AN ASSESSMENT OF ASEAN FOREIGN DIRECT INVESTMENT TOWARDS CHINA

Abstract

The sleeping dragon has finally awakened in 1979 when China opened its door for trade and investment. Since then, China's economic reforms have attracted world-wide attention. The successful implementation of reform policies is not only crucial to the development of China's domestic economy, but also highly significant in promoting China's economic ties with foreign countries. The ASEAN countries are China's close neighbours, with whom China sincerely aspires to promote vigorous economic relations on the basis of equality and mutual benefits. On the other hand, China is perceived as a huge potential stimulus for ASEAN economic growth. Since the 1980s, ASEAN-China economic relations enter into a new phase. The ASEAN-China economic relations progressed rapidly in terms of trade growth and the scope of cooperation. More importantly, the ASEAN-China economic relations have extended from trade to Foreign Direct Investment (FDI). The objective of this academic exercise is to assess the trends and patterns of ASEAN FDI towards China. Although FDI from ASEAN in China has increased steadily in the 80s, large and significant FDI from ASEAN did not happen until 1992. Amount invested in 1992 alone surpassed the total investment in 1984-1989. Singapore, being the largest ASEAN trading partner of China, is also the largest ASEAN investors in China. Singapore has taken over Thailand as the top ASEAN investor in China in 1987 and has been maintaining its leading position since then. On the other hand, FDI from Malaysia increased dramatically between 1989-1993. Like Hong Kong, Japan, Taiwan and US, FDI from ASEAN generally concentrates in the coastal provinces. However, some differences in the geographical distribution of ASEAN FDI have been observed. The geographical distribution of FDI from Indonesia and the Philippines differs significantly from that of Singapore, Malaysia and Thailand. A close look at the sectoral distribution of ASEAN FDI in China reveals that investment has been generally related to the economic structure and development of individual ASEAN country. For instance, Singapore and Malaysia, which are facing rapid increase in wages, have invested the bulk in the unskilled labour intensive sector in China. Lastly, our empirical study confirms that market size, market growth and cheap labour are the main determinant of ASEAN FDI to China. It has been found that FDI from ASEAN is likely to reduce trade. This led to the conclusion that FDI from ASEAN was not export-oriented and was committed largely due to the desire to have a share of the giant Chinese market