to the metals industry Indonesia, attracted close to $9 billion. Chinese in India. One of the largest greenfield projects in investments are said to be resource-seeking; India in 2012 was a $1.5 billion manufacturing however, investments targeting South-East Asia project in the metals industry by Pohang are more often motivated by market access or Iron and Steel. Recently, investors from the efficiency considerations. The focus appears Republic of Korea have broadened their focus to be shifting from the resource sector to the to Central Asia, Uzbekistan in particular. In service sector (Hong, 2013), and greenfield data 2012, Korea Gas Corporation invested $4 billion supports this, with investments in both the in a manufacturing project in the chemicals metals and coal, oil and natural gas industries industry, making Uzbekistan the second largest falling significantly in 2012. Apart from the ASEAN destination for greenfield FDI from the Republic region, Chinese investors have shown interest in of Korea in that year. India and the Russian Federation. India attracted $6 billion and the Russian Federation $4 billion For the period 2010-2012, China accounted for in greenfield FDI. However, China attracted a 10% ($42 billion) of total intraregional greenfield larger share of intraregional greenfield FDI FDI despite the fact that in 2012 outflows from than it has supplied. During the period 2010-

FIGURE 3.7 Intraregional greenfield foreign direct investment flows between selected countries and total inflows and outflows to and from oseth countries, 2010-2012 (billions of United States dollars)

Source: ESCAP calculations, based on fDi Intelligence (2013) data.

38 regional sourcing. by integrating industries inorder to promote further improve connectivity inthesubregion, and investments. One ofitsgoalswill be to services goods, of flow free with market single Economic Community, whichwill create a continue withtheestablishment oftheASEAN to December 2012.Thistrend isanticipated to member countries ofASEANfrom January2010 with $24billionhavingbeeninvested between countries ofASEANhave increased dramatically, Since the1990s,investments amongmember modest $11billionand$13billion,respectively. more a India at remained Korea from of Republic flows the and investment and billion, $20 period, Chineseinvestments amounted to over over $44billionduring2010-2012.Inthesame Japan isthelargest investor byfar, investing attracts investments from multiple sources. respectively. Alsolike China,theASEANregion attracting $39billion,$28billionand$21 Nam andSingapore were themaindestinations, destined for theASEANregion. Indonesia,Viet total of$140 billionworth ofinvestments were than it supplies. During the period 2010-2012, a region attracts more intraregional greenfield FDI billion, respectively. Similarto China,theASEAN and Indonesiaaccounted for $8billionand$6 from themembercountries ofASEAN.Thailand accounted flows of worth billion $79 the of 80% closeforto they Together, region. Asia-Pacific the within projects greenfield in billion $30 over In 2010-2012, Singapore andMalaysiabothinvested alittle FDI. greenfield intraregional of ASEAN, asagroup, isanimportant supplier of the$30billion. largest investment source, accounting for ahalf $30 billioneach.WithinASEAN,Singapore isthe is attracting Japan andASEANbothaccounting for close to China investments from throughout theregion, flows. with FDI intraregional FDI, which accounts for a share of 28% of total greenfield in billion $117 attracted China 2012, in theinvestmentlandscape. ASEAN isbecomingacentralfigure Due tostrengtheningintegration, and outward FDIin2012.Low-income countries was the only Asia subregion to witness growth inbothinward South-East Pacific, the and Asia the largest recipient andprovider ofFDIwithin Although East andNorth-East Asiaremains investor ontheglobal level. the region isbecoming anincreasingly important world’s developing regions andatthesametime far theleading investment destination amongthe isby the Pacific and Asia outflows. investment and they alsoprovided almost onethird ofglobal time attracted more FDI than developed first countries the for countries developing 2012 In fact, in 2012. by in flows FDI affected global in decline less the significantly were countries drop inbothin-andoutward FDI,developing While developed countries experienced asharp CONCLUSION be strengthened. intraregional investment tiesare likely to further Pacific the and theregion’s and growing economic importance, Asia in environment business Pacific region. Thanks to the increasingly dynamic share inintraregional investments intheAsia- Asian investors, whichaccount for thelargest attractive destinations for East andNorth-East increased regional integration, andChina,are economies. Membercountries ofASEAN,dueto and the less dependentoninvestments from developed Asia within Pacific are on the rise and the flows region is becoming FDI Intraregional levels intheyears ahead. FDI likely in is volatility influence the toJapan of However, continued uncertainty over the economy particular onthemembercountries ofASEAN. boosted itsoutward investments, focusing in italso 2012, in inflows FDI higher experienced Unlike otherdeveloped countries, Japannotonly effect. FDI recent liberalization policieshave yet to show where their India, to inflows FDI in drop South-West Asiawasmainly dueto adramatic and South to inflows investment in quarter one further FDIgrowth. Thestrong declineofalmost Economic Communityby 2015could stimulate destinations. Theestablishment oftheASEAN Viet Namwere especially attractive investment such asCambodia,Myanmar, thePhilippinesand 39

CHAPTER 3 Asia-Pacific Trade and Investment Report 2013

REFERENCES org/publications/how-foreign-direct-investment- promotes-development-case-of-prc-inward- Bream, Rebecca (2012). PTT wins battle for control of Cove outward-fdi. Energy. Financial Times, 20 July. Available from www.ft.com/cms/s/0/a73f8526-d258-11e1-abe7- Organisation for Economic Co-operation and Development 00144feabdc0.html#axzz2Yd1nJlcm . (2013). Southeast Asian Economic Outlook 2013: with Perspectives on China and India. Paris. Available Capital Economics (2013a). Emerging Asia Chart Book, 28 from www.oecd-ilibrary.org/development/ February 2013. southeast-asian-economic-outlook-2013_saeo- 2013-en. _____ (2013b). Emerging Asia Economics Focus, 8 April 2013. Pananond, Pavida (2012). Thai multinationals seek global footprint. Bangkok Post, 7 September. China, Ministry of Commerce (2013). Statistics of FDI in January-December 2012. Available from Russian Federation, Central Bank (2013). Direct investment http://english.mofcom.gov.cn/article/statistic/ statistics. Available from www.cbr.ru/eng/statistics/ foreigninvestment/201301/20130100012618. ?Prtid=svs&ch=PAR_31141#CheckedItem. shtml. Thailand, Bank of Thailand (2013). Balance of payments Ernst and Young (2012). Beyond Asia: Indonesia highlights. statistics. Updated June 2013. Available from www. Available from //www.ey.com/Publication/vwLUAssets/ bot.or.th/English/Statistics/EconomicAndFinancial/ Beyond_Asia:_Indonesia_Highlights/$FILE/Indonesia_ ExternalSector/Pages/StatBalanceofPayments.aspx. final.pdf. United Nations Conference on Trade and Development Economist Intelligence Unit (2013). China Going Global (2013a). The rise of BRICS FDI and Africa. Global Investment Index: a report from the Economist Investment Trends Monitor, 25 March. Available Intelligence Unit. from http://unctad.org/en/PublicationsLibrary/ webdiaeia2013d6_en.pdf . Foreign Investment Advisory Council (2012). Russia’s Investment Climate 2012: A survey of Current and _____ (2013b). World Investment Report 2013 – Potential Investors. Moscow. Available from www. Global Value Chains: Investment and Trade for fiac.ru/files/Russia-Investment-Climate-2012-EN. Development. Sales No. E.13.II.D.5. pdf . ONLINE DATABASES Hong, Zhao (2013). China’s FDI into Southeast Asia. ISEAS Perspective, No. 8. Singapore: Institute of Southeast Financial Times Ltd., fDi Intelligence, fDi Markets: Asian Studies. Available from www.iseas.edu.sg/ Crossborder investment monitor. Available from documents/publication/ISEAS%20Perspective%20 www.fdimarkets.com. Accessed June and July 2013. 2013_8.pdf . Thomson Reuters Datastream Professional database. India, Department of Industrial Policy and Promotion, Available from www.datastream.com/ . Accessed Ministry of Commerce and Industry (2012). FDI June and July 2013. Policy Press Note No. 5, 6 and 7. Available from http://dipp.nic.in/English/Policies/Policy.aspx United Nations Conference on Trade and Development, UNCTADStat. Available from http://unctadstat. _____ (2013). FDI Policy Press Note No. 6. Available from unctad.org/ReportFolders/reportFolders.aspx?sCS_ http://dipp.nic.in/English/Policies/Policy.aspx . referer=&sCS_ChosenLang=en . Accessed June and July 2013. India, Ministry of Commerce and Industry (2013). Fact sheet on foreign direct investment (FDI) from April 2000 to March 2013. March. Available from http:// ENDNOTES dipp.nic.in/English/Publications/FDI_Statistics/2013/ india_FDI_March2013.pdf 15All FDI data from UNCTADStat, except for greenfield FDI India, Reserve Bank of India (n.d.). Foreign direct investment data which is from FDI Intelligence, and data on mergers flows to India. Research study. Available from www. and acquisitions, which is from Thomson Reuters. rbi.org.in/scripts/bs_viewcontent.aspx?Id=2513 . 16Developed and developing economies as defined in _____ (2012). Outward Indian FDI – Recent Trends and Emerging Issues. Available from www.rbi.org.in/ UNCTAD (2013b). scripts/BS_speechesView.aspx?Id=674 17The Asia-Pacific region here refers to the regional ESCAP Li, Zhongmin (2013). How Foreign Direct Investment member States, plus Taiwan Province of China. Promotes Development: the Case of the People’s Republic of China’s Inward and Outward FDI. Asian 18 See chapter 10 of this Report for a more thorough discus- Development Bank. Available from www.adb. sion about regulatory reform in Mongolia.

40 as actualFDIflows. itself manifestmayinvested capital the of part a only that locally,meaning raised be mayinvestment announced the of Some raised. is projects the for capital how of question the is thereFinally, announcement. the in given been not have data those if investment capital of estimates own its uses also Intelligence fDi account. into investment the of takeinvestment,not the databasedoes the any as phasing ments statistics. Discrepancies may arise from the timing of differ from official FDI flows often based onbalance of pay ble at the time of the project announcement and, therefore, on a global basis. The data are based on information availa announcements project tracks FDI greenfield which gence, 21 tions placedonfull foreign ownership. condi of a number still however, are liberalizations; there further to led WTOto China’s accession 1990. in approvedlaw were the of implementation the regarding rules The ownership. foreign full for allowing 1986, in adopted was Enterprises Foreign-Owned Wholly on Law The China. in 20 Kong, China. 19 The data used in this section are provided by fDi Intelli fDi by provided are section this in used data The policy FDI in liberalization gradual a indicates Literature Federation;Russian the India; China; Singapore Hong and - - - - 41

CHAPTER 3