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Will China’s Decline Boost FDI In Other Asian Countries?

If the Chinese economy goes through a prolonged slump, India, Indonesia and Vietnam could all experience a surge in FDI. By Jon Whiteaker, Investment Monitor

Contagion from China’s property market crash to the country’s wider economy could have profound effects on the global economy and the future of globalisation.

Real estate and related services account for one-quarter of China’s GDP, and a property slump is slowing the country’s economy. The International Monetary Fund is predicting GDP growth of just 3.2% for China in 2022, the slowest rate since the 1980s if Covid-affected 2020 data is excluded.

This, combined with a continuing chill in US-China relations, may see a reallocation of foreign direct investment (FDI) from China to other emerging economies, according to Lawrence Brainard, chief economist at TS Lombard.

During a recent webinar in partnership between GlobalData and TS Lombard, Brainard said that in the next few years he predicts a sluggish Chinese economy, rising social tension and a property sector that “will take five to ten years to bottom out”.

“What we are going to see at the margin, it is important to emphasise the margin, is the reallocation of FDI in large amounts to other emerging markets, particularly those that have advantages in labour force, infrastructure and so forth,” Brainard said. He highlights India, Indonesia and Vietnam as potential winners in this redirection of FDI.

Preliminary FDI data for 2022 shows that these countries may already be benefitting from a reallocation of capital from China. India, Indonesia and Vietnam have already recorded more FDI projects by the end of October 2022 than they did in the entire of 2021, according to our FDI Projects Database.

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