By Julia Gu
Dec. 21 – Emerging Asian markets remain the most attractive destinations for investors, with China and India taking the top two spots as the best investment targets, according to an FDI Confidence Index report by the U.S.-based management consulting firm A.T. Kearney.
The report, which estimates future expectations for FDI flows across the world by evaluating the impact of political, economic and regulatory changes of the FDI, said compared to 2010, investors’ outlook on emerging Asian countries showed growth, with 34 percent of investors having more positive expectations for China and 37 percent for India.
China has been holding the No.1 position for nine consecutive years. A rising middle class with growing incomes, urban migration, and increasing market demand are considered to be the main factors attracting foreign investment into the country. The report added that, despite the global economic turmoil, inflows into the Chinese market came at US$175 billion in 2010, up 18 percent from last year, which was US$7 billion higher than its foreign investment peak in 2008. FDI in China’s services sector showed the fastest growth from January to May this year, increasing 31.3 percent compared to the same period in 2010.
China’s technology sector benefited from its improved R&D capabilities and better educated manpower, which enabled the country to create technology clusters, A.T. Kearney stated. Meanwhile rising salaries and property prices in Eastern China are driving cost-conscious businesses to move inland, which means coastal cities may not continue to enjoy the influx of foreign investments as before. The report stated that, in May 2011, FDI in China’s western cities in the first four months had jumped 55.8 percent from the previous May, more than doubling the 23.4 percent growth in the east. Furthermore, the reduced tax incentives and growing labor cost made China unattractive to low-margin sectors, such as foot-wear and textiles, which now have shifted to Southeast Asian nations including Bangladesh, Cambodia, and Vietnam.
According to the report, India surged to the second place, passing the United States. India’s previous FDI peak appeared in 2008, when it attracted US$43 billion, while last year the number dropped to US$25 billion.
“A significant portion of this decline was the result of weak inflows into service spaces such as computer software and hardware, financial services, banking, and construction—industries where the global economic crisis led firms to scale back their overseas operations.” A.T. Kearney explained in its report.
The firm said the slow pace of reform and poor governance as well as corruption are some reasons which made India less attractive to FDIs.
Although FDI in the Indian market showed decrease over the past three years, foreign firms seemed confident about their investments due to the country’s strong growth and huge potential. Wal-Mart remained optimistic towards the future of Indian market, and top luxury brands including Louis Vuitton Moët Hennessy, Canali and Jimmy Choo projected significant growth in the country.
Among the emerging Asian nations entering the top ten this year were Singapore, Indonesia, and Malaysia. Also, Vietnam, Thailand as well as Taiwan were included in the top 25 investment destinations in the Index.
Given the fact developing countries made up more than one-half of the Index’s top 25 markets, A.T. Kearney projected “flows to these regions will accelerate as investment picks back up.”