Japan External Trade Organization (JETRO)
(1) Fall in FDI Inflows into the R.O.K. and ASEAN5 in 1998
Receipts of FDI in 1997 by the R.O.K. and ASEAN5 (Singapore, Thailand, Malaysia, Indonesia and the Philippines), according to each country's own statistics, showed no sign of being affected by the currency and economic crises, and, with the exception of Malaysia, rose in all cases (though growth rates varied from country to country). In 1998, however, receipts of FDI fell across the board. This was due to 1) a decline in investor confidence caused by serious slumps in domestic production and the wider economic malaise caused by the crisis, and 2) sudden drops in investment from Japan due to the prolonged economic recession there. Other factors related to the currency and economic crises also played a major role, such as the tendency of firms to hold back on new investments in Indonesia because of the political unrest. Both Vietnam and Myanmar, meanwhile, suffered heavy falls in investment in 1997 and the first six months of 1998 due to declining investment from other ASEAN countries.
(2) Slight Growth in Investment in China in Terms of Contract Value in 1998
Although the value of investments implemented in China in 1997 rose 8.5% to reach a record US$45.26 billion, the value of contracts fell 30.4% on 1996 to US$51.04 billion. This decline appears to have been the result of the emergence of problems surrounding policies on foreign capital (such as the problem of value-added tax on exports and the scrapping of a tax exemption for imported plant and equipment) and the shift of foreign capital from new investments to the operation and maintenance of existing affiliates.
The value of investments implemented posted a slight decline of 0.6% in the first nine months of 1998, but the value of contracts bounced back with a year-on-year increase of 2.4%. While the value of investment from Asia generally stagnated in terms of both investments implemented and investment contracts, the active role played by Western firms helped push investment up overall. Japanese investment registered negative year-on-year growth of 18.5% in terms of contract value, and minus 25.4% on an investments implemented basis.
In Southwest Asia, the currency and economic crises had relatively little impact on the real economy. Investment in India in 1997 was up 1.5-fold on the previous year due mainly to growth in investment in the electricity industry, and Bangladesh saw FDI rise five-fold in fiscal 1997 (July 1997 to June 1998) due mainly to investment in social infrastructure and utilities. In Australia, investment was up 2.3% in fiscal 1996 ~ 97 (July 1996 to June 1997) as a result of greater investment in manufacturing, but in New Zealand, there was a 24.1% drop as sell-offs of state-owned enterprises to foreign firms came to a halt.
(3) Easing of Controls on Foreign Capital Accelerates
Recognizing that since the eruption of the currency and economic crises in July 1997, the introduction of foreign capital is essential to economic recovery, Thailand, Malaysia, Indonesia, the Philippines and the R.O.K. have all rushed to loosen their controls on foreign investment. In Thailand, the BOI allowed 100% foreign equity ownership of currently approved enterprises eligible for investment incentives in December 1997, then in May 1998, 100% ownership was allowed in the case of non-approved enterprises in industries covered by measures to encourage investment. In August, cabinet approval was given for the abolition of ceilings on foreign equity ownership in 30 of the 68 sectors covered by the Foreign Enterprise Control Act, such as the retail sector. Meanwhile, in August 1998, Malaysia announced the abolition of controls on foreign equity ownership in most areas of manufacturing until the end of 2000. In July 1998, Indonesia too amended its "negative list" of sectors subject to controls on foreign investment to allow 100% foreign capital participation, under certain conditions, in the wholesale and retail sectors. In October 1998, the Philippines amended its negative list to allow 100% foreign capital participation in the construction industry. In the R.O.K., the Foreign Direct Investment and Foreign Capital Inducement Act was revised and renamed the Foreign Investment Promotion Act in November 1998, thus allowing investment in 21 sectors such as the securities exchange business.
(4) Big Drop in FDI Outflows from the R.O.K. and Leading ASEAN Economies
1997 saw a large drop in FDI outflows from the R.O.K. and leading ASEAN economies. Investment by the R.O.K. fell 28.7% in terms of investments implemented due to 1) a significant fall in investment in manufacturing, and 2) a decline in investment in Asia, the U.S. and Europe. Statistics from recipient economies also indicate that investment by Singapore in Malaysia, Indonesia and China declined substantially. Thai investment dropped by 63.1% on 1996, but this was due to a major decline in investment in the EU and U.S. resulting from the difficulty of raising funds for investments caused by the fall in the baht and the worsening state of the Thai economy. Malaysia too saw outward investment fall across the board-including in Singapore, the leading recipient of Malaysian investment in 1996-by 13.8% on a BOP basis. One of the reasons for the Malaysian government's introduction of capital controls in September 1998 was to prevent domestic assets from moving offshore; overseas expansion by Malaysian firms may slow further in the future.
(5) FDI from Japan Declines
Statistics for individual recipient economies show that Japanese FDI in 1997 fell 53.0% in Malaysia due to labor shortages and financing difficulties, and high investment in 1996, and 29.2% in Indonesia due to reduced investment in the auto and chemical industries. Investment in the Philippines, however, showed strong growth, with investments approved by the Philippine Economic Zone Authority (PEZA) up 2.6-fold and BOI-approved investments up 2.5-fold. This was due to 1) the completion of new industrial estates, and 2) increased investment in electronics by Japanese affiliates. Japanese investment in the R.O.K., Thailand and Singapore also registered increases, albeit small ones. In 1998, investment in the R.O.K. and the ASEAN5 fell across the board due mainly to the recession in Japan, reduced demand in Asia due to the economic crisis, and the depreciation of the yen.
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Trend in FDI Received by
the R.O.K. and ASEAN5
(Units: upper rows - value of investments approved, lower rows - percentage change on previous year or same period of previous year)
1: Investments made jointly with other countries
counted more than once.
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