A recent Asian Development Bank study of foreign direct investment in developing Asia confirms what we have known all along: in the race to attract foreign direct investment, China is galloping unmercifully ahead of the rest of us. Indeed, it's so far ahead that the competition looks almost pitiful.
The study covers the period from 1991 to 2000, during which Asia was rocked by a devastating financial crisis. But while the crisis pruned the region's share of global FDI from 17.3 per cent (annual average) between 1991 and 1993 to 9.7 per cent between 1998 and 2000, China's inflows swelled dramatically over the same period from $14.346 billion to $41.614 billion.
And, rubbing the message further in, average annual investments in Hong Kong in the two comparative periods soared like a rocket from $2.082 billion to $33.768 billion.
Who were the others in ADB's league of top 10 FDI destinations in developing Asia? Malaysia, though it slipped from $4.729 billion to $3.466 billion; Singapore, doubling its volume from $3.926 billion to $7.866 billion; and South Korea, moving past Singapore with inflows swelling from $832 million to $8.009 billion. There were Thailand, too, going from $1.978 billion to $3.839 billion; Taipei from $1.022 billion to $2.692 billion; the Philippines from $670 million to $1.190 billion; and Vietnam from $539 million to $1.491 billion.
Surprisingly, India was there as well. For the first time, it crept into the league with an annual average inflow (1998 to 2000) of $2.373 billion, nudging Indonesia out. But, in light of the reality as revealed by the ADB study, there's hardly any reason to celebrate.
What does the broad picture tell us? While Asia's global share fell overall, inflows into the top 10 countries ballooned from $31.877 billion a year in 1991 to 1993 to $106.309 billion in 1998 to 2000. But, of this total, China and its special administrative region of Hong Kong alone accounted for $75.382 billion, or over 80 per cent. And east and southeast Asia more or less completed the sweep.
India, the only country in the region that could have stood up to China if only it had put its house in order and got its policies right, was the odd man out, and a miserable one at that. In its present frame of mind and at its present pace of action, it can't even hope to be a turtle.
There are other reasons why the odds against India look formidable. As the ADB study points out, Asia's loss of global FDI during 1998 to 2000 meant gains for countries like Brazil, Finland and Ireland. Brazil is a vast economy that has pushed through a successful stabilisation programme and now ranks among the top five markets in the world for many consumer products. The feeling among investors is that it's another China in the making.
Finland, acknowledged as the world's most competitive and least corrupt, has used FDI to emerge from depression into one of Europe's most rapidly developing economies, and new foreign companies are coming in at the rate of 200 a year. Foreign investors believe Finland will be the third best country in the world, after Canada and the Netherlands, to do business over the next five years.
Ireland is reaping the benefits of policies that have remained singularly consistent and helped create a solid market-driven, export-based, and FDI-led economic environment. Between 2000 and 2002, it received 9 per cent of all manufacturing FDI coming to Europe, 8 per cent of research and development investments, 31 per cent of pharmaceutical and healthcare projects (overtaking the UK), 42 per cent of new software projects, and 12 per cent of information and communications technology projects.
Then there is Russia, which, for the first time, has appeared among the top 10 most favoured investment destinations in the world in a recent A T Kearney survey of global executives. Russia is reporting a 50 per cent FDI growth for this year and has launched a vigorous investment campaign in the US.
It is predicted that, over the next 50 years, Brazil, Russia and China would become a much larger force in the world economy. India is also included in this analysis simply on the basis of its size, but its influence will depend entirely on the degree of its preparedness. It simply lacks the infrastructure, systems and policies that encourage, mobilise and sustain investments. When all other markets are constantly seeking to improve their efficiencies, mere size won't help.I think India is also making a mistake by overemphasising the information technology sector. It's only a matter of time before China begins to bite deeper into the IT cake on the strength of both its skills and low costs. New Delhi must not neglect the manufacturing sector. That's where China gets its enviable volumes from and the real battle for future FDI will be fought. India is not the only country big and cheap; Brazil and Russia also are.