Will Japan step up to the plate?

Font Size

Print

Feedback

Email

Discuss

: The United Nations Conference on Trade & Development published its annual World Investment Report in mid-October. This report is a bonanza for data lovers, as it contains a wealth of information on cross-border investment flows. The central theme this time around was the impact of rising Foreign Direct Investment (FDI) from emerging market economies into developed ones.

One important trend is the resumption of strong FDI inflows into southeast Asia. In the early years of the new millennium, it was clear that FDI into China was at the expense of much smaller southeast Asian nations. However, the trend is seeing a reversal. Inflows into southeast Asia slumped from a peak of around $34 billion in 1997 to $16 billion in 2002.

In ’05, FDI into the region was above $37 billion, higher than the previous peak. In fact, it was a 50% jump over inflows in ’04. As the bulk of inflows went to Singapore, the question is whether some of it was meant for re-investment elsewhere. But, outward investment from Singapore fell to $5.5 billion in ’05 from $8.5 billion the year before.

The improving FDI flow into southeast Asia was not at the cost of China. FDI into China in ’05 was estimated at $72 billion, up from $53 billion in ’02 and from $61 billion in ’04. So, who has invested into Southeast Asia? One can only speculate, as country-wise breakdown is not yet available. It could well be Japan. Last year, just as FDI inflow into southeast Asia jumped 50%, Japan’s outward FDI also grew by around 50%. In the past, Japan was a big investor in southeast Asia when its own economy was booming.

Japan’s outward FDI peaked at $48 billion in 1990 and quickly slid to $14 billion in 1993. In ’05, it stood at $46 billion, up from around $31 billion in ’04. As Japan continues to recover, it is clear that Japanese investment abroad would grow in tandem. Thus, the real question is whether Japan would continue to grow.