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China, India to remain top FDI
destinations
WASHINGTON -
Emerging markets, notably in Asia, are expected to
receive US$276 billion in private capital this
year, according to the Washington-based Institute
of International Finance (IIF). This follows last
year's $279 billion - the highest level since
1997, according to IIF in its annual report on
capital flows, published recently.
China
and India will continue to be the major recipients
of direct foreign investment (FDI), while China
will attract a continuing inflow of portfolio
investments in its equities market. However, last
year's interest in Indian and Korean equities has
waned, and these two countries are expected to
drop down the list of priorities this year. New
FDI commitments reached $253 billion last year -
up from $115 billion in 2003. The large pipeline
of new commitments and heightened global corporate
enthusiasm for China suggest that new inflows of
FDI should rise from $59 billion last year to $65
billion in 2005.
Efforts by Chinese
authorities to slow down the economy have done
little to deter investors. Indeed, expectations
for a revaluation of the currency seem to be
prompting foreign investors to accelerate funding
for their investment facilities. As a consequence,
China is projected to account for more than 85% of
the $75 billion in direct investment expected to
flow into the region this year. The IIF says
growth in China is likely to slow marginally from
last year's 9% as policies remain focused on
preventing the economy from overheating.
India will be the second-largest recipient
of direct investment in the region, with net
inflows this year of $4.5 billion. Real gross
domestic product (GDP) in India is projected to
pick up slightly from last year's pace to reach
6.5% in 2005, supported by a round of public fixed
investment. In the rest of Asia, real GDP growth
is likely to be in the range of 4.5-6%.
South Korea, however, is likely to be the
only country in the region to experience net
outflows this year, amounting to $1 billion. This
would be the third time in the last four years
that the Koreans have experienced net outflows of
direct investment. One reason is rising investment
abroad by Korean companies as Korea moves from an
emerging market to a mature economy, says the
report. In Korea, with consumption and investment
expected to remain subdued, real GDP growth next
year is likely to decelerate to 3.5% from 4.5% in
2004.
Just as in FDI, the Asia Pacific
region was the top destination for portfolio
equity investment in 2004. This year, flows are
expected to fall back slightly to about $30
billion from $31 billion in 2004. The fall will be
felt by stock markets in India and South Korea.
But China remains on the radar screen in part
because of the upcoming initial public offerings
of the Bank of China and Construction Bank. This
is in spite of lingering concerns about corporate
governance. The IIF suggests that China could
receive new inflows of portfolio equity, likely to
increase this year to $15 billion from $12
billion.
Net commercial bank lending to
the Asia Pacific is expected to decline to less
than $12 billion this year from more than $33
billion in 2004. China will account for a large
portion of the decline in net lending, reflecting
administrative measures taken by authorities to
impose quotas on foreign banks' overseas
borrowing. In Korea, rising international interest
rates and sluggish investment are likely to reduce
net commercial bank lending to less than $2
billion in 2005 - down from nearly $6 billion last
year. India is the only country in the region
expected to see an increase in net lending this
year, as investment demand and external trade
activity remain strong.
According to some
experts, the large expansion in economic activity
across the world has generated unanticipated
inflationary pressures, especially in primary
products and steel. This may force tighter
monetary policies and higher interest rates in
advanced economies, leading to reallocation of
international portfolios and volatility in the
pattern of capital flows to emerging markets. But
most hold that emerging markets are not likely to
experience any major meltdown in 2005 though
trouble may be brewing in the long run for some
that haven't carried out the necessary structural
adjustments and reduced debt.
(Asia
Pulse/Asia Today) |
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