this day i noted the following pieces of news (please excuse me to address multiple posts to you) per my watch / brief
all going pretty much as expected, so okay
Guest post: China’s investment to shape Asean’s destiny
blogs.ft.com
By Gavin Bowring, Asean Confidential
China’s two-way trade with the 10 nations of the Association of Southeast Asian Nations (Asean) has grown more than fivefold over the past decade and is course to reach nearly $500bn this year. However, Chinese direct investment into Asean has been relatively anemic by comparison, accounting for only 7 per cent of China’s total foreign direct investment (FDI) stock.
But if Beijing gets its way, this is set to change. China plans a fivefold ramp up of its FDI in the region to a cumulative $150bn by 2020 from $30bn currently. Over the same period, it sees a doubling in bilateral trade to $1trn by 2020. The map below sets out the dynamics.
Source: Asean Confidential
Achieving the goal of boosting investment, however, may not be as straightforward as it sounds. Concerns in Asean are rising over China’s growing strategic ambitions as it boosts its military spending and digs in over territorial disputes in the South China Sea.
From a commercial perspective, China also needs to compete not only with Japan – which is investing strongly in manufacturing, agriculture, clean energy, healthcare and infrastructure throughout the region – but also with cross-border investments from within the region.
Yet the leverage that China enjoys in Asean through its trade ties is often overstated. Only 22 per cent of China-Asean trade actually stays within the region, while 60% is re-exported to developed markets. Malaysia, China’s largest trading partner in the region, provides a perfect example; electronics and semiconductor supply chains alone accounted for roughly 45% of this trade.
Nevertheless, the trade flows are clearly growing, and coming increasingly from the non-multinational sector. China’s southwestern provinces, Yunnan and Guangxi, saw the fastest growth rates in Asean trade last year, as consumer spending in the frontier economies of the Mekong continues to boom.
Myanmar alone accounted for one third of Yunnan’s exports to the region (see map) – particularly consumer electronics – and the true total volume of Myanmar-Yunnan trade is heavily under-reported because much of it slips across porous border controls. This surge in trade has taken place in spite of a recent cooling in relations between Beijing and Yangon.
Infrastructure investment is key to China’s advance.
Chinese companies provided important sources of infrastructure financing in the years after the 1997 Asian crisis. Examples range from Naypyidaw Airport in Myanmar, to highways and hydropower projects in Cambodia, to the Java-Madura Bridge and the 10,000MW first fast track coal power program in Indonesia. The march of Chinese investments in hydroelectric power plants is shown in the chart below.
Source: Asean Confidential
However, Chinese companies have generally been unwilling to take on project risk in infrastructure, with lenders such as China Exim, Sinosure and China Development Bank often requiring sovereign guarantees or other forms of collateral as a prerequisite to project lending. Such “subsidized lending” accounts for roughly 60-70 per cent of China Eximbank’s overseas financing, according to one estimate.
Sovereign guarantees have become increasingly unpalatable for many Asean governments, and the infrastructure-for-resources model appears increasingly untenable. In Laos, a planned US$6.2bn railway linking Vientiane with the Chinese border is on hold, given its potential to saddle the Lao government with debt, as well as requests from Chinese counterparts for large land concessions adjacent to the track.
Indonesia, currently one of the largest recipients of FDI in the region, has also been wary of providing new sovereign guarantees, and has also reduced the access of Chinese and other foreign companies to large scale mining and plantation concessions. Many investment pledges announced at high level meetings between Chinese and individual country leaders fall short of expectations.
Chinese real estate investment in Asean leaps
Nevertheless, there are clear signs that China’s approach to investment in the region is both evolving and becoming more diversified. Real estate is one example. According to CBRE, mainland Chinese investors accounted for 30% of major investments (transactions above US$10m) into Asean commercial real estate last year, from near negligible levels in previous years. A number of China’s biggest retail developers are hoping to replicate their models in markets like Vietnam and Thailand as these countries continue urbanising.
Malaysia has been a major target for residential property investments; major Chinese residential developers such as Country Garden, Agile Property, and Guangzhou R&F have over US$10bn cumulative planned projects in Malaysia’s Iskandar zone. PRC buyers also directly invested in US$2bn of residential properties, given the saturated markets of Hong Kong and Singapore.
Source: Asean Confidential
China has also begun investing in Asean manufacturing, despite being a competitor on many fronts. Companies such as SAIC and Great Wall have made major recent investments in the auto industries of Thailand and Malaysia. Chambers of Commerce in northeastern Thailand have been hosting roadshows in China, with growing Chinese interest in agri-processing.
In Vietnam, approved Chinese FDI jumped 710 per cent YoY last year to $2.3bn, with Chinese textile companies anticipating Vietnam’s inclusion into the Transpacific Partnership, which China is unlikely to win early membership to.
Indonesia’s Investment Coordinating Board (BKPM) claims that Chinese companies are financing a number of metal smelters that have already begun construction, inching progress in bringing local value-add to its natural resource industries. Some Chinese investors we have spoken to say that, contrary to popular perception, smelting investments are actually cost-effective for Chinese companies despite significant overcapacity in China.
Indeed, Indonesia, the region’s largest consumer market and supplier of natural resources, is likely to prove a key litmus test for future momentum in Chinese FDI trends. Much rests, however, on the ability of Chinese companies to provide both more flexible financing arrangements, to invest in local manufacturing, and to compete on quality as Asean continues to integrate not just with China but with other regional and global economies.
Gavin Bowring is Director of Consumer Research at Asean Confidential, a research service at the Financial Times
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