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Asia still an FDI magnet
FDI inflows into Asia remain on an upward trajectory, bucking the global trend. But, as HSBC’s Fred Neumann explains, there’s been subtle shift of flows within the region.
Foreign Direct Investment (FDI) data are a little tricky. Definitions vary and the numbers are best handled with some caution. Still, the UN publishes a useful set of comparable statistics, and the latest release confirms some interesting trends.
Chart 1, for example, highlights that global FDI inflows (excluding Asia) are well down from their peak a decade ago, and are now roughly equal to FDI flows into Asia (though the latter dipped a bit last year). Within Asia, inflows into ASEAN have now eclipsed those into mainland China for the second year in a row, while India pulled back (Chart 2).
Chart 1: Global FDI inflows and Asia
Chart 2: FDI inflows into EM Asia
Source: UNCTAD, HSBC
Source: UNCTAD, HSBC
Look a little closer at Asia, however, and the boom in FDI flows has been a little uneven (Chart 3). For example, Japan, New Zealand, and Korea, have seen the biggest increase in flows in the last several years. By contrast, in India, Australia, and Sri Lanka, flows have fallen.
Within ASEAN, Indonesia remains the largest recipient of FDI inflows, hitting another record high over the past three years, followed by Vietnam (another record), and Malaysia (yes, another record). In Thailand, inflows also bounced back, though just shy of a record, while in the Philippines FDI is only down marginally from pre-pandemic highs (Chart 4).
Chart 3: Change in FDI inflows over time
Chart 4: ASEAN FDI inflows
Source: UNCTAD, HSBC. NB: CH refers to mainland China.
Source: UNCTAD, HSBC
The importance of FDI for local economies varies quite a bit as well. For example, in emerging markets, FDI comprises a significant share of total investment. In Vietnam, Malaysia, and the Philippines, this share remains in double digits but is significantly lower in Indonesia, Thailand, and India. In mainland China, FDI accounts for just over 2% of overall investment, a share comparable to Bangladesh and Sri Lanka (where there is significant scope to increase the share).
Headline FDI flows don’t fully reflect underlying shifts in competitiveness. An arguably better measure of emerging investment trends, therefore, is greenfield FDI, which is undertaken by companies often not previously invested in a given market. Asia’s share of global greenfield projects has steadily climbed in recent years, with a notably increase in Southeast Asia, as well as South Asia.
Chart 5: FDI as a driver of total investment
Chart 6: Share of global greenfield FDI*
Source: UNCTAD, World Bank, HSBC. NB: CH refers to mainland China.
Source: UNCTAD, HSBC. NB: *of numbers of projects
In particular, electronics greenfield FDI has surged in recent years, reflecting flows into Vietnam, Malaysia, and India, but also Taiwan, Japan, Korea, and Singapore. And then there are the automotive and transport sectors, where greenfield investment has hit a record last year, with Asia, again…at the centre of it all.