FDI inflows into Asia grew 15% y-o-y in 2014, while total foreign direct investment (FDI) inflows in the global economy decreased 8% y-o-y, according to a recent report released by the United Nations Council of Trade and Investment.
In summary, the statistics show that appetite for corporate expansion in Asia strengthened in 2014 while investor sentiment for North America, Russia and Latin America weakened.
China Dominates as Global FDI Hotspot
China’s total inflows of $128 billion, up 3% y-o-y, accounted for the largest share (11%) of total global FDI inflows in 2014. China supplanted the United States as the top recipient of FDI in 2014, with Hong Kong coming second. Other Asian countries benefited from the y-o-y increase, the most notable examples being the Philippines, Hong Kong, and Singapore seeing annual FDI increases of 67%, 46% and 27%, respectively.
FDI Slowed in India, Vietnam and Cambodia
In contrast, India, Cambodia and Vietnam saw y-o-y declines in FDI inflows, possibly because corporate decision makers held back due to electoral uncertainty in India and episodes of labor unrest in Vietnam and Cambodia.
In summary, the report echoed a number of themes familiar to readers of this blog, namely:
The Asia Pacific region continues to be a investment hotspot: Asia continues to have stronger economic growth prospects than the rest of the world. Asia is expected to grow 6.4% y-o-y in 2015, compared to 3.5% for the world economy, according to IMF projections.
China’s labor cost advantage is eroding, driving investment elsewhere in the Asia Pacific region: Manufacturers are shifting their operations away from China to new locations such as Indonesia and the Philippines due to labor cost advantages and access to new, rapidly urbanising markets. Increasingly, these trends are being driven by the Chinese and Japanese corporate sectors.
With headline economic growth, rapidly urbanising economies and demographic change continuing to favor the region, these trends look likely to continue to play out for the foreseeable future. The numerous trade liberalisation deals, such as the multilateral Trans-Pacific Partnership and unilateral deals between the European Union and Asian states, will also act as a further accelerant in the coming years.