Southeast Asia as a whole drew more foreign direct investment (FDI) than China for the second year in a row as economic growth in their much larger neighbor slowed down.
According to data by Thomson Reuters, total inward FDI in Singapore, Malaysia, Indonesia, Thailand, Vietnam, and the Philippines, grew to a record high of US$128 billion in 2014. This is compared to the US$119.56 billion that flowed into China.
However, some countries in ASEAN performed better than others. Political change and instability affected places such as Thailand, while the varying difficulty and costs of doing business made some Southeast Asian nations better positioned to attract foreign capital.
Foreign direct investment into the Philippines grew the fastest at 66%. Meanwhile, Thailand’s inflows fell due to a military coup in May of 2014.
Indonesia, ASEAN’s largest economy, attracted around 10% more FDI over the previous year because of optimism over the country’s recent election and new ruling party.
The Philippines, the second-fastest growing economy in Asia, has lured investors to its shores with strong economic fundamentals and newfound stability. But some analysts worry that some helpful economic policies may not be continued after the 2016 elections.
Falling commodity prices could impact FDI inflows into Malaysia and Indonesia, both which rely heavily on resources – especially oil, which has seen a major drop over the past year.
Indonesian President Joko Widodo seeks to attract more foreign investment in the manufacturing sector to lessen his country’s reliance on natural resources. However, Indonesia still has a long way to go, especially with regards to its infrastructure and legal framework, to challenge major competitors such as Thailand.
As the Chinese manufacturing industry faces a slowdown due to rising costs and weak global demand, local companies will be searching for better alternatives abroad to base their production and remain competitive.
“Rising wages in China are leading low-end manufacturers to look for other low-cost locations for their factories, with countries like Vietnam and the Philippines looking like attractive alternatives,” explained Dan Martin of Capital Economics.
“ASEAN is also a large market in its own right, and one with good long-term growth prospects. Given the general slowdown in other emerging market regions in recent years, it is starting to stand out,”