For 20 years China has been the major
recipient of foreign direct investment in
the developing world
 But rising costs from higher wages and
currency appreciation are seeing
multinationals look to expand elsewhere
 India, Indonesia and Vietnam stand to
benefit most as they have large labour
forces and strong domestic markets
Foreign direct investment (FDI) has played a big part in
China’s rise from poor rural backwater to economic
powerhouse. Now other countries in Asia can grab a bigger
slice of this ever-growing pie. FDI opportunities are likely to
keep rising as Beijing promotes domestic consumption rather
than exports as the best way to grow the country’s economy.
When used correctly, FDI has shown it can jump start a
country’s industrial base by boosting employment, productivity
and exports. Just look at China. But now costs there are rising as
wages increase, the currency strengthens and the country moves
up the value chain. While China was the world’s largest
recipient of FDI in the first half of 2012, the flow of funds has
fallen for 11 of the last 12 months. The global slump is partly to
blame and relocation out of China is another.
International companies, mainly labour-intensive
manufacturers, are looking to increase their investments
elsewhere. Countries with large pools of labour and dynamic
domestic markets should benefit most. For example:
 Textile manufacturing inflows into China contracted by
18.9% from January to September
 Meanwhile manufacturing FDI inflows into Indonesia and
Thailand rose 66%, 43%, respectively
But this is unlikely to be a seamless process. Poor road and rail
networks deter foreign investment as do tough restrictions on
FDI in India and the Philippines. But reform is coming,
especially in India. Indonesia and Vietnam are particularly well
placed to benefit further as low-end manufacturers go in search
of cheaper labour and large consumer markets. And the
availability of cheap credit and slow growth in developed
markets should help give the process another push.