Asia takes hit in global investment


Since joining the WTO, China has become more of a magnet for global investors

By Marianne Bray
CNN Hong Kong

HONG KONG (CNN) -- Global investment plunged by more than half last year, the worst fall in three decades, with Asia taking a direct hit.

A U.N. report shows that cross-border investment slipped by 51 percent to $735 billion in 2001, the first fall in a decade, as mergers and acquisitions dried up amid a downturn exacerbated by the September 11 attacks on America.

Flows into the Asia-Pacific region dipped 24 percent last year. Much of that was due to a 60 percent drop to Hong Kong, which had recorded massive inflows of $62 billion in 2000, a U.N. Conference on Trade and Development (UNCTAD) report said.

Since the former British colony was handed over to China in 1997, economic woes coupled with a crisis of identity has wracked the Chinese special administrative region, which is now grappling with its second recession in four years.

Lion's share

FACTBOX

•	Foreign Direct Investment (FDI) to developed countries fell 59%

•	FDI to developing countries slipped 14%

•	Central and Eastern Europe had 2% rise in FDI

•	U.S. in the top spot

•	Thailand FDI grew by $1 billion to $3.8 billion, but remained lower than its 1998 peak

•	FDI to the Philippines climbed from $1.2 billion in 2000 to $1.8 billion

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South and Central Asia took the lion's share of foreign investment in this part of the world, with China the only large developing country to brag of any rise, as investors flocked in ahead of its joining the World Trade Organization (WTO) last year.

The eastern giant took the top spot both in Asia and among the developing countries, jumping 15 percent to $47 billion in 2001.

Its pole position lasted into the first six months of this year, with inflows rising 19 percent, and in turn lifting its exports.

Overseas affiliates now account for almost 50 percent of all exports from booming China -- up from 17 percent a decade ago.

Across the Taiwan strait, investment into Taiwan remained high at $4 billion, buoyed by its accession to the WTO shortly after China. That boosted its attractiveness, particularly in the services sector.

Not all bad


Hong Kong is still Asia's hub

The news was not all bad for beleaguered Hong Kong. Even as investment slowed, the U.N. report showed that the tiny territory on China's east coast is still Asia's premier business hub.

At least 3,237 transnational corporations have set up regional offices in the city of 6.7 million, including 944 as Asian headquarters, an 8 percent rise over 2000.

The U.N. report produced a new ranking that lists the countries most successful in attracting foreign investors, an important factor in boosting growth.

The ranking was compiled by comparing a country's share of global foreign investment with its share of global GDP for the period 1998-2000.

Belgium and Luxembourg -- ranked together because they shared a currency before the Euro -- topped the list with a score of 13.8, with Hong Kong coming in second at 5.9.

Australia and Japan were among the rich nations that found themselves in the bottom half of the 140-nation ranking.

Hotspots


India is known for its software industry

Across the rest of Asia, India, Kazakhstan and Singapore, came in as investment hotspots.

India buoyed South Asia, receiving $3.4 billion out of a total $4 billion that flowed into the region. This was a 47 percent hike for India over the past year amid moves to free up its economy.

Other South Asian countries did not fare so well, amid perceived instability in the investment environment, particularly after September 11.

Flows into Central Asia climbed 88 percent to $3.6 billion, driven by the doubling of inflows (mainly in oil, gas, zinc and copper extraction) to Kazakhstan ($2.8 billion).

Singapore shines

Singapore was a bright star in Southeast Asia, with flows rising 59 percent to $9 billion, but still below the $11 billion peak of 1997.

Faced with a less competitive electronics industry, Singapore is targeting biomedical sciences as the next pillar of growth, and is using investment funds to boost infrastructure and target high-potential companies.


Singapore is emerging from its worst recession since 1964

Across the rest of Southeast Asia, investment stagnated at $13 billion, in part because of ongoing divestments ($3 billion in 2001) in Indonesia, where they have exceeded inflows since late 1998.

Flows into Malaysia were sluggish too, prompting the government to extend reinvestment allowances and set up tax measures.

Outlook

Looking ahead, the UNCTAD said the prospects for direct investment in Asia were "bright," with half of respondents in a recent survey saying they expected improvements over the next three to five years.

China topped the Asian favorites list, followed by Indonesia and Thailand. Another survey ranked India, Malaysia and Singapore as favored destinations.

"Greenfield" or new investments will again be the preferred option by far for entry to the region once the M&A boom triggered by the Asian financial crisis has subsided, the report concluded.