2013 Mar 18
March 18, 2013

Asean FDIs growing at par with China

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MANILA, Philippines – Foreign direct investments (FDI) to Southeast Asia are now at par with that of China, which had to deal with tensions with its neighboring countries and rising labor costs, an investment bank said.

“FDI to ASEAN has risen strongly in recent years, converging with FDI to China. This is in sharp contrast to a decade ago, when there were widespread fears that ASEAN would be marginalized by China’s rise,” said Chua Hak Bin, economist at the Bank of America-Merrill Lynch (BofA-ML).

The Association of Southeast Asian Nations (ASEAN) groups Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Hak Bin said three reasons have driven investors to the region.

First is “demographic divergence” between China and the ASEAN, where the latter’s young population bodes well as a labor force than the former’s ageing ones.

Based on the bank’s estimates, the Philippines will enjoy the highest labor force growth rate of 31.3 percent in the next decade, followed by Singapore’s 22.4 percent and Malaysia’s 18.7 percent.
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These pale in comparison with China’s 0.2 percent during the same period, and a high old-age dependency ratio of 11.3 percent, Hak Bin said.

The “growing wide gap” in FDI to both regions has also been largely driven by rising labor wages and the yuan’s appreciation that does not bode well with export-driven China.

Current geopolitical tensions between China and Japan also provoked some Japanese firms to relocate to ASEAN. The tension involved the contentious Senkaku-Diaoyu islands being claimed by both nations.

“Excluding Singapore, Japanese FDI into emerging ASEAN increased a strong 45 percent in 2012,” Hak Bin said. Emerging ASEAN includes Indonesia, Malaysia, the Philippines Thailand, Vietnam. Including Singapore, they are called ASEAN-6.

In turn, China’s own investments to countries claiming parts of South China Sea have also dropped, most notably to the Philippines, where China FDI plummeted 50 percent last year.

Finally, the United States’ vow to keep its “pivotal” presence in Asia — amid China’s rise — has also secured some investments from the world’s largest economy itself. Based on estimates, US FDI to ASEAN-6 more than doubled to $19.9 billion as of September 2012.

The “pivot,” Hak Bin said, pertains to six lines of actions, including “expanding trade and investment” as well as “deepening working relationships with emerging powers.”

“Signs are that ASEAN FDI will remain robust. Forces driving FDI in ASEAN are not just functions of domestic factors, such as growing domestic markets and greater liberalization,” Hak Bin said.

“ASEAN’s FDI prospects are looking bright,” he said. –Prinz P. Magtulis (The Philippine Star)