© 2019 by RsA Asia Tax Advisors

FDI in China and East Asia

January 21, 2019

Foreign direct investment (FDI) includes different strategies: incorporating a wholly owned subsidiary or company anywhere, by acquiring shares in an associated enterprise, merger or an acquisition of an unrelated enterprise, participating in an equity joint venture with another investor. 

 

FDI can be defined as Horizontal FDI, Platform FDI and Vertical FDI. 

 

Horizontal FDI arises when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI. 

 

Platform FDI Foreign direct investment from a source country into a destination country for the purpose of exporting to a third country. 

 

Vertical FDI takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country

 

In the past, most FDI in Asia came from western economies, but the development of technology, human resources, and accumulation of capital  in Asia have enabled advanced economies in the region to invest and set up production in the entire region. A significant increase of intraregional FDI with foreign investments from Asian countries within Asia.

 

Asia is becoming more integrated with Asia than with non-Asian regions in investments. Intraregional FDI inflows are primarily driven by East Asia and, to a lesser extent, Southeast Asia. 

 

Foreign direct investment into China rose 0.9 percent to CNY 885.61 billion in 2018, equivalent to an increase of 3 percent to USD 130.93 billion. Investment in the manufacturing sector accounted for 30.6 percent of total investment, and rose 20.1 percent from a year earlier. Within this sector, investment in high-tech manufacturing grew 35.1 percent. Biggest sources of foreign direct investment were Singapore (8.1 percent year-on-year), South Korea (24.1 percent), Japan (13.6 percent), the UK (150.1 percent), Germany (79.3 percent) and the US (7.7 percent). In December only, FDI into China rose 24.9 percent year-on-year to CNY 92.34 billion, equivalent to an increase of 23.2 percent to USD 13.71 billion. Foreign Direct Investment in China averaged 446.23 USD HML from 1997 until 2018, reaching an all time high of 1349.70 USD HML in December of 2018 and a record low of 18.32 USD HML in January of 2000.

 

sources: World Bank, IMF, United Nations, RsA asia, G200, Trading-Economics

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