fDi Forum 2015: East Asia breaks out

East Asian growth and rapid shifts in China’s economy and demographics will have a far-reaching impact in the next few years, according to experts at the bi-annual fDi Forum, held in Hong Kong on June 30.

The region's higher level of investment has been primarily driven by trade, but east Asia is now looking for new growth drivers, taking into account the shift in demand for services, growing domestic markets and new forms of business.

“The growth in outward FDI from China is the biggest transformation in the FDI world,” said Henry Loewendahl, CEO of Hong Kong-based FDI software developer Wavteq. Indeed, in 2014, China was the largest source of FDI from the Asia-Pacific region, accounting for 29% of capital investment and 15% of FDI projects, according to greenfield investment monitor fDi Markets.

Speakers at the forum, which included representatives from multinational companies, academia and organisations such as the Asian Development Bank and the Asia-Pacific Economic Co-operation (APEC) forum, agreed that east Asia will continue to grow as a hotspot for FDI despite a slower growth globally, particularly with regard to the eurozone.

“The east Asian picture is better than the global story,” said keynote speaker Dr Alan Bollard, executive director of the APEC secretariat, who is based in Singapore. “The real story is outflows. We are seeing outflow growth in the Asean region and especially in China. FDI in China and neighbouring countries is forecast to grow in the next five years, and China is to become the biggest source of FDI in the world.”

China was described by panelists as a top country to watch in 2015, and the reasons for this are plenty. The country’s economy grew by $1000bn in 2014, and FDI for 2015 has been forecast at $200bn, just behind that of the US. China was also ranked number two in the world in 2014 for greenfield FDI overseas, and fourth globally for FDI jobs created, according to fDi Markets data. 

A key factor behind this growth is greater exports and imports, in both the region as a whole and China specifically. There is a shift in demand towards services as well as increased elasticity of trade. New business forms, such as supply chains, services and SMEs, are also on the rise. More trade in services is predicted as growth continues.

Ecommerce and free-trade agreements have played an important role in facilitating trade for SMEs, as have low prices in energy, commodities and capital. Many attempts to diversify, including introducing new trade modes and logistics – western routes to China, upgrading Siberian rail, and more – were also cited as positive indicators and future growth drivers. 

China is experiencing faster demographic change than at any time in history “besides the plague”, said Mr Bollard. “The workforce is ageing, and we are seeing technological innovations relative to that, as well as educational reforms and investment. The country is witnessing changes in consumption, productivity, retirement and health consumption. Furthermore, a lot more is being done by electronic means – China is leading the world in electricity consumption and delivery.”

Patrick Tsang, executive director at China-based ecommerce company GNet Group plc, added: “More than just the ‘made in China’ brand, China is pursuing high-quality agriculture, products and technology. It has the largest retail market in the world."

Meanwhile, slower domestic growth has given Chinese companies more enthusiasm for expanding internationally. “Loosening political controls on the domestic market will help FDI inflow and help Chinese companies," said Wang Feng, editor-in-chief at FTChinese.com. "People are optimistic that there are more incremental changes to be made.”

Another topic discussed at the forum was Asean integration, which all panelists agreed would not culminate in a 'big bang' effect, but rather would be a slow process thanks to substantial challenges concerning the region’s less-developed economies.

“The process will be very slow. We are not as optimistic as the press,” admitted Raymond Yee, vice-president of customs and regulatory affairs for DHL Express Asia-Pacific. Nonetheless, he added: “We are very bullish on the less-developed [Asean] economies – Myanmar, Vietnam – and looking at reform programmes. Other Asean economies are a mixed bag. Indonesia is good, but many of them aren’t that exciting, with several traditional economies.”

Stefano Poli, president at Toshiba Mitsubishi Industrial Corp Asia and founder of the EU-Asean Business Council, added: “We will probably see agriculture decrease and manufacturing increase, with some value-added agriculture for poorer countries." Textiles, automotives, oil and gas and SMEs were also noted as key sectors for the Asean region.

Globally, capital expenditure and job creation still have not bounced back to pre-2008 levels. More than 30% of global FDI came to Asia in 2014, however. Thirty-six percent of global job creation for 2014 was in Asia, and China alone has attracted $240bn in FDI since 2012.

Companies are now very risk-averse when making investment decisions, multinational business leaders told the forum. A skilled workforce is increasingly important, while cost is less so. Domestic market growth potential is extremely important to investors, as are regulations and business climate.