UNCTAD
25 January 2000

According to preliminary estimates by UNCTAD, foreign direct investment (FDI) flows to developing Asia in 1999 increased by 1 per cent over 1998 to US$91 billion, contrary to a decline anticipated in the wake of the 1997-1998 financial crisis.

This regional increase, however, masks considerable variation in FDI flows to individual countries. China, the principal FDI recipient in developing Asia throughout the 1990s, retained its lead but saw a nearly 8 per cent drop to just over US$40 billion. Compensating for this were the boom in the Republic of Korea (up nearly 55 per cent, to US$8.5 billion), the 20 per cent increase in Singapore (to US$8.7 billion) and the substantial recovery in Taiwan Province of China (US$2.4 billion). Among the five countries most affected by the crisis, flows declined in Indonesia, the Philippines and Thailand, while remaining steady in Malaysia and skyrocketing in the Republic of Korea. As a result, all five together gained 1 per cent, to reach US$18 billion.

• Cross-border mergers and acquisitions (M&As) continued to be a driving force for FDI flows to the five crisis-hit countries. Cross-border majority-owned M&As reached an annual average value of US$12 billion in 1998 and 1999, as compared to US$1 billion annually in the 1994-1996 period. They have been driven by some of the consequences of the crisis—such as the availability of cheap assets and additional incentives—and have been responsible in turn for industrial and corporate restructuring, for example in the Republic of Korea and Thailand.
  
• Countries whose primary sources of FDI have been other countries in the region continued to suffer from the negative effects of the crisis—e.g., Viet Nam, the Asian least developed countries and, to some extent, China. FDI inflows to West Asia maintained their upward trend in 1999 following their recovery in 1997 and 1998.
  
• Although FDI flows to Thailand dropped 15 per cent in 1999 - to US$5.8 billion - this was in part due to the flattening of the wave of massive recapitalization in the banking sector, which reached exceptional highs in 1998. Neverthless, FDI flows into Thailand surpassed the historically high level the country had achieved in 1997. Manufacturing continued to attract considerable FDI to Thailand.

The investment prospects for developing Asia remain bright in the light of the quality of the underlying economic determinants for FDI flows, the recovery of the regional economy, the ongoing liberalization and restructuring efforts that are widespread in the region, and the probable accession of China to the WTO in the near future.