As far as investors are concerned, China has been the undisputed king of Asia-Pacific for decades. However, some signs point towards the country losing its appeal.
With the world’s largest population at its disposal, China was also able to offer investors a cheap labour force with diverse skillsets, a key attribute for companies seeking large-scale manufacturing investments. China’s economy continued to thrive and experienced little competition from neighbouring countries for several decades. In recent years, however, political disputes and ongoing sanctions have seen international companies wary of investing in China, and the country has witnessed a decline in foreign direct investment (FDI).
According to data from GlobalData’s FDI Projects Database, China was the leading destination for FDI into Asia-Pacific in 2019. Over the 12 months, it brought in 854 projects, representing almost one-fifth (19.8%) of all inward FDI in the region, ahead of India and Australia, which had 834 and 437 projects, respectively.
In 2020, following sanctions imposed on China by the US amid human rights concerns, the Covid-19 pandemic and continued territorial disputes in the East China Sea, FDI into the country declined sharply. China-bound FDI dropped by 53% to 401 in 2020, against a global average of -17.5%. The US remained the top source country for FDI into China, but investment from the country dropped from 205 projects in 2019 to 97 in 2020.
In 2020, India also took the lead as the destination country of choice for FDI in Asia-Pacific, recording 562 projects, 40.1% more than China. By 2021, despite witnessing an increase in FDI, with project numbers rising to 481, China slipped to third position when it came to FDI projects coming into Asia-Pacific, behind India with 713 projects and Australia with 511.