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PULLING TOGETHER: The rise of intra-regional FDI in Asia

Pulling together:The rise of intra-regional FDI in Asia

1© Economist Corporate Network 2014

Preface

Pulling together: The rise of intra-regional FDI in Asia is an Economist Corporate Network (ECN) management brief supported by corporate sponsors. ECN performed the research, conducted interviews and wrote the report LQGHSHQGHQWO\��7KH�ÀQGLQJV�DQG�YLHZV�H[SUHVVHG�LQ�WKH�SDSHU�DUH�WKRVH�RI�WKH�(&1�DORQH�DQG�GR�QRW�QHFHVVDULO\�UHÁHFW�WKH�YLHZV�RI�WKH�VSRQVRU�

The report was written by Andrew Staples, with assistance from Markus Winter and William Speagle. Mary Boyd wrote the chapter on China, and Justin Wood wrote the chapter on South-east Asia. Wai Lam was responsible for design and layout. The cover image is by Thinkstock.

We would like to thank all the interviewees for their time and insights.

March 2014

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2 © Economist Corporate Network 2014

Contents

Preface 1

I Introduction 3 As Asia GHYHORSV��SDWWHUQV�RI�IRUHLJQ�GLUHFW�LQYHVWPHQW�ÁRZV�DUH�FKDQJLQJ��

Asia is increasingly investing within itself, and moving towards more consumption-orientated and service sector investments.

II ASEAN into ASEAN 5 With young DQG�JURZLQJ�SRSXODWLRQV��DQG�H[SORGLQJ�GHPDQG�IURP�WKH�

emergent middle classes, the countries of the Association of South-east $VLDQ�1DWLRQV��$6($1��DUH�DWWUDFWLYH�LQYHVWPHQW�GHVWLQDWLRQV�IRU�DOO�ÀUPV�� But the biggest sources of FDI for the region are companies from within ASEAN itself.

III Leaving the Middle Kingdom — Chinese investment in East Asia 11 China is D�OHDGLQJ�UHFLSLHQW�RI�JOREDO�)',�EXW�ZLWK�¶JRLQJ�JOREDO·�DV�DQ�

RIÀFLDO�SROLF\��&KLQD�LV�DOVR�EHFRPLQJ�D�VLJQLÀFDQW�RYHUVHDV�LQYHVWRU�— especially into Asia.

IV Beyond the factory gates — the new wave of Japanese FDI 16 Spurred by GRPHVWLF�IDFWRUV��-DSDQHVH�ÀUPV�DUH�RQFH�DJDLQ�LQYHVWLQJ�

heavily in Asia, and a new wave of investment, distinct from previous phases, LV�ÁRZLQJ�RXW�RI�-DSDQ�

V Conclusion 23 What do deepening levels of regional economic integration mean for

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Introduction As Asia increasingly pulls together, we examine trends in intra-regional foreign direct investment and the implications for corporate.

*OREDO�IRUHLJQ�GLUHFW�LQYHVWPHQW��)',��ÁRZV�DUH�FKDQJLQJ��$FFRUGLQJ�WR�WKH�ODWHVW�:RUOG�,QYHVWPHQW�5HSRUW�IURP�81&7$'��PDUNHG�WKH�ÀUVW�WLPH�WKDW�GHYHORSLQJ�HFRQRPLHV�attracted more inbound FDI than developed economies. Given the relatively weak picture in much of the West, compared with much higher growth rates in the emerging ZRUOG��VXFK�SDWWHUQV�DUH�WR�EH�H[SHFWHG�

,PSRUWDQWO\��KRZHYHU��HPHUJLQJ�PDUNHWV�DUHQ·W�MXVW�EHFRPLQJ�WKH�ELJJHVW�UHFLSLHQWV�of FDI. They are also rapidly becoming the biggest source of global FDI too. In 2012, 81&7$'�GDWD�VKRZ�WKDW��RI�DOO�)',�ÁRZV�LQWR�WKH�HPHUJLQJ�PDUNHWV�FDPH�IURP�RWKHU�emerging markets (with the other 56% coming from the developed world). 1

The same dynamic is at play within Asia, where an ever larger share of FDI is coming from emerging markets. Importantly, the sources of this emerging market FDI are in IDFW�RWKHU�$VLDQ�FRXQWULHV��$GG�LQ�)',�ÁRZV�FRPLQJ�RXW�RI�-DSDQ��DQG�LW·V�FOHDU�WKDW�ZH�live in a world of ever rising intra-regional FDI within and across Asia.

The drivers of this intra-regional FDI are hugely diverse, but several trends are especially QRWDEOH��-DSDQHVH�ÀUPV�KDYH�FDSLWDOLVHG�RQ�WKH�VWUHQJWK�RI�WKH�\HQ�VLQFH�WKH�JOREDO�ÀQDQFLDO�FULVLV�WR�VHHN�JURZWK�RSSRUWXQLWLHV�RXWVLGH�-DSDQ��ULVLQJ�ZDJHV�DQG�SURGXFWLRQ�costs in China have underpinned shifts in labour intensive manufacturing away from China WR�OHVV�GHYHORSHG�$VLDQ�HFRQRPLHV��DQG�HPHUJLQJ�PXOWLQDWLRQDOV�IURP�WKH�$VVRFLDWLRQ�RI�South-east Asian Nations (ASEAN) have started to invest in other ASEAN economies.

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7KH�FKDQJLQJ�FKDUDFWHU�RI�$VLD·V�HFRQRPLHV�LV�LPSRUWDQW�WRR��,Q�WKH�SDVW��PXFK�RI�WKH�)',�ÁRZLQJ�LQWR�$VLD�ZDV�IRFXVHG�RQ�ÀQGLQJ�FKHDSHU�SURGXFWLRQ�FRVWV��ZKHUHDV�WRGD\�DQ�HYHU�ELJJHU�VKDUH�LV�DERXW�VHHNLQJ�PDUNHW�RSSRUWXQLWLHV�DV�WKH�UHJLRQ·V�PLGGOH�classes balloon in size and spending power. Linked to this rising wealth is a huge need for infrastructure investment, particularly in power generation and transmission, transportation, water, sanitation, and telecommunications.

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Political dynamics are also at play. These include rivalry between China and Japan for regional leadership and associated geopolitical tensions, as well as the US-led Trans-3DFLÀF�3DUWQHUVKLS��733��DOWKRXJK�DW�WKH�WLPH�RI�ZULWLQJ�D�VXFFHVVIXO�FRQFOXVLRQ�WR�these negotiations cannot be taken for granted.

6R�ZKDW�GRHV�DOO�WKLV�PHDQ�IRU�ÀUPV�RSHUDWLQJ�ZLWKLQ�WKH�UHJLRQ"�7KH�(FRQRPLVW�Corporate Network has written this report in order to:�� ,GHQWLI\�DQG�XQGHUVWDQG�NH\�WUHQGV�VKDSLQJ�LQWUD�UHJLRQDO�LQYHVWPHQW�ÁRZV�� 8QGHUVWDQG�ZKDW�WKHVH�WUHQGV�PHDQ�IRU�WKH�UHJLRQ�LQ�WHUPV�RI�HFRQRPLF�LQWHJUDWLRQ�� ([SORUH�WKH�LPSOLFDWLRQV�RI�WKLV�IRU�FRUSRUDWH�VWUDWHJ\��DQG�� ,GHQWLI\�WKH�RSSRUWXQLWLHV�WKDW�WKLV�QHZ�XQGHUVWDQGLQJ�EULQJV�

This report considers intra-regional FDI from the ASEAN, Chinese and Japanese SHUVSHFWLYHV��$�FRQFOXGLQJ�VHFWLRQ�VXPPDULVHV�WKH�NH\�ÀQGLQJV�DQG�FRQVLGHUV�WKH�strategic implications of the report.

This report is based on analysis of publicly available data as well as interviews with VHQLRU�H[HFXWLYHV�DW�PXOWLQDWLRQDO�ÀUPV�ZLWK�ÀUVW�KDQG�NQRZOHGJH�RI�LQWUD�UHJLRQDO�investment, and researchers or academics with specialist knowledge of the themes.



ASEAN invests in ASEANWith young and growing populations, and exploding demand from the emergent PLGGOH�FODVVHV��$6($1�HFRQRPLHV�DUH�DWWUDFWLYH�LQYHVWPHQW�GHVWLQDWLRQV�IRU�ÀUPV�from across Asia, but especially those from within ASEAN itself.

Over the past few years, the 10 nations of the Association of South-east Asian Nations (ASEAN) have seen the value of foreign direct investment rise in dramatic fashion. In ��WKH�YDOXH�RI�)',�LQÁRZV�VWRRG�DW�86��EQ��7HQ�\HDUV�ODWHU��WKDW�ÀJXUH�KDG�JURZQ�WR�86��EQ�

1DWXUDOO\�WKHVH�LQÁRZV�ULVH�DQG�IDOO�ZLWK�WKH�VWDWH�RI�WKH�JOREDO�HFRQRP\��DQG�WKH\�GLSSHG�PDUNHGO\�GXULQJ�WKH�ÀQDQFLDO�FULVLV�RI��,Q�JHQHUDO��KRZHYHU��WKH�WUHQG�LV�RQH�RI�VKDUSO\�ULVLQJ�LQWHUHVW�LQ�6RXWK�HDVW�$VLD�IURP�IRUHLJQ�ÀUPV��1RW�RQO\�LV�WKH�YDOXH�of FDI rising, but the value of FDI as a share of GDP is also climbing. (See chart 1.)

THE LURE OF THE SEA0DQ\�IDFWRUV�OLH�EHKLQG�WKHVH�ULVLQJ�LQÁRZV��0RVW�LPSRUWDQWO\��WKH�$6($1�UHJLRQ�RIIHUV�DQ�DWWUDFWLYH�PDUNHW�ZLWK�D�ODUJH�SRSXODWLRQ�RI��P��RI�WKH�ZRUOG��(FRQRPLHV�DUH�growing rapidly (by around 5.5% a year for the region as a whole) and incomes are rising. A big middle class is emerging, creating a deep pool of spending power. This creates not only consumer opportunities, but giant demands for infrastructure, housing and other W\SHV�RI�À[HG�DVVHW�LQYHVWPHQW�

ASEAN also has many countries with rich endowments of natural resources, notably

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Indonesia, Malaysia, Brunei and Myanmar. Commodity-hungry economies, such as those in China and India are keen to access these resources.

$6($1·V�DWWUDFWLYH�GHPRJUDSKLFV�DUH�HTXDOO\�SRZHUIXO�¶SXOO·�IDFWRUV��:KLOH�PDQ\�FRXQWULHV�LQ�$VLD�KDYH�DOUHDG\�HQMR\HG�WKHLU�GHPRJUDSKLF�GLYLGHQG�DQG�QRZ�IDFH�ageing populations and shrinking workforces, the opposite is true in ASEAN. China, for H[DPSOH��VDZ�WKH�VL]H�RI�LWV�ZRUNIRUFH�SHDN�LQ��EXW�$6($1·V�ZRUNIRUFH�ZLOO�NHHS�H[SDQGLQJ�XQWLO�WKH�PLG��V��WKDQNV�WR�\RXWKIXO�DJH�SURÀOHV�DQG�KLJK�IHUWLOLW\�UDWHV�

This demographic picture feeds through into wages. In China, wages are rising sharply as the number of workers begins to fall. In South-east Asia, the wage pressure is less, and many manufacturers are investing in new factories in ASEAN, both to avail RI�WKH�SRVLWLYH�ODERXU�SLFWXUH��DV�ZHOO�DV�WR�VHUYH�ORFDO�GHPDQG��+RQ�+DL�RI�7DLZDQ��WKH�ZRUOG·V�ODUJHVW�FRQWUDFW�PDQXIDFWXUHU�LQ�WKH�HOHFWURQLFV�VHFWRU��VLJQHG�D�OHWWHU�RI�LQWHQW�LQ�)HEUXDU\�WKLV�\HDU�WR�LQYHVW�86��EQ�LQ�-DNDUWD�LQ�D�QHZ�DVVHPEO\�OLQH�DV�D�ZD\�WR�alleviate wage pressures in its factories in China.

ASEAN is also pursuing policies aimed at breaking down trade and investment barriers. These efforts are both regional and international. Within ASEAN, the trade bloc is aiming to establish an ASEAN Economic Community by 2015. The vision is of a single market DQG�XQLÀHG�SURGXFWLRQ�EDVH��ZLWK�IUHH�ÁRZLQJ�JRRGV�DQG�VHUYLFHV�DQG�LQYHVWPHQW�across the 10 member states. While much remains to be done in achieving this vision, progress is inching forwards. Increasingly, companies are able to think of South-east Asia not as 10 individual countries but as one integrated region. Tariffs on intra-regional WUDGH��IRU�H[DPSOH��DUH�QRZ�FORVH�WR�]HUR�IRU�DOPRVW�DOO�JRRGV��DQG�FURVV�ERUGHU�FXVWRPV�procedures and product standards are becoming more harmonised. These efforts create LPSRUWDQW�VFDOH�EHQHÀWV�IRU�FRPSDQLHV�ORRNLQJ�WR�LQYHVW�LQ�WKH�UHJLRQ�

ASEAN is also building a series of free trade agreements (FTAs) with other countries. )RU�H[DPSOH�LW�VHW�XS�WKH�&KLQD�$6($1�)7$�LQ��DQG�KDV�VLPLODU�GHDOV�ZLWK�,QGLD��Japan, and Australia. These arrangements are fuelling growth in cross-border trade between ASEAN and the rest of the world, and the more that countries trade with each other, the more they invest in each other too. Indeed, investment facilitation measures are increasingly important aspects of bilateral and regional economic accords.

Rising interest in South-east Asia is further supported by strong investment returns. Data from UNCTAD shows that returns on FDI in the region are much better than the global average. (See chart 2.)

WHERE IS THE FDI GOING?*HRJUDSKLFDOO\��WKH�SLFWXUH�RI�)',�ZLWKLQ�$6($1�LV�PL[HG��6LQJDSRUH�LV�WKH�FOHDU�OHDGHU�in terms of attracting foreign interest. Indeed, the value of all FDI over the past decade


�© Economist Corporate Network 2014

into Singapore is more than the other nine ASEAN countries combined (although these QXPEHUV�PD\�EH�GLVWRUWHG�D�OLWWOH�E\�6LQJDSRUH·V�UROH�DV�D�ÀQDQFLDO�FHQWUH�IURP�ZKLFK�PDQ\�PXOWLQDWLRQDOV�UXQ�UHJLRQDO�KXE�RSHUDWLRQV��,QGRQHVLD�DQG�7KDLODQG��$6($1·V�two biggest economies, are in second and third position. (See chart 3.)

/RRNLQJ�DW�WKH�FKDQJH�LQ�)',�ÁRZV�RYHU�WKH�SDVW��\HDUV��LW·V�FOHDU�WKDW�,QGRQHVLD�is emerging as a favoured destination for new investment. Indeed, FDI in the country LQ��KLW�D�UHFRUG�RI�MXVW�RYHU�86��EQ��6HH�FKDUW��9LHWQDP�LV�DOVR�LQWHUHVWLQJ��During the 2000s, the country emerged as a new investment location for foreign LQYHVWRUV��HVSHFLDOO\�LQWR�PDQXIDFWXULQJ��%XW�GXULQJ�WKH�JOREDO�ÀQDQFLDO�FULVLV��)',�IHOO�markedly, thanks in large part to mismanagement of the local economy. The authorities had let the economy overheat, causing a property bubble, a banking crisis, sky-high LQÁDWLRQ�DQG�D�IDOOLQJ�FXUUHQF\��7RGD\��SROLF\PDNHUV�DUH�VWDUWLQJ�WR�À[�WKHVH�SUREOHPV��and FDI is returning once more.

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The industries attracting FDI vary by country. Data from 2011 show that resources are LPSRUWDQW��KRZHYHU�WKH\�RQO\�VKRZHG�XS�DV�WKH�GRPLQDQW�VHFWRU�LQ�%UXQHL��ZKHUH��RI�)',�ZHQW�LQWR�H[WUDFWLYH�LQGXVWULHV��,Q�PRVW�RI�6RXWK�HDVW�$VLD��PDQXIDFWXULQJ�LV�WKH�ELJJHVW�GHVWLQDWLRQ�IRU�IRUHLJQ�LQYHVWPHQW��,Q�7KDLODQG��IRU�H[DPSOH��RI�)',�ZHQW�LQWR�PDQXIDFWXULQJ��,Q�0DOD\VLD��WKH�ÀJXUH�ZDV��LQ�,QGRQHVLD�LW�ZDV��

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WHERE IS THE FDI COMING FROM?Looking at ASEAN FDI by source country reveals important insights about the region. The biggest source of FDI is from ASEAN itself, ie South-east Asian nations investing in their QHLJKERXUV��$URXQG��RI�WKH�UHJLRQ·V�)',�FDPH�IURP�RWKHU�$6($1�FRXQWULHV��DQG�WKLV�share has been rising steadily over the past decade, up from 10% in 2004. (See chart 5.)

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The integration of ASEAN, and the prospect of an ASEAN Economic Community (AEC) has

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Attempts to build a regional presence across ASEAN vary by country. Typically, it has been the smaller economies, where companies run out of local opportunities more TXLFNO\��WKDW�KDYH�PDGH�WKH�JUHDWHVW�SURJUHVV��6LQJDSRUH�LV�WKH�ELJJHVW�ORFDO�LQYHVWRU�LQ�ASEAN, followed by Malaysia. Both countries are aiming to build ASEAN-wide banking giants, such as CIMB and MayBank in Malaysia, and DBS and OCBC in Singapore. In KHDOWKFDUH��0DOD\VLD·V�,QWHJUDWHG�+HDOWKFDUH�+ROGLQJV�LV�EXLOGLQJ�D�UHJLRQ�ZLGH�FKDLQ�RI�FOLQLFV�DQG�KRVSLWDOV��ZKLOH�6LQJDSRUH·V�7KRPVRQ�0HGLFDO�LV�GRLQJ�WKH�VDPH�with services specialising in obstetrics, gynaecology and paediatrics. In contrast, early-stage economies like Vietnam and Cambodia provide relatively little outbound FDI. Indonesia has also seen only limited outbound investment, in part because the FRXQWU\·V�FRPSDQLHV�DUH�VWLOO�EXLOGLQJ�WKHLU�FDSDELOLWLHV��DQG�LQ�SDUW�EHFDXVH�WKH�domestic market in Indonesia is so much bigger than any of the others in ASEAN.

Pavida Pananond, associate professor at Thammasat Business School in Thailand, KDV�VWXGLHG�WKH�LQYHVWPHQW�DFWLYLWLHV�RI�7KDL�ÀUPV��´$OWKRXJK�D�IHZ�SLRQHHUV�VXFK�DV�&3�DQG�6LDP�&HPHQW�JURXSV�PD\�KDYH�SHQHWUDWHG�RYHUVHDV�PDUNHWV�VLQFH�WKH��V��PRVW�ÀUPV�RQO\�VWDUWHG�SD\LQJ�VHULRXV�DWWHQWLRQ�WR�LQWHUQDWLRQDO�H[SDQVLRQ�LQ�WKH�SDVW�decade,” she says. “Protection from competition at home, combined with a relatively ODUJH�GRPHVWLF�PDUNHW��KDV�PDGH�7KDL�ÀUPV�PRUH�GRPHVWLF�RULHQWHG�DQG�FRPSODFHQW�WKDQ�WKHLU�FRXQWHUSDUWV�LQ�VPDOOHU�FRXQWULHV�VXFK�DV�6LQJDSRUH�DQG�0DOD\VLD��7KDL�ÀUPV�WKHUHIRUH�>KDYH�VRXJKW@�JURZWK�YLD�GLYHUVLÀFDWLRQ�LQWR�RWKHU�LQGXVWULHV�DW�KRPH�UDWKHU�WKDQ�SXVKLQJ�ERXQGDULHV�WR�H[SDQG�DEURDG�µ

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+RZHYHU��DUJXHV�0V�3DQDQRQG��WKLV�SLFWXUH�LV�FKDQJLQJ�QRZ��,QGHHG��WKH�YDOXH�RI�outbound FDI from Thai companies has tripled in the past four years. The companies that have been most aggressive in pushing into the rest of the region are those that grew up as part of global “value chains”, producing goods and services for global brands and international manufacturing networks. Typically these businesses start as small-scale suppliers of components or parts. But as they grow and become more sophisticated, they try to capture more of the value in their particular supply chain. In the electronics VHFWRU��IRU�H[DPSOH��7KDL�ÀUPV�DUH�SXVKLQJ�XSVWUHDP�LQ�WKHLU�YDOXH�FKDLQ��E\�DFTXLULQJ�companies with R&D capabilities so that they can not only manufacture electronic FRPSRQHQWV�EXW�DOVR�GHVLJQ�WKHP��,Q�WKH�IRRG�VHFWRU��7KDL�ÀUPV�DUH�SXVKLQJ�GRZQVWUHDP�E\�DFTXLULQJ�EUDQGV�DQG�GLVWULEXWLRQ�FKDQQHOV�LQ�RYHUVHDV�PDUNHWV�

Alongside ASEAN, other Asian countries are also big investors in the region. In 2011, -DSDQ�FRQWULEXWHG��RI�WKH�)',�ÁRZLQJ�LQWR�6RXWK�HDVW�$VLD��ZKLOH�&KLQD�SURYLGHG��DQG�+RQJ�.RQJ�D�IXUWKHU��$OO�WRJHWKHU³LQFOXGLQJ�$6($1�FRXQWULHV³$VLDQ�LQYHVWRUV�SURYLGHG��RI�WKH�UHJLRQ·V�)',�LQÁRZV�

-DSDQHVH�LQYHVWPHQW�LQWR�$6($1�LV�ULVLQJ�HVSHFLDOO\�TXLFNO\��JURZLQJ�E\��GXULQJ��WR�UHDFK�86��EQ�7KLV�LV�EHLQJ�SURSHOOHG�E\�VHYHUDO�QRQ�$6($1�´SXVKµ�IDFWRUV�VXFK�DV�WKH�UHODWLYHO\�ODFNOXVWUH�GRPHVWLF�PDUNHW�LQ�-DSDQ��:KDW·V�PRUH��-DSDQ·V�relations with China have taken a distinct turn for the worse as the two nations bicker DERXW�RZQHUVKLS�RI�WKH�6HQNDNX�'LD\RX�,VODQGV�LQ�WKH�6RXWK�&KLQD�6HD��7KH�WKUHDW�RI�hostilities, coupled with worsening perceptions of Japan in China, have caused many -DSDQHVH�ÀUPV�WR�GLYHUW�WKHLU�LQYHVWPHQW�DZD\�IURP�WKH�0LGGOH�.LQJGRP�WRZDUGV�WKH�$6($1�EORF��7KLV�LVVXH�ZLOO�EH�H[SORUHG�LQ�JUHDWHU�GHSWK�EHORZ�

Chinese companies are also starting to target South-east Asia. Not only is WKHLU�ÀQDQFLDO�FORXW�JURZLQJ��EXW�VR�WRR�LV�WKHLU�PDQDJHULDO�VWUHQJWK��7KH�&KLQHVH�JRYHUQPHQW�LV�DFWLYHO\�HQFRXUDJLQJ�GRPHVWLF�ÀUPV�WR�SXVK�LQWR�WKH�UHJLRQ��SDUWO\�WR�SXUVXH�JURZWK��SDUWO\�WR�VHFXUH�QDWXUDO�UHVRXUFHV��DQG�SDUWO\�WR�H[WHQG�SROLWLFDO�LQÁXHQFH��:LWK�ULVLQJ�FRVWV�LQ�&KLQD��VRPH�RI�WKH�LQYHVWPHQW�LV�DOVR�HIÀFLHQF\�VHHNLQJ�LQ�WKH�IRUP�RI�DFFHVVLQJ�PRUH�DIIRUGDEOH�ZRUNHUV��+RZHYHU��ZKLOH�&KLQD�LV�$6($1·V�biggest trading partner, its FDI is still relatively small. In 2011, Japanese FDI into ASEAN was two-and-a-half times bigger than the level of Chinese FDI.

In some countries, such as the Philippines, the low level of FDI is because relations with China remain strained for the same reason as with Japan—disputes over WHUULWRULDOLW\�LQ�WKH�6RXWK�&KLQD�6HD��,Q�0\DQPDU��&KLQHVH�)',�IHOO�E\��LQ��WR�86��P��GRZQ�IURP�86��EQ�LQ��:LWK�WKH�RSHQLQJ�XS�RI�0\DQPDU��DQG�JHQHURXV�RIIHUV�RI�DLG�DQG�DVVLVWDQFH�IURP�-DSDQ�DQG�WKH�:HVW��&KLQD·V�VWUDQJOHKROG�RQ�WKH�country disappeared overnight.



Leaving the Middle Kingdom: Chinese Outbound Investment &KLQD�LV�D�OHDGLQJ�UHFLSLHQW�RI�JOREDO�)',�EXW�ZLWK�¶JRLQJ�JOREDO·�DV�DQ�RIÀFLDO�SROLF\��&KLQD�LV�DOVR�EHFRPLQJ�D�VLJQLÀFDQW�RYHUVHDV�LQYHVWRU�²�QRW�OHDVW�LQ�$VLD��

)ROORZLQJ�LWV�DFFHVVLRQ�WR�WKH�:72�LQ��&KLQD·V�VLJQLÀFDQFH�LQ�JOREDO�WUDGH�KDV�JURZQ�WUHPHQGRXVO\��ZLWK�WKH�FRXQWU\�QRZ�UDQNLQJ�DV�WKH�ZRUOG·V�ODUJHVW�WUDGLQJ�QDWLRQ��&KLQD·V�WRWDO�WUDGH�LQ��DW�86��WUQ��LV�OLNHO\�WR�H[FHHG�WKDW�RI�WKH�86�IRU�WKH�ÀUVW�time. The US has not yet released its full-year trade data for 2013, but its merchandise WUDGH�IURP�-DQXDU\�WR�1RYHPEHU�DPRXQWHG�WR�MXVW�86��WUQ��

0XFK�RI�WKLV�JLDQW�JURZWK�LQ�WUDGH�ZDV�IXHOOHG�E\�)',�LQÁRZV�DV�IRUHLJQ�ÀUPV�UHORFDWHG�WKHLU�manufacturing activities to the country. More recently, a lot of the FDI has become internally-IRFXVHG�DQG�DLPHG�DW�WKH�FRXQWU\·V�VXUJLQJ�FRQVXPHU�DQG�LQYHVWPHQW�RSSRUWXQLWLHV�

BALANCING “OUT” WITH “IN” $�PRUH�UHFHQW�SKHQRPHQRQ�KDV�EHHQ�WKH�HPHUJHQFH�RI�&KLQD�DV�D�PDMRU�VRXUFH�RI�outbound capital. This shift is the result of government policy as well as market IRUFHV��7KH�JRYHUQPHQW·V�SXVK�IRU�&KLQHVH�GRPHVWLF�HQWHUSULVHV�WR�´JR�JOREDOµ�VWDUWHG�GXULQJ�WKH��WK�ÀYH�\HDU�SODQ��DQG�JDLQHG�VWHDP�GXULQJ�WKH��WK�ÀYH�\HDU�SODQ��2QH�RI�WKH�WDUJHWV�RI�WKH�FXUUHQW��WK�ÀYH�\HDU�SODQ�LV�IRU�D�EDODQFH�between foreign direct investment into China and Chinese outbound investment. This goal is now in sight: in November 2013 the Ministry of Commerce reported that RXWERXQG�LQYHVWPHQW�E\�&KLQHVH�QRQ�ÀQDQFLDO�ÀUPV�JUHZ�E\��WR�UHDFK�

III.

Chart 6: &KLQD·V�RXWERXQG�)',�LQ��ÁRZ��86�EQ�

Source: MOFCOM and BBVA Research

Asia Latin America Africa OceaniaEurope North America

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20

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50

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10



86��EQ��ZKLOH�)',�WRWDOHG�86��EQ�IRU�WKH�-DQXDU\�1RYHPEHU��SHULRG��6HH�FKDUWV��DQG��

While no one disputes that China has become an important source of outbound capital, VWDWLVWLFDO�LVVXHV�PDNH�D�VWUDLJKWIRUZDUG�LQWHUSUHWDWLRQ�RI�SULYDWH�&KLQHVH�LQYHVWPHQW�ÁRZV��DQG�HVSHFLDOO\�FURVV�FRXQWU\�FRPSDULVRQ��GLIÀFXOW��0DLQODQG�FRPSDQLHV�IUHTXHQWO\�XVH�RIIVKRUH�LQYHVWPHQW�YHKLFOHV��PDQ\�RI�ZKLFK�DUH�UHJLVWHUHG�LQ�+RQJ�.RQJ�RU�MXULVGLFWLRQV�VXFK�DV�WKH�%ULWLVK�9LUJLQ�,VODQGV��WKXV�FRPSOLFDWLQJ�DQ\�HIIRUW�WR�FDWHJRULVH�LQYHVWPHQW�ÁRZV�E\�country source. Estimates are that over 60% of Chinese outbound investment is channelled WKURXJK�+RQJ�.RQJ��$�VLPLODU�LVVXH�DIIHFWV�LQERXQG�LQYHVWPHQW�ÁRZV��LQ��+RQJ�.RQJ�EDVHG�LQYHVWPHQW�LQWR�&KLQD�ZDV�WKH�PDLQ�VRXUFH�RI�FDSLWDO��DFFRXQWLQJ�IRU�86��EQ��ZKLOH�-DSDQHVH�LQYHVWPHQW�LQ�&KLQD�ZDV�D�GLVWDQW�VHFRQG�SODFH��DW�86��EQ��

GOVERNMENT INITIATIVESSince 2001, when the “go global” directive was elaborated, Chinese outbound investment has come from a diverse range of sources, including sovereign wealth funds, government-GLUHFWHG�ORDQ�IDFLOLWLHV��SULYDWH�HTXLW\�DQG�LQGLYLGXDO�FRUSRUDWH�LQYHVWPHQWV��7KH�QDWXUH�RI�LQYHVWPHQW�ÁRZV�KDV�DOVR�HYROYHG��ZLWK�HQHUJ\�DQG�UHVRXUFH�GHDOV�VWLOO�NH\��EXW�ZLWK�KLJK�value M&A deals now an increasingly important component. According to the Ministry of &RPPHUFH��DERXW��RI�&KLQD·V�UHFHQW�RXWERXQG�LQYHVWPHQW�IHOO�LQWR�VHFWRUV�RI�FRPPHUFLDO�services, mining, wholesale and retail, manufacturing, construction and transportation.

7KH�LQYHVWPHQW�SURÀOH�KDV�DOVR�FKDQJHG��DV�SULYDWH�FRPSDQLHV�DQG�SULYDWH�HTXLW\�ÀUPV�PDNH�XS�D�ODUJHU�VKDUH�RI�&KLQD·V�RXWERXQG�LQYHVWPHQW��,Q��&KLQD�VLPSOLÀHG�DSSURYDO�SURFHGXUHV�IRU�RXWERXQG�LQYHVWPHQW�RI�OHVV�WKDQ�86��P��$QRWKHU�GHYHORSPHQW�KDV�EHHQ�WKH�WUHQG�RI�SULYDWH�SXEOLF�SDUWQHUVKLSV��ZLWK�SULYDWH�ÀUPV�ZRUNLQJ�ZLWK�&KLQHVH�VRYHUHLJQ�ZHDOWK�IXQGV�RQ�MRLQW�LQYHVWPHQW�SURMHFWV��

Chart 7: &KLQD·V�RXWERXQG�)',�LQ��VWRFN��86�EQ�

Source: MOFCOM and BBVA Research

400

300

200

100

350

250

150

50

Asia Latin America Africa OceaniaEurope North America



2IÀFLDO�HQFRXUDJHPHQW�IRU�´JR�JOREDOµ�RXWERXQG�LQYHVWPHQW�E\�&KLQHVH�FRPSDQLHV�KDV�WDNHQ�WKH�IRUP�RI�SUHIHUHQWLDO�LQFHQWLYHV��H[SRUW�ÀQDQFLQJ�DQG�VRIW�ORDQV��DV�ZHOO�DV�political support. It is common to see trade and investment delegations accompanying Chinese senior leaders on overseas trade missions. Indeed political support is often UHTXLUHG�WR�KHOS�&KLQHVH�LQYHVWRUV�OREE\�IRU�LQYHVWPHQW�DSSURYDOV�LQ�WKHLU�WDUJHWHG�GHVWLQDWLRQV��)DYRXUDEOH�ÀQDQFLQJ�WHUPV�IRU�RYHUVHDV�SXUFKDVHV�RI�LQIUDVWUXFWXUH�HTXLSPHQW�DQG�LQVWDOODWLRQ�VHUYLFHV�DUH�IDFLOLWDWHG�WKURXJK�&KLQD·V�H[SRUW�FUHGLW�DJHQF\��&KLQD�([SRUW�,PSRUW�%DQN��DV�ZHOO�DV�WKH�&KLQD�'HYHORSPHQW�%DQN��D�SROLF\�EDQN��

&KLQD�KDV�VHW�XS�VRYHUHLJQ�ZHDOWK�IXQGV�VSHFLÀFDOO\�WDUJHWLQJ�UHJLRQDO�SURMHFWV��7KH�China and Africa Development Fund (CADFund) is supported by the China Development %DQN�DQG�IRFXVHV�RQ�$IULFDQ�LQYHVWPHQW�SURMHFWV��,Q�$SULO��&KLQD�SURYLGHG�86��EQ�in seed capital to set up a China-ASEAN Investment Corporation Fund (CAF). CAF operates DV�DQ�HTXLW\�IXQG��DQG�LV�VXSSRUWHG�E\�WKH�([SRUW�,PSRUW�%DQN�RI�&KLQD�DORQJ�ZLWK�LQVWLWXWLRQDO�LQYHVWRUV�LQFOXGLQJ�WKH�:RUOG�%DQN·V�,QWHUQDWLRQDO�)LQDQFH�&RUSRUDWLRQ��

6LQFH�LWV�LQFHSWLRQ��&$)�KDV�ÀQDQFHG�VHYHUDO�VL]HDEOH�SURMHFWV�LQ�$6($1�PHPEHU�VWDWHV��UHFHQW�SURMHFWV�LQFOXGH�LQYHVWPHQWV�LQ�WKH�ODUJHVW�IHUUR�QLFNHO�SURMHFW�LQ�,QGRQHVLD�LQ�SDUWQHUVKLS�ZLWK�37�%LQWDQJGHODSDQ�,QYHVWDPD��D�SRWDVK�PLQH�LQ�/DRV��WKURXJK�$VLD�3RWDVK�*URXS��DQG�&DPERGLD·V�ÀEUH�RSWLF�QHWZRUN��WKURXJK�&DPERGLD�Fibre Optic Communications Network Co).

FTAS AND INVESTMENT FLOWSOver the past decade China has invested considerable time and effort in negotiating bilateral and regional trade accords, usually in the form of free trade agreements (FTAs) or Bilateral Investment Treaties (BITs). FTAs facilitate trade in goods and services and GHOLYHU�ZLGHU�PDUNHW�DFFHVV�IRU�&KLQHVH�H[SRUWV��)7$V�DOVR�IDFLOLWDWH�&KLQHVH�RXWERXQG�LQYHVWPHQW��DV�WKH\�QRUPDOO\�LQFOXGH�VSHFLÀF�LQYHVWPHQW�SURWHFWLRQ�PHDVXUHV��7ZR�RI�WKH�PRVW�VLJQLÀFDQW�LQWUD�$VLDQ�DJUHHPHQWV�FDPH�LQWR�HIIHFW�LQ��LQ�-DQXDU\��&KLQD·V�)7$�ZLWK�$6($1�PHPEHU�VWDWHV�FDPH�LQWR�IRUFH�DQG��RQ�-XQH��WK��WKH�(FRQRPLF�Co-operation Framework Agreement (ECFA) with Taiwan was signed.

The China-ASEAN FTA was supported by parallel offers of Chinese investment and DVVLVWDQFH�WR�$6($1�PHPEHU�VWDWHV��DSDUW�IURP�&$)��&KLQD�DOVR�VSRQVRUV�RIÀFLDO�GHYHORSPHQW�DVVLVWDQFH�SURMHFWV�LQ�WKH�$VLD�3DFLÀF��&KLQD�LQLWLDWHG�86��EQ�LQ�FUHGLW�WR�VXSSRUW�$6($1�FRXQWULHV��DORQJ�ZLWK�86��P�RI�VSHFLDO�DLG�WR�XQGHU�GHYHORSHG�$6($1�nations as a complement to the China-ASEAN FTA. It has also been active in sponsoring the annual China-ASEAN Business and Investment Summit, and in promoting bilateral OLQNDJHV�ZLWK�VSHFLÀF�WUDGLQJ�SDUWQHUV��VXFK�DV�0DOD\VLD��ZKHUH�3UHVLGHQW�;L�-LQSLQJ�recently called for the Sino-Malaysian ties to be elevated to a “strategic partnership”.



Focus box: New Zealand7KH�1HZ�=HDODQG�&KLQD�)7$�FDPH�LQWR�IRUFH�RQ�2FWREHU��VW��7KLV�ZDV�&KLQD·V�ÀUVW�)7$�ZLWK�D�GHYHORSHG�FRXQWU\��DQG�FRYHUV�WUDGH�LQ�JRRGV��VHUYLFHV�DQG�LQYHVWPHQW��ZLWK�WKH�SKDVHG�UHPRYDO�RI�WDULIIV�RQ��RI�1HZ�=HDODQG�H[SRUWV�WR�&KLQD��

&KLQHVH�FXPXODWLYH�LQYHVWPHQW�LQ�1HZ�=HDODQG�KDV�JURZQ�IURP�1=��P�LQ��FKDQQHOOHG�WKURXJK�+RQJ�.RQJ��WR�1=��EQ�E\��H[�35&�DQG�+RQJ�.RQJ�ÁRZV�DJJUHJDWHG��+DL·HU·V�SXUFKDVH�RI�ZKLWH�JRRGV�PDQXIDFWXUHU�)LVKHU��3D\NHO�DSSOLDQFHV��DW�1=��P��LV�WKH�ODUJHVW�GHDO�WR�GDWH��DOWKRXJK�3HQJ[LQ·V�SXUFKDVH�RI�GDLU\�IDUPODQG�KDV�EHHQ�WKH�most contentious.

New Zealand operates a Visiting Investor Programme to welcome potential investors, and will schedule site tours and RULHQWDWLRQ�EULHÀQJV�WR�UHLQIRUFH�WKH�PHVVDJH�WKDW�WKH�HFRQRP\�LV�RSHQ�WR�IRUHLJQ�LQYHVWRUV��

Chinese Investor/ NZ company (or vendor) Sector Announced investmentHaier/ Fisher & Paykel Appliances Manufacturing - whiteware ��PLOOLRQ

Cheung Kong Infrastructure/ Wellington Lines Company Energy distribution ��PLOOLRQ

Cheung Kong Infrastructure/ Envirowaste Waste management ��PLOOLRQ

1HZ�'HYHORSPHQW�*URXS��*UHHQÀHOG +RWHO�FRPPHUFLDO ��PLOOLRQ

Shanghai Pengxin/ Crafar Farms and Synlait Farms Dairy farms ��PLOOLRQ

<LOL��*UHHQÀHOG Dairy processing ��PLOOLRQ

<DVKLOL��QRZ�0HQJQLX��*UHHQÀHOG Dairy processing ��PLOOLRQ

)X�:DK�,QWHUQDWLRQDO��*UHHQÀHOG +RWHO ��PLOOLRQ

Agria/ PGG Wrightson Rural services ��PLOOLRQ

China National Forestry Group/ NZ Super Fund Forestry ��PLOOLRQ

Large PRC foreign direct investment projects in New Zealand

PRC foreign direct investment in New Zealand

PRC including HKSAR. Actual and announced investment. Source NZTE

2008 2010 20122009 2011 2013 2014 (to feb)

PRC FDI in NZ by sector

$4 billion FDI actual & announced including HKSAR. To February 2014. Source NZTE

4,500 FDI Stocks in millions of NZD

3,000

2,000

1,000

3,500

2,500

1,500

500

4,000

China +RQJ�.RQJ�6$5

Primary industry & food Forestry Manufacturing Services ,QIUDVWUXFWXUH�8WLOLWLHV +RWHO�&RPPHUFLDO



,QGHHG�0U�;L�PDGH�VLPLODU�VWDWHPHQWV�GXULQJ�KLV�UHFHQW�VWDWH�YLVLW�WR�,QGRQHVLD��ZKHUH�he also proposed the establishment of an Asian infrastructure investment bank.

&KLQD·V�RYHUVHDV�GHYHORSPHQW�DVVLVWDQFH�SURMHFWV�DUH��WR�D�GHJUHH��PRGHOOHG�RQ�LWV�RZQ�KLVWRU\�RI�HFRQRPLF�GHYHORSPHQW��:KLOH�&KLQD·V�LQIUDVWUXFWXUH�LQYHVWPHQW�SURMHFWV�RYHUVHDV�DUH�RIWHQ�RXWULJKW�GRQDWLRQV�WR�HPHUJLQJ�QDWLRQV��WKH\�DOVR�LQFOXGH�build-operate-transfer (BOT) models. This replicates the widespread use of BOTs in &KLQD·V�HDUO\�LQIUDVWUXFWXUH�SURMHFWV��,Q�WKH�PLG��V�&KLQD�EHJDQ�VXSSRUWLQJ�WKH�establishment overseas of special economic zones (SEZs)—this was also a replication of LWV�RZQ�H[SHULHQFH�LQ�6(=V�LQ�WKH��V��DOWKRXJK�WKH�RYHUVHDV�UHVXOWV�DUH�PXFK�PRUH�modest. The zones are divided between African and Asian locations, with the Asian sites ranging from Lahore (Pakistan), to Rayong in Thailand and Tien Gang in Vietnam.

RESOURCE-BASED INVESTMENTS0DQ\�RI�$VLD·V�UHVRXUFH�EDVHG�HFRQRPLHV��VXFK�DV�0DOD\VLD��,QGRQHVLD�DQG�$XVWUDOLD��KDYH�UHFHLYHG�KLJK�SURÀOH�&KLQHVH�LQYHVWPHQWV�LQ�H[WUDFWLYH�LQGXVWULHV��SDUWLFXODUO\�in mining and energy transactions. The volume is rising: China signed seven mining FRRSHUDWLRQ�DJUHHPHQWV�ZLWK�$6($1�SDUWQHUV��YDOXHG�DW�86��EQ��GXULQJ�WKH�&KLQD�ASEAN Mining Cooperation Forum in May 2013.

&KLQHVH�LQYHVWPHQW�LQ�$XVWUDOLDQ�PLQLQJ�SURMHFWV�KDV�VORZHG�UHFHQWO\��GXH�WR�WD[DWLRQ�DQG�SULFLQJ�LVVXHV��EXW�HQHUJ\�LQYHVWPHQWV�LQ�$XVWUDOLD�FRQWLQXH�WR�GLYHUVLI\��the Guohua Energy Investment Corp, a wholly-owned subsidiary of Shenhua Group, has invested in windfarms in Tasmania. Other key energy investments in South-east Asia KDYH�LQFOXGHG�&KLQD·V�6WDWH�*ULG�&RUSRUDWLRQ·V��VWDNH�LQ�WKH�3KLOLSSLQHV·�QDWLRQDO�transmission grid for a 25-year leasing and operating contract.

Chinese investment into agricultural commodities and food processing has also been high-SURÀOH��,Q��&KLQD·V�%ULJKW�)RRG�*URXS�SXUFKDVHG�D�PDMRULW\�VWDNH�LQ�$XVWUDOLD·V�0DQDVVHQ�)RRGV��DQG�LQ�WKH�VDPH�\HDU�&2)&2�*URXS�SXUFKDVHG�D�PDMRULW\�VWDNH�LQ�$XVWUDOLD·V�7XOO\�6XJDU��0DQ\�RI�&KLQD·V�ODUJH�SURSHUW\�GHYHORSHUV�KDYH�H[SDQGHG�WKHLU�RSHUDWLRQV�LQWR�6RXWK�HDVW�$VLD�WKURXJK�LQYHVWPHQWV�LQ�VKRSSLQJ�PDOOV��KRWHOV��RIÀFHV�DQG�UHVLGHQWLDO�GHYHORSPHQWV��

ADVISORY SERVICES FOR CHINESE INVESTMENT IN ASIA PACIFICPrivate investment (outbound) from China has spawned a sub-industry of professional service providers to help Chinese investors package deals, and to acclimatise to overseas business FRQGLWLRQV��0DMRU�ODZ�ÀUPV�DQG�DFFRXQWLQJ�ÀUPV�RIIHU�EHVSRNH�́ &KLQD�EXVLQHVV�DGYLVRU\�services” in efforts to attract clients. Foreign embassies and commercial services are also keen WR�DWWUDFW�&KLQHVH�LQYHVWRUV��DQG�PRVW�PDMRU�HPEDVVLHV�LQ�%HLMLQJ�KDYH�LQYHVWPHQW�RIÀFHUV��



%H\RQG�WKH�IDFWRU\�JDWHV�²� the new wave of Japanese FDI Japanese investment into the rest of Asia is growing and changing, with the region becoming ever more important to Japan as a source of growth.

-DSDQ�LV�D�PDMRU�LQYHVWRU�LQ�$VLD�DQG�-DSDQHVH�)',�WR�WKH�UHJLRQ�FRQWLQXHV�WR�SOD\�D�NH\�UROH�LQ�IRVWHULQJ�UHJLRQDO�HFRQRPLF�LQWHJUDWLRQ��)URP�WKH��V�RQZDUGV��-DSDQHVH�RXWERXQG�LQYHVWPHQW�LQ�WKH�PDQXIDFWXULQJ�VHFWRU�OHG�WKH�ZD\�DV�ÀUPV�LQ�WKH�automotive and electronics sectors sought to mitigate the impact of the high yen. Their HIIRUWV�ZHUH�HTXDOO\�GHVLJQHG�WR�UHGXFH�WUDGH�IULFWLRQ�ZLWK�PDMRU�SDUWQHUV��LQFOXGLQJ�the US and European countries, by using newly industrialising economies (NIEs) such DV�6RXWK�.RUHD��IROORZHG�E\�$6($1�HFRQRPLHV��DV�ORZ�FRVW�¶H[SRUW�SODWIRUPV·��-DSDQHVH�PDQXIDFWXULQJ�ÀUPV�KDYH�DOVR�EHHQ�LQVWUXPHQWDO�LQ�SXOOLQJ�WKH�UHJLRQ�WRJHWKHU�through the fragmentation of their production networks across the continent.

7RGD\��KRZHYHU��D�TXDOLWDWLYH�VKLIW�LV�WDNLQJ�SODFH��ZKHUHE\�VHUYLFH�VHFWRU�LQYHVWPHQWV�KDYH�EHHQ�JURZLQJ�UDSLGO\��DV�KDV�$VLD·V�VKDUH�RI�WKH�RXWERXQG�)',�IURP�-DSDQ��7KLV�WUHQG�KDV�EHHQ�IXHOOHG�E\�3ULPH�0LQLVWHU�6KLQ]R�$EH·V�HSRQ\PRXV�VHW�RI�economic policies (Abenomics) designed to revitalise the Japanese economy through a VWUDWHJ\�RI�SURPRWLQJ�¶JOREDO�RXWUHDFK·�

,Q�WHUPV�RI�LQZDUG�LQYHVWPHQW��)',�ÁRZV�WR�-DSDQ�UHPDLQ�VPDOO��MXVW��RI�JURVV�À[HG�FDSLWDO�IRUPDWLRQ�LQ��,QGHHG��DW�RQO\�86��EQ��-DSDQHVH�LQERXQG�)',�ZDV�RQO\��RI�DOO�WKH�)',�JRLQJ�LQWR�$VLD�LQ��2I�WKLV�WRWDO��VRPH�86��P�FDPH�IURP�RWKHU�SDUWV�RI�WKH�UHJLRQ��$V�VXFK��$VLD·V�VKDUH�RI�LQERXQG�)',�WR�-DSDQ�LV�ODUJH��EXW�WKH�DEVROXWH�amount is tiny, and of limited relevance to the theme of intra-regional integration.

JAPANESE FDI INTO ASIA$VLD�KDV�EHHQ�D�NH\�GHVWLQDWLRQ�IRU�-DSDQHVH�RXWERXQG�LQYHVWPHQW�VLQFH�WKH�PLG��V��DFFRXQWLQJ�IRU�PRUH�WKDQ�KDOI�RI�DOO�RYHUVHDV�LQYHVWPHQWV�LQ��LPPHGLDWHO\�SULRU�WR�WKH�RQVHW�RI�WKH�$VLDQ�ÀQDQFLDO�FULVLV��6HH�FKDUW��/RRNLQJ�DW�WKH�UHJLRQDO�EUHDNGRZQ��China accounted for 14% of Japanese investments to the region that year, while those WR�$6($1��7KDLODQG��,QGRQHVLD��0DOD\VLD�DQG�WKH�3KLOLSSLQHV��DQG�WKH�1,(V�RI�+RQJ�.RQJ��7DLZDQ��6RXWK�.RUHD�DQG�6LQJDSRUH�WRJHWKHU�WRWDOHG��6HH�FKDUW��

%\��KRZHYHU��-DSDQHVH�LQYHVWPHQW�LQ�&KLQD�KDG�H[SDQGHG�WR��RI�WKH�regional total compared to 42% for the NIEs and the ASEAN 4 combined. (See chart ��&KLQD·V�LPSRUWDQFH�DV�DQ�LQYHVWPHQW�GHVWLQDWLRQ�IRU�-DSDQHVH�ÀUPV�UHDOO\�

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VWDUWHG�WR�WDNH�RII�LQ�WKH�ODWH��V��ULVLQJ�IURP�RQO\�86��P�LQ��WR�MXVW�XQGHU�86��EQ�LQ��DQG�D�UHFRUG�86��EQ�LQ��&KLQD·V�DFFHVVLRQ�WR�WKH�:RUOG�7UDGH�Organisation in 2001 was a big part of the growing attraction.

0RUH�UHFHQWO\��&KLQD·V�VKDUH�RI�-DSDQHVH�RXWERXQG�LQYHVWPHQW�KDV�IDOOHQ��DFFRXQWLQJ�IRU�MXVW��RI�WKH�WRWDO�LQ��6HH�FKDUW��$�QXPEHU�RI�LVVXHV�KDYH�FDXVHG�&KLQD·V�OXVWUH�WR�ZDQH�LQ�WKH�H\HV�RI�-DSDQHVH�ÀUPV��$PRQJ�WKHP��ULVLQJ�JHRSROLWLFDO�WHQVLRQV�EHWZHHQ�&KLQD�DQG�-DSDQ�RYHU�WKH�FRQWHVWHG�6HQNDNX�'LD\RX�,VODQGV�KDYH�HPHUJHG�DV�D�VLJQLÀFDQW�SUREOHP�DQG�IXHOOHG�VPRXOGHULQJ�WHQVLRQV�RYHU�-DSDQ·V�ZDU�WLPH�UHFRUG��:KDW·V�more, rising costs in China, especially labour costs, have further reduced Japanese interest.

Chart 8: 0DMRU�GHVWLQDWLRQV�IRU�RXWERXQG�-DSDQHVH�)',��86�P�

Source: JETRO

Asia EuropeNorth America Rest of World

14,000

12,000

��

10,000

6,000

4,000

2,000

Source: JETRO

Chart 9: 5HJLRQDO�GLVWULEXWLRQ�RI�-DSDQHVH�)',�WR�$VLD��86�P��DQG�DV�D��RI�UHJLRQDO�WRWDO

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Conversely, investment to ASEAN economies has rebounded to account for more than 50% of the total. Singapore, Thailand and Indonesia stand out in terms of increasing their share of Japanese investments in 2013. Whether the current political troubles in Thailand will impact Japanese appetite for the country remains to be VHHQ��-DSDQ�KDV�WUDGLWLRQDOO\�EHHQ�7KDLODQG·V�ELJJHVW�IRUHLJQ�LQYHVWRU��DFFRXQWLQJ�

Source: JETRO



Source: JETRO




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IRU�DURXQG��RI�WKH�)',�VWRFN�LQ�WKH�FRXQWU\��+RZHYHU��DV�WKH�SROLWLFDO�SLFWXUH�KDV�GHWHULRUDWHG�LQ��VRPH�ELJ�-DSDQHVH�ÀUPV�VXFK�DV�7R\RWD�KDYH�SXW�QHZ�LQYHVWPHQWV�on ice until the situation becomes clearer.

-$3$1(6(�)',�,1�$6,$�²�'5,9(56�:KDW�GULYHV�-DSDQHVH�LQYHVWPHQW�LQ�WKH�UHJLRQ"�$V�D�PDWXUH�HFRQRP\�ZLWK�D�VKULQNLQJ�and ageing population, Japan offers limited opportunities for growth, or at least the kind of growth on offer in emerging economies. The strong value of the yen up until the HQG�RI��DFWHG�DV�D�IXUWKHU�´SXVKµ�IDFWRU��'XULQJ�WKH��JOREDO�ÀQDQFLDO�FULVLV��WKH�FROODSVH�LQ�WKH�8QLWHG�6WDWHV�DQG�WKH�VXEVHTXHQW�GHVWDELOLVDWLRQ�RI�WKH�(XUR]RQH�OHG�WR�DQ�DSSUHFLDWLRQ�RI�WKH�\HQ�GXH�WR�LWV�¶VDIH�KDYHQ·�VWDWXV��&RUSRUDWH�-DSDQ��ÁXVK�ZLWK�D�strong currency and buoyed by huge cash reserves, went on a buying spree. Japanese FRPSDQLHV�VSHQW�QHDUO\�86��EQ�LQ�RXWERXQG�0$�LQ��XS�IURP�86��EQ�LQ��

0RUHRYHU��ZLWK�WKH�HOHFWLRQ�YLFWRU\�RI�6KLQ]R�$EH�LQ�ODWH��-DSDQ·V�HFRQRPLF�IRUWXQHV�DSSHDU�WR�KDYH�UHYLYHG��WKDQNV�WR�DQ�H[SDQVLRQDU\�PRQHWDU\�SROLF\�DQG�OLEHUDO�GRVHV�RI�ÀVFDO�VWLPXOXV��:KLOH�WKH�LPSDFW�RI�´$EHQRPLFVµ�KDV�UHGXFHG�-DSDQ·V�VWURQJ�yen advantage, it has brought about new policy settings for Japan in terms of structural reforms and a strategy of global outreach. Aggressive targets have been set by Prime 0LQLVWHU�$EH�WR�WULSOH�LQIUDVWUXFWXUH�H[SRUWV��IURP��WUQ�WR��WUQ��DQG�FDSWXUH�D��WUQ��FXUUHQWO\��WUQ��VKDUH�LQ�RYHUVHDV�PHGLFDO�WHFKQRORJ\�E\��0XFK�RI�WKLV�H[SRUW�GULYH�ZLOO�EH�XQGHUSLQQHG�E\�IXQGV�FKDQQHOOHG�WKURXJK�WKH�JRYHUQPHQW�RZQHG�Japan Bank for International Cooperation (JBIC).

-%,&�KRSHV�WR�H[SRUW�QRW�RQO\�HTXLSPHQW�EXW�KLJK�VNLOOHG�H[SHUWLVH�IRU�WKH�GHYHORSPHQW�RI�SRZHU�DQG�WUDQVSRUWDWLRQ�QHWZRUNV�RYHUVHDV��-%,&·V�,QIUDVWUXFWXUH�6\VWHPV�([SRUW�6WUDWHJ\�WDUJHWV�RYHUVHDV�LQIUDVWUXFWXUH�GHYHORSPHQW�DFURVV�WKH�ZRUOG�

1.6

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0.6

0.4

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Figure 12:7KH�-�ZDYH��-DSDQ·V�IRUHLJQ�GLUHFW�LQYHVWPHQW�WR�$6($1��WUQ�

Source: CEIC

2005 �� 2006 �� 2010 20122011 2013**Q1 annualised



EXW�ZLWK�SULRULW\�RQ�(DVW�$VLDQ�GHYHORSPHQW��7KHVH�SURMHFWV�LQFOXGH�WKH�GHYHORSPHQW�RI�JDV�ÀUHG�SRZHU�JHQHUDWLRQ�SODQWV�LQ�9LHWQDP��VHDZDWHU�GHVDOLQDWLRQ�SODQWV�LQ�6LQJDSRUH��DQG�WHOHFRPPXQLFDWLRQ�PDFKLQHU\�DQG�HTXLSPHQW�WR�,QGRQHVLD�

$�IXUWKHU�FRPSRQHQW�RI�WKH�$EH�JRYHUQPHQW·V�JURZWK�VWUDWHJ\�VHHNV�WR�SURPRWH�JUHDWHU�RYHUVHDV�H[SDQVLRQ�E\�-DSDQ·V�60(V��7KHVH�ÀUPV�DFFRXQW�IRU�DSSUR[LPDWHO\��RI�DOO�ÀUPV�LQ�-DSDQ�DQG�WKH�VKDUH�RI�SURGXFWLRQ�FDUULHG�DW�RYHUVHDV�DW�WKHVH�ÀUPV�has risen from below 25% in 2001 to above 33% in 2012, according to a recent JBIC VXUYH\��2I�PLG�VL]HG�-DSDQHVH�FRPSDQLHV��JOREDO�DQQXDO�UHYHQXHV�RI�EHWZHHQ��EQ�DQG��EQ��D��UHSRUW�E\�WKH�(FRQRPLVW�,QWHOOLJHQFH�8QLW�IRXQG�WKDW�RQO\��KDG�DQ\�RYHUVHDV�LQYHVWPHQWV��ZLWK�$VLD�EHLQJ�WKH�PRVW�FRPPRQ�ORFDWLRQ�IRU�H[SDQVLRQ�

:KLOH�$EH·V�RXWUHDFK�VWUDWHJ\�LV�JOREDO�LQ�QDPH��LQ�UHDOLW\�PXFK�RI�WKH�DFWLYLW\�ZLOO�EH�$VLD�focused, in line with recent political initiatives. The Prime Minister and his cabinet made YLVLWV�WR�$6($1�HFRQRPLHV�D�SULRULW\�WKURXJKRXW��DQG�DQQRXQFHG�D�ÁXUU\�RI�ELODWHUDO�DQG�UHJLRQDO�IXQGLQJ�LQLWLDWLYHV��LQFOXGLQJ��WUQ�LQ�RIÀFLDO�GHYHORSPHQW�DVVLVWDQFH�WR�$6($1�RYHU�D�ÀYH�\HDU�SHULRG�DQG�VRIW�ORDQV�WR�0\DQPDU�IRU�LQIUDVWUXFWXUH�GHYHORSPHQW��

China HK/ Taiwan

South Korea

South-east Asia

All middle market 34% 24% 21% 31%

Large 60% 53% ��

Medium �� 25% 23% 36%

Small 21% 13% �� 16%

Manufacturing �� 31% 26% 42%

IT, technology & telecoms 45% 31% 26% ��

Logistics & distribution �� 25% 21% ��

Financial & professional services 36% 22% �� 26%

Consumer goods & retail �� 22% �� 25%

Construction & real estate �� 12% 15% 20%

+HDOWKFDUH��SKDUPDFHXWLFDOV�DQGbiotechnology

15% 10% 10% 10%

Emerging 51% 41% �� 40%

Established �� 26% 20% 32%

Old 30% 21% 20% ��

Figure 13: 3URSRUWLRQ�RI�PLGGOH�PDUNHW�ÀUPV�ZLWK�DFWXDO�RU�SODQQHG�LQYHVWPHQWV� in the region

Source: Economist Intelligence Unit survey



7+(�1(:�:$9(�2)�-$3$1(6(�)',�²�$�6+,)7�72�6(59,&(6Manufacturing-related FDI has traditionally been a key component of Japanese RXWÁRZV��EXW�WKHUH�LV�QRZ�D�QHZ�ZDYH�RI�VHUYLFH�UHODWHG�LQYHVWPHQWV��LQ�DUHDV�VXFK�DV�ÀQDQFH��ORJLVWLFV��UHWDLO�DQG�KHDOWKFDUH��6KLQWDUR�+DPDQDND��VHH�IRFXV�ER[�DERYH��estimates that Japanese service sector FDI to ASEAN has increased from around ��RI�WRWDO�LQYHVWPHQW�ÁRZV�LQ��WR�RYHU��LQ��,QGRQHVLD��ZKHUH�-DSDQ�was the second largest investor after Singapore in 2012, has traditionally received investments in manufacturing sectors such as automotives, rubber processing, WH[WLOHV�DQG�FKHPLFDOV��,QGHHG��QHZ�LQYHVWPHQWV�IURP�-DSDQ�LQWR�WKH�,QGRQHVLDQ�PDQXIDFWXULQJ�VHFWRU�WRWDOOHG�86��EQ�LQ��FKDQQHOOHG�WKURXJK��SURMHFWV��<HW�VHUYLFH�VHFWRU�LQYHVWPHQW�LV�IDVW�FDWFKLQJ�XS��ZLWK�DQ�HVWLPDWHG�86��EQ�FRPPLWWHG�WR�,QGRQHVLDQ�SURMHFWV�LQ�WKH�VDPH�\HDU��-(752��WKH�-DSDQ�([WHUQDO�7UDGH�Organization) suggests that investment in manufacturing has passed its peak and Japanese businesses will now focus on services due to the growing purchasing power of the population throughout the region.

-DSDQHVH�ÀQDQFLDO�LQVWLWXWLRQV�H[SDQGHG�RYHUVHDV�LQ�WDQGHP�ZLWK�WUDGLQJ�KRXVHV�WR�VXSSRUW�WKH�RYHUVHDV�RSHUDWLRQV�RI�PDQXIDFWXULQJ�ÀUPV��0RUH�UHFHQWO\��KRZHYHU��WKH\�

Focus box: Singapore shift6KLQWDUR�+DPDQDNH��DQ�HFRQRPLVW�DW�WKH�2IÀFH�RI�5HJLRQDO�(FRQRPLF�,QWHJUDWLRQ�RI�the Asian Development Bank, specialises in FDI trends in the region and has studied DQ�LPSRUWDQW�WUHQG�WKDW�KH�KDV�WHUPHG�WKH�´6LQJDSRUH�6KLIWµ��0U�+DPDQDND�QRWHV�that the recent proliferation of regional and bilateral economic agreements within $VLD�KDV�LPSURYHG�WKH�LQYHVWPHQW�HQYLURQPHQW�IRU�VHUYLFH�VHFWRU�ÀUPV��7KH�$6($1�Japan Economic Partnership Agreement, for instance, adopts the “substantial business operations” rule with regard to the rule of origin in the services sector.

Singapore, the ASEAN member with the most liberal regulatory environment, SHUPLWV�-DSDQHVH�ÀUPV�ZLWK�VXEVWDQWLDO�EXVLQHVV�RSHUDWLRQV�LQ�6LQJDSRUH��SUHIHUHQWLDO�DFFHVV�WR�RWKHU�$6($1�HFRQRPLHV�DV��LQ�HIIHFW��DQ�$6($1�ÀUP��-DSDQHVH�VHUYLFH�VHFWRUV�ÀUPV��SDUWLFXODUO\�LQ�WKH�WUDQVSRUWDWLRQ�VHFWRU��KDYH�EHHQ�enthusiastic users of this arrangement, ramping up resources in their Singapore EDVHV�IRU�RSHUDWLRQV�HOVHZKHUH�ZLWKLQ�$6($1��0U�+DPDQDND�LGHQWLÀHV�WKLV�DV�D�QHZ�EXVLQHVV�PRGHO�EDVHG�RQ�D�¶JDWHZD\·�FRXQWU\�WKDW�ERWK�LQWHJUDWHV�HFRQRPLF�activities within the region and connects the region to the outside world.



DUH�LQFUHDVLQJO\�PDUNHW�RULHQWDWHG��VHH�WDEOH�EHORZ��$QG�LW·V�QRW�MXVW�WKH�PHJD�EDQNV��regional banks such as the Bank of Fukuoka (investing in Thailand), Chiba Bank (investing LQ�6LQJDSRUH��DQG�7KH�2JDNL�.\RULWVX�%DQN��LQYHVWLQJ�LQ�9LHWQDP��DOO�WUDGLWLRQDO�SDUWQHUV�of Japanese SMEs in the home market, are also moving into the region.

-DSDQHVH�PDQXIDFWXULQJ�)',�DQG�UHODWHG�WUDGH�ÁRZV�KDYH�SOD\HG�D�PDMRU�UROH�LQ�SXOOLQJ�WKH�UHJLRQ�WRJHWKHU�VLQFH�WKH��V��,W�QRZ�VHHPV�WKDW�VHUYLFH�VHFWRU�investments will be playing a similar role as the region continues to grow and develop.

Company Sector ActivityMitsubishi UFJ Finance 86��EQ�LQYHVWPHQW�WR�DFTXLUH�FRQWUROOLQJ�VWDNH�

LQ�7KDLODQG·V�%DQN�RI�$\XGK\D�LQ��08)-�ZLOO�EH�WKH�ÀUVW�-DSDQHVH�ÀQDQFLDO�LQVWLWXWLRQ�WR�RSHUDWH�D�local Thai bank as a foreigner.

Sumitomo Mitsui Banking Corp

Finance 86��EQ�LQYHVWPHQW�WR�DFTXLUH��RI�,QGRQHVLD·V�PT Bank Tabungan Pensiunan Nasional (BTPN) in ��60%*·V�ELJJHVW�SXUFKDVH�RI�D�IRUHLJQ�ÀQDQ-FLDO�ÀUP�

Fast Retailing $SSDUHO��retail

2SHUDWRU�RI�WKH�8QLTOR�EUDQG�VHHNV�OLVWLQJ�RQ�+RQJ�.RQJ�VWRFN�H[FKDQJH�DV�LW�H[SDQGV�RSHUDWLRQV�LQ�WKH�UHJLRQ��VWRUHV�LQ�WKH�UHJLRQ�DV�RI�)HEUXDU\��

Mitsubishi Estate

Real estate ��EQ��86��P��LQ�$VLD�VLQFH�WKH�EHJLQQLQJ�RI�WKH�ÀVFDO�\HDU�VWDUWLQJ�$SULO��DQG�SODQV�WR�LQYHVW�D�IXUWKHU��EQ�WR��3DUWQHUVKLS�ZLWK�ORFDO�ÀUPV�LQ�7KDLODQG��&KLQD��9LHWQDP��+RQJ�.RQJ�DQG�6LQJDSRUH�WR�GHYHORS�FRQGRPLQLXP�FRPSOH[HV�

Lawson Inc Convenience stores

Utilizing Thailand as a hub, plans to invest over 86��P�WR�RSHQ��VWRUHV�LQ�$6($1�E\��10,000 stores planned for China by 2025.

Table 14: Recent service sector investments in Asia

Source: Company websites and media reports



Conclusion

7KLV�SDSHU�KDV�VXUYH\HG�VRPH�RI�WKH�NH\�WUHQGV�LQ�$VLDQ�)',�ÁRZV��$V�LQGLYLGXDO�$VLDQ�economies grow, the region is pulling closer together through trade and investment linkages, which are nudging the region to a deeper level of economic interdependence. These linkages are fuelled by deepening bilateral and multilateral trade and investment agreements that are helping to reduce tariffs and strengthen investment protection.

7KH�UHJLRQ·V�LPPHQVH�GLYHUVLW\�LV�SURYLQJ�WR�EH�D�NH\�VWUHQJWK�LQ�SURPRWLQJ��LQWHUGHSHQGHQFH��$VLD·V�PRUH�GHYHORSHG�HFRQRPLHV�RIIHU�WHFKQLFDO�H[SHUWLVH�DQG�LQYHVWPHQW�FDSLWDO�WR�WKHLU�OHVV�DGYDQFHG�UHJLRQDO�QHLJKERXUV��ZKLOH�$VLD·V�EXUJHRQLQJ�middle classes offer attractive new markets.

:KLOH�PRVW�LQWUD�$VLDQ�LQYHVWPHQWV�KDYH�EHHQ�PDUNHW�GULYHQ��WKH�UHJLRQ·V�WZR�ODUJHVW�economies are using policy measures in direct support of their respective investment goals. )RU�WKH�SDVW�WZR�GHFDGHV��-DSDQ�KDV�EHHQ�WKH�SULPDU\�LQYHVWRU�LQ�WKH�$VLD�3DFLÀF�UHJLRQ��and Prime Minister Shinzo Abe is particularly keen to facilitate and encourage further -DSDQHVH�H[SRUW�DQG�LQYHVWPHQW�ÁRZV�WKURXJK�SUHIHUHQWLDO�ORDQV�DQG�SROLWLFDO�VXSSRUW��,Q�&KLQD��WKH�JRYHUQPHQW�LV�MXVW�DV�GHWHUPLQHG�WR�VHH�LWV�FRPSDQLHV�H[SDQG�LQWR�WKH�UHVW�RI�$VLD�WKURXJK�LWV�́ JR�JOREDOµ�SROLFLHV��$V�WKHVH�WZR�HFRQRPLF�JLDQWV�H[WHQG�WKHLU�LQÁXHQFH��WKH�FRPSOH[LWLHV�RI�JHRSROLWLFV�DUH�EHFRPLQJ�LQFUHDVLQJO\�GLIÀFXOW�WR�QDYLJDWH�

6R�ZKDW�GRHV�DOO�RI�WKLV�PHDQ�IRU�EXVLQHVVHV"�$QG�KRZ�FDQ�WKLV�NQRZOHGJH�RI�LQWUD�UHJLRQDO�LQYHVWPHQW�ÁRZV�VKDSH�WKHLU�VWUDWHJLF�DSSURDFK�WR�WKH�UHJLRQ"

Certainly an understanding of the structural shifts that are re-shaping patterns of regional economic activity will help foreign investors to analyse and minimise risks. 7KH\�VKRXOG�EH�PRQLWRULQJ�WKH�LPSOHPHQWDWLRQ�RI�SURYLVLRQV�ZLWKLQ�H[LVWLQJ�WUDGH�DQG�investment treaties, as well as taking advantage of favourable interpretations of regulatory LVVXHV��DV�LQ�6LQJDSRUH·V�́ VXEVWDQWLDO�EXVLQHVV�RSHUDWLRQVµ�JXLGHOLQHV��-XVW�DV�LPSRUWDQW��companies need to keep a close eye on the evolving character of new trade and investment DJUHHPHQWV��VXFK�DV�WKH�7UDQV�3DFLÀF�3DUWQHUVKLS��7KH\�PXVW�DOVR�EH�DZDUH�RI�WKH�SRWHQWLDO�politicisation of investment policies, particularly given regional rivalries.

Falling barriers to cross-border trade and investment, and rising intra-regional FDSLWDO�ÁRZV��ZLOO�EULQJ�ERWK�HQRUPRXV�EHQHÀWV�DQG�FKDOOHQJHV��2Q�WKH�SRVLWLYH�VLGH��EXVLQHVVHV�ZLOO�ÀQG�WKH\�KDYH�D�PXFK�ZLGHU�DUUD\�RI�FDSLWDO�SURYLGHUV�IRU�QHZ�SURMHFWV��

V.



)RU�H[DPSOH��,QGRQHVLD�KDV�KLVWRULFDOO\�EHHQ�FRQVLGHUHG�D�KLJK�ULVN�PDUNHW�E\�PDQ\�:HVWHUQ�LQYHVWRUV��%XW�&KLQHVH��-DSDQHVH�DQG�.RUHDQ�FRPSDQLHV�KDYH�GLIIHUHQW�OHYHOV�of risk tolerance and many of them are increasingly hungry to get into the country. In the past, a Western gas group might have been reluctant to invest in an Indonesian gas ÀHOG�EHFDXVH�WKH�JRYHUQPHQW�UHTXLUHV�D�ELJ�SURSRUWLRQ�RI�WKH�JDV�WR�EH�VROG�ORFDOO\��DQG�\HW�QRW�HQRXJK�JDV�SRZHU�VWDWLRQV�H[LVW�WR�UHFHLYH�WKLV�IXHO��7RGD\��D�:HVWHUQ�JDV�FRPSDQ\�LQ�WKLV�VLWXDWLRQ�ZRXOG�ÀQG�LW�PXFK�HDVLHU�WR�SHUVXDGH�$VLDQ�LQYHVWRUV�WR�EXLOG�gas-fuelled power stations in the country.

On the negative side, rising regional integration is making competition much WRXJKHU��0DQ\�:HVWHUQ�PXOWLQDWLRQDOV�WKDW�ZHUH�DPRQJ�WKH�ÀUVW�WR�HQWHU�$VLDQ�PDUNHWV�VD\�WKDW�SURÀW�PDUJLQV�DUH�FRPLQJ�XQGHU�HYHU�LQFUHDVLQJ�SUHVVXUH�DV�PRUH�DQG�PRUH�ÀUPV�SXVK�LQWR�WKHLU�PDUNHWV��7KH�VRXUFH�RI�WKLV�QHZ�FRPSHWLWLRQ�LV�LQFUHDVLQJO\�$VLDQ�PXOWLQDWLRQDOV�DQG�QR�ORQJHU�WKHLU�:HVWHUQ�SHHUV��,QGHHG��WKH�PDQDJHULDO�DQG�ÀQDQFLDO�FDSDELOLWLHV�RI�$VLD·V�WRS�KRPH�JURZQ�FRPSDQLHV�DUH�HYHU\�ELW�WKH�PDWFK�IRU�(XURSHDQ�and American companies.

7KLV�ULVLQJ�FRPSHWLWLRQ�LV�QRW�RQO\�DERXW�ÀJKWLQJ�IRU�FXVWRPHUV��,W�LV�HTXDOO\�DERXW�ÀJKWLQJ�IRU�WDOHQW��$VLD·V�UDSLG�HFRQRPLF�JURZWK�UDWHV�PHDQ�WKDW�GHPDQG�IRU�WDOHQW�DOZD\V�UXQV�DKHDG�RI�VXSSO\��7KH�ULVH�RI�LQWUD�UHJLRQDO�LQYHVWPHQW�ÁRZV�ZLOO�RQO\�PDNH�the war for talent that much tougher. Inevitably, margins will suffer. Companies will struggle to maintain pricing power for the goods and services they sell. And they will HTXDOO\�EHFRPH�SULFH�WDNHUV�IRU�WDOHQW�

For local Asian companies, internationalisation is no longer a choice. Indeed, it KDVQ·W�EHHQ�D�FKRLFH�IRU�VRPH�WLPH�QRZ��&RPSDQLHV�WKDW�VWD\�ZLWKLQ�WKH�FRV\�FRQÀQHV�RI�WKHLU�GRPHVWLF�PDUNHW�ZLOO�ÀQG�WKDW�WKH\�UDSLGO\�ORVH�FRPSHWLWLYHQHVV��7KH\�QHHG�WR�JR�JOREDO�LQ�RUGHU�WR�VWD\�FRPSHWLWLYH�DW�KRPH��7KH\�QHHG�H[SRVXUH�WR�QHZ�LGHDV��WR�QHZ�markets, to international standards of competition.

The companies that will succeed in this new world of rising cross-border investment ÁRZV�ZLOO�XQGHUVWDQG�KRZ�WR�KDUQHVV�WKHVH�ÁRZV�WR�WKHLU�RZQ�DGYDQWDJH��$QG�WKH\�ZLOO�develop the skills to manage highly-distributed and fragmented operations, where the YDOXH�FKDLQ�RI�D�ÀUP·V�RSHUDWLRQV�LV�EURNHQ�XS�LQWR�HYHU�VPDOOHU��PRUH�GLVFUHWH�SDUWV��with those parts put in an ever wider array of international locations.

About Economist Corporate Network Asia

(FRQRPLVW�&RUSRUDWH�1HWZRUN��(&1��LV�7KH�(FRQRPLVW�*URXS·V�DGYLVRU\��EULHÀQJ�DQG�QHWZRUNLQJ�VHUYLFH�IRU�$VLD�EDVHG�VHQLRU�H[HFXWLYHV�VHHNLQJ�LQVLJKW�LQWR�HFRQRPLF�DQG�business trends in key growth markets. Through a tailored blend of interactive meetings, KLJK�FDOLEUH�UHVHDUFK��DQG�SULYDWH�FOLHQW�EULHÀQJV��(&1�$VLD�GHOLYHUV�FRXQWU\�E\�FRXQWU\��regional, global and industry-focused analysis.

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Economist Corporate Network AsiaBeijing, Hong Kong, Kuala Lumpur, Shanghai, Singapore, Tokyo.For enquiries, please contact us at [email protected]

Documents

PULLING TOGETHER - ftp01.economist.com.hkftp01.economist.com.hk/ECN_papers/pulling-together.pdf · Pulling together: The rise of intra-regional FDI in Asia is an Economist Corporate