Post-crisis Asia will have to vie with China for FDI

[Ulhas Joglekar]

28 December 1999
Post-crisis Asia will have to vie with China for FDI
SINGAPORE: Post-crisis Asian economies face stiff challenges in securing
foreign direct investments as China pursues its membership bid in the WTO,
an independent think-tank reported.
Reform and restructuring efforts undertaken in the aftermath of the regional
financial crisis which began mid-1997 have boosted the level of such foreign
inflows into Thailand and South Korea, said the Political and Economic Risk
Consultancy (PERC) in its latest survey.
It has also improved expatriate businessmen's perceptions of the extent of
discrimination against their investments, the survey said.
But China's bid for membership in the World Trade Organisation "could be the
single most important factor influencing foreign direct investment trends
for a number of years to come--not only in China but elsewhere in Asia as
well," it said.
"Increasingly, one of the key challenges for other Asian countries will be
to figure ways either to compete against China as a site for foreign
investment or to complement investments there''.
"Hong Kong, Taiwan and probably (South) Korea will figure into the latter
category. Singapore should also be able to carve out a niche for itself, but
its track record in China investments to date is certainly mixed at best,"
PERC said.
"If China is about to enter a period of rapid policy change for the better,
other countries, from India to the Philippines, will have to take even more
radical steps," it added.
India's selling points would be its huge population, the large middle class
and its widespread use of English, it added.
It noted that even without membership in the global trade body, China has
been attracting more direct foreign investment in recent years than the rest
of Asia combined.
Foreign direct investment to China is expected to fall $10 billion this year
from $45.5 billion in 1998, but still the amount is greater than new
investments being actually committed into any other Asian country, it said.
It attributed the drop to Beijing's efforts to more accurately record such
statistics, following the fallout from a scandal involving China's local
investment trust companies.
Malaysia, Thailand and the Philippines, while possessing their own
structural merits, could not consider cheap labour as a decisive factor
attracting foreigners to invest.
"China's entry into the WTO will be coming at a time when these countries
are just emerging from the regional crisis, and it remains to be seen how
well they will face up to the new competitive challenges that will develop,"
the report said.
Foreign investors would keep Indonesia in its sights due to its large
population and wealth of natural resources, "no matter what happens in
China."
"And if the mainland's economy continues to grow strongly, its demand for
the raw materials that Indonesia has to offer could create a lot of
synergies for both countries," PERC said.
"The problem with Indonesia as far as most foreign investors are concerned
is not so much an unwelcome regulatory atmosphere as it as a nagging
suspicion that Indonesia's political and social problems are far from
settled and that more disruptions to the business environment can therefore
be expected," it said.
The report was part of PERC's survey this year of 500 expatriates and their
perceptions of the extent of discrimination against their investments.
Only three of 12 countries surveyed - Japan, Thailand and South Korea -
registered improvements in their scores from a year ago.
On a scale of zero to 10, with zero being the best grade possible, Japan
scored 4.38 this year, from 5.71 in 1998, Thailand 5.00 from 6.38, and South
Korea 6.40 from 7.47.
Hong Kong and Singapore, remained the top two with the most favourable
ratings, although their scores slipped to 1.30 in 1999 from 0.79, and 2.36
from 1.36 respectively.
PERC commended their governments for pursuing steps to make their economies
more friendly for foreign investors.
All the other countries surveyed were within the middle range, with the
exception of Vietnam, whose score fell to 7.50 this year from 5.50 a year
ago. (AFP)
For reprint rights: Times Syndication Service
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