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    A. RECENT TRENDS IN FOREIGN DIRECT

    INVESTMENT INFLOWS AND OUTFLOWS

    1. Global trends

    Following what seemed to be a swift recovery from the global nancialcrisis in 2010-2011, global foreign direct investment (FDI) inowshave again taken a downward turn. As the world economic recovery

    continues to be uncertain and fragile, global FDI inows have declinedby 18%, from $1.65 trillion in 2011 to $1.35 trillion in 2012.

    Inows decreased both in developed and developing economies.16However, while the majority of developed countries experienced asignicant reduction in their FDI inows, by 32% on average, thoseto developing economies remained relatively resilient, declining byonly 4% on average. More importantly, for the rst time developingeconomies alone absorbed more FDI than developed countries,accounting for 52% of global FDI inows (gure 3.1).

    FOREIGN DIRECTINVESTMENT TRENDSAND DEVELOPMENTS

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    In 2012, for the rst time, developingeconomies absorbed more FDI thandeveloped countries, accounting for

    52% of global FDI inows.

    Mirroring global FDI inows, global outowsdeclined by 17% in 2012. The continued economicuncertainty, especially in developed countries,has led companies from these locations to scaleback their operations. As a result, most of theglobal decline can be attributed to developedeconomies, which saw a 23% decline in FDIoutows. Since peaking in 2007 at $2.3 trillion,global FDI outows have decreased by almost40%, while outows from developed economies

    FIGURE 3.1

    FIGURE 3.2

    Foreign direct investment inflows to developed and

    developing economies, 2003-2012

    Foreign direct investment outflows from developed and

    developing economies, 2003-2012

    Source:ESCAP calculations, based on UNCTADStat.

    Source: ESCAP calculations, based on UNCTADStatNote: Due to their small share, transition countries are not shown in the figures.

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    Developed economies Developing economies

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    in 2012 amounted to less than half of what theywere in 2007. In contrast, apart from a smalldip in 2009, developing economies have beenslowly but steadily increasing their outwardinvestments since 2007. Developing countrieshave made advances in catching up with thedeveloped countries as a source of FDI. In 2012,developing countries provided 31% of global FDI

    outows, whereas developed countries supplied65% of global outows and transition countriesaccounted for the remaining 4%. Compared to2007 the difference is striking. In 2007, only 15%of outows originated in developing countriescompared to 83% in developed countries and 2%in transition countries (gure 3.2).

    2. Regional trends

    FIGURE 3.3 Foreign direct investment inflows to major world developing regions andtheir share of global foreign direct investment inflows, 2010-2012

    (billions of United States dollars and percentage)

    Source:ESCAP calculations, based on UNCTADStat.

    The developing countries in theAsia-Pacic region account for 33%of global FDI inows, reecting theregions solid position as a leadinginvestment destination.

    Much of the relative success of developingcountries can be attributed to the Asia-Pacicregion,17which has shown notable resilience inthe challenging economic climate. Asia-Paciccountries attracted $510 billion of FDI inows in2012. Although FDI volumes received in 2012 fell

    short of the record set in 2011 ($550 billion), theyexceeded the annual average for the decade.

    In terms of FDI inows, the developing Asia-Pacic region has signicantly outpaced otherdeveloping regions in the world. This reectsthe solid position of Asia and the Pacic as aleading investment destination for transnational

    companies looking for investment opportunities.The developing countries in the Asia-Pacicregion account for 33% of global inowscompared to the 18% share of countries in LatinAmerica and the Caribbean, and the 4% share ofcountries in Africa (gure 3.3).

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    13%

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    29%

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    FDI outows from the region in 2012 totaled $481billion compared to $484 billion in 2011. Theshare of the Asia-Pacic region in total worldFDI outows increased from 29% in 2011 to 35%in 2012. Not only are the Asia-Pacic countriesproving to be attractive investment destinationsin the current economic climate, they are alsobecoming increasingly important as sources of

    investment.

    FIGURE 3.4 Foreign direct investmentinflows to Asia-Pacific

    developing subregions and developed economies, 2010-2012

    Source: ESCAP calculations, based on UNCTADStat.Note:Due to the small share of inflows to the Pacific subregion, that subregion is not represented in this figure.

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    South-East Asia South and South-WestAsia

    North and Central Asia Developed economies

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    2010 2011 2012

    3. Subregional trends

    Among the developing Asia-Pacic subregions,East and North-East Asia continues to attractthe largest amount of FDI inows, although theSouth-East Asian subregion is progressivelycatching up (gure 3.4). FDI inows to the Eastand North-East Asian subregion reached $215billion in 2012, down 8% from the previous year.

    The decline can be attributed to weaker inowsto China, Hong Kong, China and the Republic ofKorea. Mongolia attracted large FDI inows in2010 and 2011, mainly driven by investments inthe mining sector. In 2012, however, it witnesseda 6% reduction in FDI inows. This may bedue to the new Strategic Foreign InvestmentLaw passed in March 2012, stating that theparliament must approve foreign takeovers instrategic sectors, such as mining. Investors have

    stated that this law has brought about regulatoryuncertainty that weakens Mongolias position inattracting FDI.18

    The South-East Asian subregion is exhibitinga robust growth trend, which is supported bylabour-intensive FDI and value chain activitiesin low-income countries, such as Cambodia,

    the Philippines and Viet Nam. In 2012, inowsamounted to $111 billion, up by 2% comparedto the previous year. This makes it the onlysubregion in Asia and the Pacic region that hascontinued to experience FDI growth despite theslowdown of the global economy.

    In 2012, FDI inows to South-East Asiaincreased by 2%, making it the only

    Asia-Pacic subregion that continued toexperience FDI inows growth.

    The year 2012 proved to be tough for South andSouth-West Asia, as FDI inows to the subregiondropped by almost a quarter. This developmentcan be largely attributed to India, given its size inthe subregion, although several other countriesin the subregion also suffered declines in FDIinows. For example, Sri Lanka and Turkey bothsaw their FDI inows fall by a little more than20%, whereas those of Pakistan fell by 36%.

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    FIGURE 3.5 Foreign direct investment outflows from Asia-Pacific

    developing subregions and developed economies, 2010-2012

    Source: ESCAP calculations, based on UNCTADStat.Note:Due to the small share of outflows from the Pacific subregion, that subregion is not represented in this figure.

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    BillionsofUnite

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    2010 2011 2012

    North and Central Asia attracts the third largestamount of FDI inows after East and North-East Asia, and South-East Asia. Inows to thesubregion fell by 5% in 2012, to a value of $74billion. Accounting for a 70% share of inows,the Russian Federation has a major impact onsubregional developments. Another importantdestination for FDI is Kazakhstan, inows towhich grew by 1% in 2012. Kazakhstan hastraditionally attracted large investments in thenatural resources sector, although in 2012 thelargest announced greeneld projects were inthe tourism, communications and transportationindustries.

    The developing Pacic subregion attracts lessthan 1% of FDI inows to developing countriesin the Asia-Pacic region. In 2012, inows tothe subregion increased by 6% and amounted

    to slightly over $2 billion. Growth in inows canbe mainly attributed to Papua New Guinea andSamoa, although the Marshall Islands and theNorthern Mariana Islands experienced largerFDI inows as well.

    FDI inows to Asia-Pacic least developedcountries (LDCs) reached a new peak of almost$5.5 billion in 2012. Driven by increasing inowsto the largest FDI recipient countries among theLDCs, namely Cambodia and Myanmar, inows to

    the group increased by almost 10%. FDI inowsto landlocked developing countries (LLDCs) inthe region remained at a high level of $26 billion,although they fell, somewhat, from the previousyear.

    Similar to other developed countries in theworld, FDI inows to the Asia-Pacic developed

    countries fell by 9% to $62 billion in 2012. Ofthe three developed countries in the region,only Japan attracted higher FDI inows than theprevious year. After two years of foreign investorsscaling down their investments, FDI into Japanreached $1.7 billion. Australia continues todominate as the largest destination for inowsamong developed countries, drawing in $57billion in 2012. Australias resource sector hasproven to be highly attractive; however, fallingcommodity prices mean that investments into

    areas such as mining could have already reachedtheir peak (Capital Economics, 2013a).

    The subregional division of FDI outows fromdeveloping Asia-Pacic countries is not uniform(gure 3.5). The East and North-East Asiansubregion accounts for the lions share of totaloutows from developing countries in the region.Recently, its share has edged up further from59% in 2011 to 63% in 2012, with total outowsfrom the subregion at $214 billion. A similar

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    4. Country highlights

    increase has taken place in the South-East Asiansubregion, with its share of total outows fromdeveloping Asia-Pacic countries increasingfrom 16 to 18%. Outows from the subregion nowamount to $61 billion. FDI outows from bothSouth and South-West and North and CentralAsia have declined.

    The developed countries continue to be a notablesource of FDI, increasing their share of outowsfrom the whole region from 26% in 2011 to 29%in 2012. This increase is largely the result of anincrease of outows from Japan, which contraryto other developed countries in the world hasboosted its outward investments. Japan is almostsolely responsible for investments from thedeveloped countries in the Asia-Pacic region.Japanese overseas investments have beencharacterized by being weighted towards the

    Asia-Pacic region, particularly in the membercountries of (ASEAN), and focused heavily onmanufacturing projects.

    FDI outows from each of the developingsubregions are highly inuenced by onedominating economy, just as with FDI inows.For East and North-East Asia the dominatingeconomy is China, along with Hong Kong,China. In South-East Asia, Singapore remainsthe largest investor, although outows fromMalaysia are on the rise. In South and South-

    West Asia, India accounts for 65% of outows.However, Turkey is catching up, increasing itsoutows by 73% in 2012 and now accountingfor 31% of total outows from the subregion. InNorth and Central Asia the Russian Federationhas an even stronger hold on the top position asits share of total outows is over 90%. Together,these ve so-called FDI giants19 supply 73%of FDI originating in the developing Asia-Pacicregion.

    CHINA

    China continues to attract high levels of FDI.Investments in 2012 remained at the level of$121 billion, falling slightly short of the peakof $124 billion reached in 2011. Abundantlow-cost labour and close proximity to tradenetworks have been major factors in attractingFDI into China. The country has also taken

    steps to become more market-friendly and toimprove infrastructure. However, recent risingproduction costs and weakening export marketshave pushed foreign companies to relocatefrom China to lower-income countries. This isreected in the lack of increase of inward FDI tothe country. Despite this, China is still the leadingFDI recipient among developing countries and

    competes with the United States for the positionof the largest destination for FDI in the world.

    A critical change is the countrys increasingengagement in higher value-added activities. FDIinto its high-tech and advanced manufacturingsectors has been on the rise with the countrylooking to directly compete with more advancedcountries, such as Japan or the Republic ofKorea. This development is due to the countryswide-open FDI stance, which has proven to

    attract valuable new technology and know-how(Capital Economics, 2013b).

    Despite rising production costs andweakening export markets, Chinaremains the leading recipient of FDI inthe developing world and is attractinginvestments from developing countries.

    China receives an increasing amount ofinvestments from developing countries,

    especially those in Asia (China Ministry ofCommerce, 2013). Moreover, foreign companiesare opting for a wholly controlled ownershipstructure as opposed to previously mandated

    joint ventures with Chinese partners (Li, 2013).This development may be a reaction to a moreliberal investment environment. Additionally,it may be an indication that foreign companiesare becoming more familiar with the businessculture in China.20

    In recent years, FDI out of China has mirrored

    trends in FDI inows to China. In the past decadeFDI outows from China have grown from ameagre $2.9 billion in 2003 to more than $84billion in 2012 (gure 3.6). This now makes Chinathe third largest source of FDI in the world, afterthe United States and Japan.

    State-owned enterprises continue to be the mostactive investors from China, although privatecompanies are also showing interest in investingabroad. While Chinese state-owned enterprisesare motivated with the need to secure access

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    FIGURE 3.6 Foreign direct investment inflows and outflows of China, 2003-2012

    (billions of United States dollars)

    Source: ESCAP calculations, based on UNCTADStat.

    to natural resources, private companies arelooking into accessing new and growing markets.Many private companies are also interested ingaining access to new technology and buyingbrands, which makes developed countries moreattractive as investment destinations for Chinesecompanies (Economist Intelligence Unit, 2013).

    Chinese investors still largely target otherAsian countries; investors looking to expandinto new markets prefer to invest in South-EastAsia (Hong, 2013). At the same time, Chineseinvestments in Africa remain strong. Theseinvestments have been mainly resource-seeking,but Chinese investors are also involved in severalinfrastructure upgrading and construction

    projects in Africa. As for Latin America and theCaribbean, Chinese FDI in Brazil has risen dueto the active involvement of Chinese investorsin the Brazilian mergers and acquisitions (M&A)market (UNCTAD, 2013a).

    INDIA

    India continued to be the dominant recipientof FDI inows to South and South-West Asia in2012. However, inows to the country dropped bysignicant 29% in 2012, which is a much bigger

    decline than the average for all developingeconomies (-4%) and Asia-Pacic developingcountries (-7%). The economy of India experiencedits slowest growth in a decade in 2012, and alsostruggled with risks related to high ination.In addition to the overall economic situation, aresearch study conducted by the Reserve Bankof India on FDI ows into the country notes that

    complex policies and cumbersome procedures

    could have dampened FDI ows. This relates toland acquisition and environmental regulation,for example. The Government of India has beenrecently addressing these issues with gradualliberalization of FDI policy. In September 2012, theGovernment allowed FDI in multi-brand retailingunder certain conditions. With the conditionsgoverning multi-brand retail relaxed, foreign

    retailers are allowed to invest in cities with lessthan one million inhabitants. They are also givenve years to reach the requirement of sourcing30% of products from small Indian rms. Also,government approval is no longer needed for upto 49% FDI in single-brand retail or petroleumrening. India has also relaxed its rules forFDI in aviation and television broadcasting and100% foreign ownership in telecommunicationcompanies has been approved (India, Departmentof Industrial Policy and Promotion, 2012 and2013). These policy reforms, while preserving

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    a desirable policy space to ensure long-termdevelopmental benets from FDI, togetherwith complementary initiatives to improve theinvestment environment, will be important toattract FDI ows with high impact in the future.India would also greatly benet from upgradingits infrastructure and strengthening of ties withkey investment and trade partners.

    Investors from Mauritius top the list of investorsin India, accounting for 38% of cumulative inowssince 2000. This is mainly due to scal incentivesthat make it advantageous to funnel FDI throughMauritius to India. Singapore and the UnitedKingdom also increased their investments,taking the second and third place on the list ofinvesting countries and accounting for 10% and9% of cumulative equity inows, respectively(India, Ministry of Commerce and Industry, 2013).

    India continues to be the leading source of FDIoutows from the South and South-West Asiansubregion. It accounts for 65% of the total,despite a 31% decline in outows in 2012.According to the Reserve Bank of India (2012),outward investments from India tend to takethe form of M&A when targeting developedcountries and the form of greeneld investmentswhen targeting developing countries. In 2012,the value of M&A deals by Indian companiesdropped by over a half, suggesting a reduced

    interest in investing in developed countries.However, the value of greeneld projects alsofell by 28%. A large share of Indian investmentis channeled through nancial centres, such asMauritius, Singapore and the Netherlands. Thisround-tripping, whereby funds are sent out ofa country and through another country to takeadvantage of scal measures before returning

    to the country of origin, over-representsthese countries as investment destinations.According to the Reserve Bank of India (2012),in recent years Indian companies have becomeincreasingly interested in the resource sectorsin Australia, Indonesia and Africa. In 2012, someof the largest greeneld projects have been the$4.5 billion investment in coal extraction byAdani Enterprises in Australia and the $2 billioninvestment in natural gas manufacturing byBharat Petroleum in Mozambique.

    JAPAN AND THE REPUBLIC OF KOREA

    Following two consecutive years (2010 and 2011) ofnegative foreign investment ows (disinvestmentby foreign investors exceeded FDI inows), Japanexperienced signicant growth in FDI in 2012.This brought the value of FDI inows back intothe positive range at $1.7 billion. Despite this,the latest gure is still very weak compared tothe levels in the period 2007-2009 (ranging from$12 billion to $24 billion). Continued uncertainty

    over the Japanese economy is likely to inuencethe volatility in FDI ows in the years ahead.However, the Governments recent economicstimulus measures show signs of bringing aboutrenewed growth and could potentially boost FDIows.

    The inow of FDI remains relatively resilient inthe Republic of Korea, with a mild 3% drop in2012. This is less than the average decrease inEast and North East Asia, which was 7% for the

    same period. In the years ahead, FDI is expectedto gradually rise as investors take advantage ofthe United States-Korea Free Trade Agreementthat came into effect in early 2012 and removedtariffs across many sectors.

    Japan and the Republic of Korea are alsoimportant sources of FDI to the rest of the region.

    The services sector continues to account forthe largest share of FDI equity inows to India(India, Ministry of Commerce and Industry,2013). Ongoing efforts to open economic sectors,such as retailing, are likely to increase inowsto services. Inows to manufacturing areexpected to increase as well, with a number ofmajor investing countries, including Japan andthe Republic of Korea, establishing countryor industry specic industrial zones in India(UNCTAD, 2013b). In fact, during 2012 some ofthe largest greeneld projects in India originatedfrom the Republic of Korea and Japan, targetingthe manufacturing industry. Additionally, in 2012single-brand Swedish retailer IKEA announcedthat it is planning to invest almost $1.5 billion in

    opening stores in India.

    The recent efforts of India to reformFDI policy and simplify investmentprocedures could not stop FDI inowsfalling by 29% in 2012.

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    RUSSIAN FEDERATION

    Following a notable 28% increase in 2011,FDI inows to the Russian Federation fell in2012 by 7% to $51 billion. The nancial andmanufacturing sectors received the mostinvestments. Although the latest gure is lowerthan the countrys record high of $75 billion

    in 2008, it is still signicantly higher than theaverage over the last ten years ($39 billion).The Foreign Investment Advisory Council (2012)expects FDI in the Russian Federation to risesteadily in the long term; helped by the size ofits consumer market, skilled labour force andavailability of natural resources. Additionally,accession of the Russian Federation to WTO in2012 is anticipated to attract new investment intothe country.

    Round-tripping is one of the characteristics ofFDI into the Russian Federation. This processinvolves the recycling of funds from the RussianFederation to another country, usually a nancialhub, and then back to the home country. Manycompanies nd this benecial for scal reasons.Traditionally, Cyprus has been a favoured round-tripping location, although recent economicevents have encouraged Russian investors toredirect investments elsewhere. Data from theCentral Bank of the Russian Federation (2013)

    show that net FDI inows from economies, suchas the Bahamas, British Virgin Islands, andCyprus, continue to be signicant. Additionally,European Union members, such as France,Germany, Luxembourg and the Netherlands,have become large investors in the RussianFederation. In terms of sectoral distributionof inward investments, the nancial andmanufacturing sectors attracted a large shareof inows. The wholesale and retail activity formotor vehicles also attracts investments fromabroad.

    FDI outows from the Russian Federationdecreased by 24% in 2012, amounting to $51billion. As discussed above, a large part ofinvestments from the Russian Federation isrecycled back into the home country. Therefore,outows mostly target the same countries whereinows originate. Data from the Central Bankof the Russian Federation (2013) conrm this,showing 43% of net outows going to Cyprus in2012.

    ASSOCIATION OF SOUTHEAST ASIANNATIONS

    As mentioned earlier, the South-East Asiansubregion was the only subregion in Asia andthe Pacic to enjoy FDI inow growth in 2012.Recently, economic integration in ASEAN hasintensied, adding to the dynamism of thesubregion. With the opening of the ASEAN-5common trade market in 2014, Indonesia,Singapore, Malaysia, Thailand and Viet Namare poised to benet further. Inows to ASEANincreased by 2% in 2012 to $111 billion, fuelledpartly by higher ows to Singapore, which roseby slightly more than 1% to $57 billion. Inowsto low-income countries such as Cambodia,Myanmar, the Philippines and Viet Nam alsoadded to this increase. Cambodia proves to bean attractive destination, especially for labour-

    intensive FDI and value-chain activities. In 2012,inows to Cambodia rose by 73%. The level ofinows to Viet Nam remains below the peakof almost $10 billion reached in 2008. Despitethis, FDI ows were higher in 2012 than in theprevious year. Viet Nam would have to pay moreattention to reforming investment policies inorder to attract more FDI.

    Cambodia, Myanmar, thePhilippines and Viet Nam were

    important contributors to the growthin FDI inows to ASEAN in 2012.

    According to the Organisation for EconomicCo-operation and Development (OECD, 2013),each member country of ASEAN appears tospecialize in attracting FDI in specic sectors,depending on each countrys comparativeadvantage and natural endowments relative toregional neighbours. As mentioned, Viet Nammainly attracts investments in export-orientedmanufacturing industries, and also in the real

    estate and service sectors. Cambodia focuseson garment manufacturing, nancial servicesand agriculture. Investments in the Lao PeoplesDemocratic Republic tend to target the servicesector, and in Myanmar the natural resourcessector dominates FDI inows.

    Indonesia and Thailand continued to attracthigh levels of greeneld investments in 2012,particularly in the automotive and metalsindustries. Indonesia became a star attraction,due to its large and growing population.

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    Increase in the number of multinationals

    from ThailandOver the last decade Thai companies have become increasingly internaonal. This expansion abroadbegan in the 1990s, but was interrupted by the Asian nancial crisis in 1997. In recent years, outwardFDI from Thailand has surged (see gure below) as Thai companies look to invest abroad. With this,Thailand is beginning to take on the characteriscs of a developed country by becoming a net investor.

    The changing posion of Thailand can be linked to broader developments taking place in the Asia-Pacic region. Due to the emergence of global value chains and increased economic integraon,intraregional investment ows have increased in signicance. As countries industries advance andmove up the value chain, they start outsourcing and looking for investment opportunies in other

    countries. Thai investors have chiey been targeng other member countries of ASEAN, of whichSingapore has been a major desnaon. Thai investments have been driven by companies lookingfor expansion into new markets, as well as the need to improve eciency by relocang to countrieswith lower labour costs.

    Addionally, a number of Thai companies have joined the ranks of what may be called the emerging-market mulnaonal enterprises. These companies originate from emerging markets and haveacquired a signicant internaonal presence. Despite lagging behind countries such as China andIndia in terms of internaonal expansion, some major Thai companies have been involved in largeM&A deals in recent years. These include PTT, Banpu PLC (both in the energy industry), The SiamCement Group and Thai Beverage PLC. One of the largest deals to date involved PTT buying a stakein a Canadian oil sands project for $2.3 billion in 2011. PTT also bought a United Kingdom-basedplanum and nickel exploraon company, Cove Energy PLC, in 2012 for close to $2 billion followinga bidding withdrawal from Royal Dutch Shell. Through this purchase, PTT gained access to naturalgas reserves in Mozambique. Another large deal was Thai Beverage PLCs acquision of a $2.2 billionstake in a Singaporean producer and seller of so drinks, Fraser & Neave Ltd, in 2012. In addion, in2010 Banpu PLC purchased an Australian coal mining company for $1.6 billion.

    While most Thai companies sll aim to expand to other markets and look to improve produconeciency by invesng in neighbouring countries, there is a rising number of Thai enterprises thatfocus on internaonal expansion in order to move up the value chain, acquire strategic assets andbecome global players in their industry. While some companies have already established a strongfoothold in internaonal markets, there are many others with the potenal to follow.

    Foreign direct investment inflows and outflows

    to and from Thailand 2005-2012

    Source:ESCAP calculations, based on Bank of Thailand (2013).

    Box 3.1

    Sources: Bream (2012), Pananond (2012), Bank of Thailand (2013), Thomson Reuters Datastream Professionaldatabase.

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    Furthermore, it is a G20 country with an annualgrowth rate of about 6% year-on-year, and $1.4trillion GDP in purchasing power parity terms.Also, in the last decade the countrys middleclass has expanded from 81 million to 131million people, indicating increases in domesticpurchasing and consumption power within thecountry (Ernst and Young, 2012).

    FDI outows from the South-East Asian subregionincreased in 2012, although the growth rate hasslowed compared to the previous year from 24 to3%. Nevertheless, the value of outows reacheda new record of $61 billion. Singapore, a majorcontributor to outward FDI ows, accountedfor 38% of the total from the subregion. ThePhilippines and Viet Nam also witnessedincreasing outows in 2012, although farbehind those of Singapore. While ows from thePhilippines tripled over the course of one year and

    have been volatile in the past, outows from VietNam have been steadily increasing since 2005.Intraregional FDI ows have increased in recentyears, especially among member countries ofASEAN. This has potential to increase furtherwith the establishment of the ASEAN EconomicCommunity in 2015. Recently, FDI outows fromThailand have also been on the rise, increasingby 45% in 2012 and reaching a record-breaking$12 billion. Thailand is a signicant investor inits neighbouring countries; however, lately Thaicompanies have shown growing interest towards

    acquiring strategic assets from outside thesubregion (see box 3.1).

    These developments show that FDI has been,and remains, a critical component of the growthstrategy of regional economies. FDI plays animportant role in virtually all Asian economies,and working to ensure its inclusive impact shouldtherefore be a policy priority for Governmentsthroughout the region.

    B. INTRAREGIONAL FOREIGN

    DIRECT INVESTMENT21

    As the economic relevance and dynamism of theAsia-Pacic region increases, intraregional FDIows are replacing those from the developedeconomies. These have traditionally supplied thebulk of FDI in the region. East and North-EastAsian countries have become major investorsin other Asia-Pacic countries, with China andthe member countries of ASEAN being the mostattractive destinations (gure 3.7). In fact, due to

    rising levels of integration, ASEAN is becoming acentral player in the investment landscape.

    The three industries to attract the largest shareof intraregional FDI are the coal, oil, and naturalgas industry, metals, and real estate. From 2010to 2012, $66 billion was invested in coal, oil andnatural gas, accounting for a 16% share of totalintraregional greeneld FDI. Investments in themetals industry for this three-year period were$44 billion, a share of 11% of total investments.Greeneld FDI into the real estate industry morethan doubled from 2011 to 2012, reaching $17billion in 2012, pushing it into third place. Over

    the period 2010-2012, greeneld investments inthe real estate industry totaled $35 billion, a 9%share of total intraregional greeneld FDI.

    Overall, total intraregional greeneld FDI owsamounted to $414 billion in 2010-2012. Japancontinues to be the main source of investments,accounting for a 26% share ($108 billion) oftotal intraregional FDI. Japanese investmentshave targeted automotive industries as well asother component production industries, with

    automotive original equipment manufacturing(OEM) holding the top investment position.

    China is one of the main destinations forJapanese investments, which amounted to $30billion in 2010-2012. Japanese investors havealso shown much interest in the ASEAN region.which attracted over $44 billion in greeneld FDIfrom Japan during the period 2010-2012. Themain investment destinations within the ASEANregion are Indonesia ($11 billion), followed by

    Thailand ($9 billion) and Viet Nam ($8 billion).Intraregional greeneld FDI ows from theRepublic of Korea declined from $20 billion in2010 to $13 billion in 2012. However, the countryremains a signicant source of intraregionalgreeneld FDI; in the period 2010-2012, $43billion (10%) of total intraregional greeneldFDI in Asia and the Pacic originated from theRepublic of Korea. China attracted close to $11billion in FDI from the Republic of Korea in thatperiod, and member countries of ASEAN received

    The increased economic relevanceand dynamism of the Asia-Pacicregion has boosted intraregionalFDI ows.

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    FIGURE 3.7

    Source: ESCAP calculations, based on fDi Intelligence (2013) data.

    $13 billion in investments. India was also a majorinvestment destination, attracting $9 billion ofgreeneld FDI from the Republic of Korea duringthe period 2010-2012. Korean companies havebeen especially attracted to the metals industryin India. One of the largest greeneld projects inIndia in 2012 was a $1.5 billion manufacturingproject in the metals industry by Pohang

    Iron and Steel. Recently, investors from theRepublic of Korea have broadened their focusto Central Asia, Uzbekistan in particular. In2012, Korea Gas Corporation invested $4 billionin a manufacturing project in the chemicalsindustry, making Uzbekistan the second largestdestination for greeneld FDI from the Republicof Korea in that year.

    For the period 2010-2012, China accounted for10% ($42 billion) of total intraregional greeneld

    FDI despite the fact that in 2012 outows from

    China were less than half of those in 2011. Chinais a large investor in the ASEAN region, reaching$21 billion in investments over the courseof 2010-2012. One of the main destinations,Indonesia, attracted close to $9 billion. Chineseinvestments are said to be resource-seeking;however, investments targeting South-East Asiaare more often motivated by market access or

    efciency considerations. The focus appearsto be shifting from the resource sector to theservice sector (Hong, 2013), and greeneld datasupports this, with investments in both themetals and coal, oil and natural gas industriesfalling signicantly in 2012. Apart from the ASEANregion, Chinese investors have shown interest inIndia and the Russian Federation. India attracted$6 billion and the Russian Federation $4 billionin greeneld FDI. However, China attracted alarger share of intraregional greeneld FDI

    than it has supplied. During the period 2010-

    Intraregional greenfield foreign direct investment flows between selected

    countries and total inflows and outflows to and from those countries,2010-2012

    (billions of United States dollars)

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    2012, China attracted $117 billion in greeneldFDI, which accounts for a share of 28% of totalintraregional FDI ows. China is attractinginvestments from throughout the region, withJapan and ASEAN both accounting for close to$30 billion each. Within ASEAN, Singapore is thelargest investment source, accounting for a halfof the $30 billion.

    Due to strengthening integration,ASEAN is becoming a central gurein the investment landscape.

    ASEAN, as a group, is an important supplierof intraregional greeneld FDI. In 2010-2012,Singapore and Malaysia both invested a littleover $30 billion in greeneld projects within theAsia-Pacic region. Together, they accountedfor close to 80% of the $79 billion worth of owsfrom the member countries of ASEAN. Thailandand Indonesia accounted for $8 billion and $6billion, respectively. Similar to China, the ASEANregion attracts more intraregional greeneld FDIthan it supplies. During the period 2010-2012, atotal of $140 billion worth of investments weredestined for the ASEAN region. Indonesia, VietNam and Singapore were the main destinations,

    attracting $39 billion, $28 billion and $21 billion,respectively. Also like China, the ASEAN regionattracts investments from multiple sources.Japan is the largest investor by far, investingover $44 billion during 2010-2012. In the sameperiod, Chinese investments amounted to over$20 billion, and investment ows from Indiaand the Republic of Korea remained at a moremodest $11 billion and $13 billion, respectively.

    Since the 1990s, investments among membercountries of ASEAN have increased dramatically,with $24 billion having been invested betweenmember countries of ASEAN from January 2010to December 2012. This trend is anticipated tocontinue with the establishment of the ASEANEconomic Community, which will create asingle market with free ow of goods, servicesand investments. One of its goals will be tofurther improve connectivity in the subregion,by integrating industries in order to promoteregional sourcing.

    CONCLUSION

    While developed countries experienced a sharpdrop in both in- and outward FDI, developingcountries were signicantly less affected bythe decline in global FDI ows in 2012. In fact,in 2012 developing countries for the rst timeattracted more FDI than developed countries

    and they also provided almost one third of globalinvestment outows. Asia and the Pacic is byfar the leading investment destination among theworlds developing regions and at the same timethe region is becoming an increasingly importantinvestor on the global level.

    Although East and North-East Asia remainsthe largest recipient and provider of FDI withinAsia and the Pacic, South-East Asia was theonly subregion to witness growth in both inward

    and outward FDI in 2012. Low-income countriessuch as Cambodia, Myanmar, the Philippines andViet Nam were especially attractive investmentdestinations. The establishment of the ASEANEconomic Community by 2015 could stimulatefurther FDI growth. The strong decline of almostone quarter in investment inows to South andSouth-West Asia was mainly due to a dramaticdrop in FDI inows to India, where recent FDIliberalization policies have yet to show theireffect.

    Unlike other developed countries, Japan not onlyexperienced higher FDI inows in 2012, it alsoboosted its outward investments, focusing inparticular on the member countries of ASEAN.However, continued uncertainty over the economyof Japan is likely to inuence the volatility in FDIlevels in the years ahead.

    Intraregional FDI ows within Asia and thePacic are on the rise and the region is becomingless dependent on investments from developed

    economies. Member countries of ASEAN, due toincreased regional integration, and China, areattractive destinations for East and North-EastAsian investors, which account for the largestshare in intraregional investments in the Asia-Pacic region. Thanks to the increasingly dynamicbusiness environment in Asia and the Pacicand the regions growing economic importance,intraregional investment ties are likely to furtherbe strengthened.

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    15All FDI data from UNCTADStat, except for greeneld FDIdata which is from FDI Intelligence, and data on mergersand acquisions, which is from Thomson Reuters.

    16Developed and developing economies as dened inUNCTAD (2013b).

    17The Asia-Pacic region here refers to the regional ESCAPmember States, plus Taiwan Province of China.

    18 See chapter 10 of this Report for a more thorough discus-sion about regulatory reform in Mongolia.

    ENDNOTES

    org/publications/how-foreign-direct-investment-promotes-development-case-of-prc-inward-outward-fdi.

    Organisaon for Economic Co-operaon and Development(2013). Southeast Asian Economic Outlook 2013:with Perspecves on China and India.Paris. Availablefrom www.oecd-ilibrary.org/development/southeast-asian-economic-outlook-2013_saeo-2013-en.

    Pananond, Pavida (2012). Thai mulnaonals seek globalfootprint. Bangkok Post,7 September.

    Russian Federaon, Central Bank (2013). Direct investmentstascs. Available from www.cbr.ru/eng/stascs/?Prd=svs&ch=PAR_31141#CheckedItem.

    Thailand, Bank of Thailand (2013). Balance of paymentsstascs. Updated June 2013. Available from www.bot.or.th/English/Statistics/EconomicAndFinancial/ExternalSector/Pages/StatBalanceofPayments.aspx.

    United Naons Conference on Trade and Development

    (2013a). The rise of BRICS FDI and Africa. GlobalInvestment Trends Monitor, 25 March. Availablefrom hp://unctad.org/en/PublicaonsLibrary/webdiaeia2013d6_en.pdf .

    _____ (2013b). World Investment Report 2013 Global Value Chains: Investment and Trade forDevelopment.Sales No. E.13.II.D.5.

    ONLINE DATABASES

    Financial Times Ltd., fDi Intelligence, fDi Markets:Crossborder investment monitor. Available fromwww.fdimarkets.com. Accessed June and July 2013.

    Thomson Reuters Datastream Professional database.Available from www.datastream.com/ . AccessedJune and July 2013.

    United Naons Conference on Trade and Development,UNCTADStat. Available from hp://unctadstat.unctad.org/ReportFolders/reportFolders.aspx?sCS_referer=&sCS_ChosenLang=en . Accessed June andJuly 2013.

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    Bream, Rebecca (2012). PTT wins bale for control of CoveEnergy. Financial Times, 20 July. Available fromwww.ft.com/cms/s/0/a73f8526-d258-11e1-abe7-00144feabdc0.html#axzz2Yd1nJlcm .

    Capital Economics (2013a). Emerging Asia Chart Book, 28February 2013.

    _____ (2013b). Emerging Asia Economics Focus, 8 April2013.

    China, Ministry of Commerce (2013). Stascs of FDIin January-December 2012. Available fromhttp://english.mofcom.gov.cn/article/statistic/foreigninvestment/201301/20130100012618.shtml.

    Ernst and Young (2012). Beyond Asia: Indonesia highlights.Available from //www.ey.com/Publicaon/vwLUAssets/Beyond_Asia:_Indonesia_Highlights/$FILE/Indonesia_nal.pdf.

    Economist Intelligence Unit (2013). China Going GlobalInvestment Index: a report from the EconomistIntelligence Unit.

    Foreign Investment Advisory Council (2012). RussiasInvestment Climate 2012: A survey of Current andPotenal Investors. Moscow. Available from www.fiac.ru/files/Russia-Investment-Climate-2012-EN.pdf .

    Hong, Zhao (2013). Chinas FDI into Southeast Asia. ISEASPerspecve, No. 8. Singapore: Instute of SoutheastAsian Studies. Available from www.iseas.edu.sg/documents/publication/ISEAS%20Perspective%202013_8.pdf .

    India, Department of Industrial Policy and Promoon,Ministry of Commerce and Industry (2012). FDIPolicy Press Note No. 5, 6 and 7. Available fromhp://dipp.nic.in/English/Policies/Policy.aspx

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    19China; India; the Russian Federaon; Singapore and HongKong, China.

    20Literature indicates a gradual liberalizaon in FDI policyin China. The Law on Wholly Foreign-Owned Enterpriseswas adopted in 1986, allowing for full foreign ownership.The rules regarding the implementaon of the law wereapproved in 1990. Chinas accession to WTO led to furtherliberalizaons; however, there are sll a number of condi-

    ons placed on full foreign ownership.

    21The data used in this secon are provided by fDi Intelli -gence, which tracks greeneld FDI project announcementson a global basis. The data are based on informaon availa -ble at the me of the project announcement and, therefore,dier from ocial FDI ows oen based on balance of pay-ments stascs. Discrepancies may arise from the ming ofthe investment, as the database does not take any phasingof the investment into account. fDi Intelligence also usesits own esmates of capital investment if those data havenot been given in the announcement. Finally, there is thequeson of how capital for the projects is raised. Some of

    the announced investment may be raised locally, meaningthat only a part of the capital invested may manifest itselfas actual FDI ows.

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