As the world emerges from an unprecedented pandemic-induced economic slump, Asia is once again garnering the attention of international investors and multinational corporations in the form of large-scale inflows of portfolio and direct investments into strategic economic sectors.
Unlike the period following the 2008 Global Financial Crisis where the focus on Asian economies was almost exclusively realized by corporate and institutional investors, in the post-pandemic era, governments and inter-government organizations from around the world are also pursuing close economic and political ties with countries across Asia.
While this often involves bilateral and multilateral negotiations over a dizzying array of bilateral and regional trade and investment partnerships, many non-Asian players are invoking imaginative strategic partnerships with their Asian counterparts, while some are erecting barriers between themselves and those Asian governments they consider to be strategic rivals.
Asia’s economic recovery supported by surging FDI in 2021
Inward investment has been increasing into the Asian region since the global record slump in foreign direct investment (FDI) in 2020 (see “Asia leads the global economy out of 2020’s record FDI inflow slump”). This has been particularly driven by aggregate demand which has been bouncing back across the world in 2021 to be fed by imports of competitive and innovative manufactured goods from Asia.
The strength of this international demand has precipitated surging levels of GDP growth in Asia, which is expected to reach about 7.5% in 2021, in contrast to -1.3% in 2020, while the region’s currencies have remained stable even as Asian central banks have generally maintained record low interest rates. Given this benign financial environment alongside stimulative growth prospects, Asia’s external trade and inward investment into the region are expected to expand by 8.3% and 5%-10%, respectively, over 2021, according to the UNCTAD World Investment Report 2021.
A key driver of these positive trends in inward investment can be attributed to Asian governments’ strategic focus on innovation-led growth in previous years. This is in addition to an abundance of local entrepreneurial talent, growing domestic consumer markets and the availability of long-term sources of capital. The result has been a surge in Asian corporate spending on research and development (R&D) exceeding that of its North American counterparts since 2011 – a trend which has increasingly widened over the past ten years.
In turn, this has set the scene for Asia’s business sector to adopt a new paradigm in innovation, much as America’s corporations managed to conjure up in the early to mid 1990s Over 2021 and 2022, the economies of India, East and Southeast Asia, are therefore likely to see global FDI being continually channeled into the region’s high-tech sectors currently benefiting from advanced digital and data technologies and large-scale investments into IT infrastructure.
Different stages of economic development across Asia also mean that global investors will be able to choose from a wide array of high growth sectors, in coming years, ranging from banking and financial services to education and from healthcare provision to artificial intelligence (AI), robotics and 5G. Inward FDI into renewable energy is also expected to gain traction as countries such as China, South Korea and parts of Southeast Asia orientate towards expanding green energy sources.