Introduction
In the face of successive waves of COVID-19, foreign direct investment (FDI) flows into developing countries in Asia have defied global trends, surging by a remarkable 19% to reach an all-time high of $619 billion in 2021. This marks the third consecutive year of growth, showcasing the resilience of developing economies in the region amidst the pandemic-induced challenges.
China's Dominance: A Force to Reckon With
China, emerging as the primary recipient, witnessed a substantial 21% increase in FDI, totaling $181 billion in 2021. This growth, accelerated by robust investments in services and high-tech sectors, reflects the nation's unwavering economic prowess. Notably, international project finance deals soared, exemplified by the construction of a groundbreaking $1 billion data center in Shanghai.
Hong Kong's Strategic Reinforcement
Hong Kong, China, contributed significantly to the regional upswing, experiencing a 4% growth in FDI to $141 billion. This increase, largely fueled by companies reinvesting their earnings, emphasizes the strategic importance of Hong Kong as a global financial hub.
South-East Asia's Resurgence: A Triumphant Return
South-East Asia emerged as a key driver of FDI growth, with a remarkable 44% increase, amounting to $175 billion. The subregion's focus on manufacturing, the digital economy, and infrastructure played a pivotal role. Singapore, the largest recipient, witnessed a 31% surge to $99 billion, propelled by cross-border mergers and acquisitions (M&As) such as the $34 billion merger of Altimeter Growth Corp with Grab.
West Asia's Surge in Cross-Border M&As
West Asia recorded a substantial 59% increase in FDI flows, reaching $55 billion in 2021. The United Arab Emirates retained its status as the largest recipient, with stable flows at $20 billion. Noteworthy cross-border M&As, such as the joint solar energy project in Dubai by DHL Global Forwarding and Total, contributed to the region's impressive performance.
South Asia's Challenges Amidst Global Triumph
In contrast, South Asia faced a 26% decline in FDI, totaling $52 billion. India, the largest economy in the subregion, experienced a 30% reduction in FDI flows to $45 billion. Despite this setback, the announcement of 108 new international project finance deals, particularly in renewables, suggests a potential rebound.
Central Asia's Steady Rise
Central Asia witnessed a 12% increase in FDI flows, reaching $7 billion. While Kazakhstan, the largest recipient in the region, experienced a 14% decline, Uzbekistan and Turkmenistan saw increases of 18% and 24%, respectively.
Sustainable Development Goals (SDGs): A Driving Force
Foreign investment in sectors crucial for achieving the UN Sustainable Development Goals (SDGs) witnessed a significant rise across developing countries in Asia. International project finance values in these sectors surged by 74% to $121 billion, with a notable focus on renewable energy, where project values rose by an astounding 123% to $77 billion.
Future Outlook: Navigating Geopolitical Tensions
Looking ahead, mega-regional efforts, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership, are poised to further boost cross-border investment. However, the potential escalation of geopolitical tensions remains a factor of uncertainty for long-term investment in the region.
In conclusion, the unprecedented surge in FDI flows to developing Asia in 2021 underscores the region's resilience and strategic appeal to global investors. As we navigate the complexities of a post-pandemic world, the dynamism displayed by key players in Asia positions the region as a focal point for sustained economic growth and development.
