Commentary: Missing out in Asia
Andy Mukherjee Bloomberg News Thursday, December 18, 2003
SINGAPORE Someone is spoiling Asia's investment party. American companies invested 5 percent less in foreign countries during the first nine months of 2003 compared with a year earlier, a U.S. Commerce Department report showed this week.
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The concern in Asia is that much of the annual $120 billion of U.S. investment is going to Europe.
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Between January and September, the 13 economies of Asia-Pacific, including Japan, China and India, had a 15 percent share of U.S. overseas investments, down from 24 percent last year. Meanwhile, Europe's share climbed to 63 percent, its biggest haul in five years.
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What is behind Asia's waning appeal?
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It isn't China. Although Standard Poor's warned last week of "future overcapacity" in the world's most-populous nation, the Commerce Department data don't show any cooling of investor interest in the country. Ford Motor and General Motors are still expanding there. China's share of total U.S. direct investments was 1 percent in the January to September period, up from 0.8 percent last year.
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Nor is Australia the culprit, though the central bank in Sydney is forecast by a majority of economists to raise interest rates in the first quarter of 2004. Between January and September, U.S. companies chose Australia for 3.4 percent of their investments, a five-year high.
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No, it appears that the investment figure for all of Asia is being pulled down by Singapore.
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U.S. direct investments in the city-state shrank to $2 billion in the first nine months of this year, or 2.2 percent of worldwide U.S. investments, down from 9.5 percent last year.
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Singapore's loss helps explain more than two-thirds of the decline in investment this year by U.S. companies in the Asia-Pacific region.
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The Commerce Department report may be the strongest evidence yet that Asia's security woes - from the Bali and Jakarta bombings, to the failed coup attempt in the Philippines - are prompting investors to seek safer destinations in Europe.
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"This neck of the woods is being seen by investors as a riskier place," says Song Seng Wun, an economist at G.K. Goh Research in Singapore. "Europe is more stable, and the economies there are coming out of a period of slow growth."
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The presence of terror groups like Jemaah Islamiyah in Singapore's neighborhood may have caused some of the city's investment loss this year. Probably, the island also paid a price for SARS. The second quarter of 2003, when Singapore was struggling to contain the respiratory disease, was its first three-month period of declining net U.S. investment since the Asian financial crisis of 1997-98.
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There are a few other conclusions to be drawn.
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First, industries likely to favor Asia aren't the ones seeing growth in investments. U.S. mining investments in the first nine months were less than half last year's level. Food and beverage investments saw a similar decline. Chemicals and metals are in a slump, too.
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Second, there may be a fundamental reason why Singapore stocks are up just 29 percent so far this year, compared with 93 percent in Thailand, 61 percent in India and 54 percent in Indonesia.
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In all of Asia, the $89 billion Singapore economy is the most dependent on U.S. investments for economic growth. The city-state of 4 million people has virtually no domestic economy, and unless it can keep grabbing more factory investments to shore up exports, speeding up economic growth to a significantly better rate than this year's projected 1 percent pace will be difficult.
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Historically, Singapore has been the biggest draw in Asia for U.S. investors, especially electronics manufacturers such as Seagate Technology. Over the past decade, Singapore has absorbed $34 billion in U.S. direct investments, more than the bigger economies of Japan, Australia, Hong Kong, China and South Korea.
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Even then, Singapore may be missing out on the current revival in electronics investments. In the first nine months of this year, while Singapore struggled to win investments, U.S. electronics and computer companies invested $3.55 billion worldwide, triple the amount in all of 2002.
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While most Asian countries will benefit from an overall rise in U.S. direct investments next year, not all will gain equally. In the case of the Philippines, the outcome of 2004 presidential elections will be key to economic stability and investor confidence. In China, a planned reduction in tax rebates to exporters may douse some of the investor enthusiasm. From Jan. 1, China will reduce rebates available to exporters to 13 percent of tax bills, from as much as 17 percent now.
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"U.S. investments for Asia as a whole may improve," said Prasenjit Basu, managing director of Robust Economic Analysis in Singapore. "Still, in many Asian countries the picture is going to be clouded by a lot of special factors."
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Bloomberg News
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