Southeast Asia Research Centre

Catherine Chiu China, Hong Kong, Taiwan and Southeast Asia: Sources of Inflows and Destinations of Outflows

Working Paper Series

No. 112 November 2011

The Southeast Asia Research Centre (SEARC) of the City University of Hong Kong publishes SEARC Working Papers Series electronically Copyright is held by the author or authors each Working Paper. SEARC Working Papers cannot be republished, reprinted, or reproduced in any format without the permission of the papers author or authors. Note: The views expressed in each paper are those of the author or authors of the paper. They do not represent the views of the Southeast Asia Research Centre, its Management Committee, or the City University of Hong Kong.

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China, Hong Kong, Taiwan and Southeast Asia: Sources of Inflows and Destinations of Outflows
Catherine C. H. Chiu Department of Asian and International Studies City University of Hong Kong Paper presented to the Workshop on Chinese Investments in Southeast Asia, Southeast Asia Research Centre, City University Hong Kong, 17 June 2011 Abstract This paper traces the recent trend of inward foreign direct investment to Southeast Asia (SEA) from China, Hong Kong and Taiwan. It also discusses motives of these economies as sources of FDI inflows to SEA as well as the attractions and constraints of SEA as destinations of their outflows. Introduction Inward foreign direct investment (IFDI) has always played an important role in the economic development of Southeast Asian (SEA) countries. Between 1995 and 2009, ASEANs IFDI rose from US$28.2 billion to 36.8 billion, although its share of the worlds inflows dropped from 8.2 per cent to 3.3% (Figure 1). Between 1998 and 2003 inflows to ASEAN were disrupted by the 1997 Asian financial crisis and inflows returned in 2004 (despite the SARS pandemic in 2003) to their pre-crisis levels and continued to steadily increase in subsequent years until 2007. Consequential to the 2007 financial tsunami, disinvestment was substantial in 2008 and 2009. (Figure 1 about here) Due to Chinas accession to WTO and its prominence in as a recipient of IFDI, literature on IFDI to Southeast Asia (SEA) or ASEAN in the last decade has focused on whether or not Chinas success has negatively affected IFDI to SEA (Buckley et al. 2005; Chantasasawat et al 2005; Das 2007; Felker 2003; Mercereau 2005; Ng 2009; Pritchard 2006; Wu et al. 2002). IFDI trend data reported in the World Investment Report (UNCATD 2010: Annex Table 1) showed that China did not crowd out SEA. Rather there were concurrent investments in China and SEA because of supply chain complementarities (Ng 2009).

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With Chinas increasing role in outward foreign direct investment (OFDI) flows, more recent works examine Chinas performance as an important outward foreign direct investor (Asia Pacific Foundation of Canada and China Council for the Promotion of Foreign Trade 2009; Buckley et al. 2008; Dunning et al. 2008; Lunding 2006). Recently, China has joined the league of high-income newly industrialized economies of Hong Kong and Taiwan to invest in SEA, and Chinese OFDI to ASEAN is rising fast. These three economies (Greater China Economies) are now important players in both the world FDI market and in south-south investment (Kawai 2007; Lee 2007; Quinlan 2008) within East and Southeast Asia. In 2007, in terms Outward FDI Performance Index (which is the share of a countrys outward FDI in global FDI outflow as a ratio of its share in world GDP), China ranked 59th, Hong Kong 3rd and Taiwan 34th, among 141 economies (UNCTAD 2008: 214-215, Annex Table A.I.10). In 2009, these three economies account for 9.64 per cent (China 4.36 per cent; Hong Kong 4.75 per cent; Taiwan 0.53 per cent) of the total outflow in the world (UNTCAD 2010: Annex Table 2). Their OFDI amount was US$48 billion, 52.3 billion and 5.9 billion, putting them on the rankings of 2nd, 1st and 14th respectively among 170 developing economies. This paper focuses on the Greater China-ASEAN FDI market. I first trace the recent trend of ODI from these economies to SEA. The trend data cover the years between 1995 and 2009. Within this period, the ASEAN FDI markets were challenged by the 1997 Asian financial crisis, the 2003 SARS pandemic and the 2007 financial tsunami while Chinas entry to WTO in 2001 posed both opportunities and threats. Next, I discuss the motives of these economies as sources of FDI inflows to SEA as well as the attractions and constraints of SEA as destinations of their outflows. This will be followed by a conclusion. Outward FDI from China, Hong Kong and Taiwan to ASAEN Table 1 shows the share of the IFDI to ASEAN from China, Hong Kong and Taiwan, compared to other sources between 1995 and 2009. Although their shares are comparatively smaller than those of major investors such as USA, Japan, EU and Singapore, these three economies are important investors in ASEAN. (Table 1 about here) Between 1995 and 2009, China was top ten investors in ASEAN for eight years, in 1998, 2001 and from 2004 to 2009. Hong Kong was top ten for eleven years, between
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1995 and 2000, in 2002, and from 2006 to 2009. Taiwan had been one of the top ten sources of IFDI to ASEAN all these years except in 2004 and 2005 (ASEAN Secretariat 2006, 2008 and 2010). Table 2 and Figure 2 show the total annual IFDI from each of these economies. Chinas OFDI to this region is growing fast, from 0.14 billion in 1995 to 1.5 billion in 2009 which is close to the level of Hong Kongs. Taiwans OFDI level in ASEAN has been decreasing steadily from 1995 (US$0.9 billion) to 2009 (US$0.7 billion), except that there was a sudden surge in 2008 (US$. 1.5 billion). (Table 2 and Figure 2 about here) The importance of China, Hong Kong and Taiwan as sources of IFDI for each of the ASEAN countries is shown in Table 3. The ASEAN Secretariat published IFDI to its member countries until 2005 for Hong Kong and Taiwan, and until 2008 for China. Hence, the combined data are up to 2005. The three economies are significant investors in emerging markets of Myanmar, Cambodia, Laos, and Vietnam. In 2005, their share of the total FDI inflows to these countries were 49.26%, 31.52%, 16.52% and 19.1% respectively. Among the more established FDI recipient countries, Philippiness share was 22.76%, followed distantly by Thailand (9.52%), Indonesia (5.02%) and Malaysia (0.30%). Singapores share was negative in 2005. (Table 3 about here) In terms of economic sector, manufacturing, services, real estates, trade and commerce, and mining and quarrying, in that order, are the major recipients of OFDI from the three economies. (Table 4 about here) China, Hong Kong and Taiwan as Sources of Inflows We saw the total amount of IFDI to ASEAN from each of the Greater China Economies in Table 2. ASEAN is a significant OFDI destination of these three economies. Using inflow data to ASEAN (ASEAN Secretariat 2006, 2008, 2010) and outflow data from World Investment Report 2010 (UNTCAD 2010: Annex Table 2), I tried to gauge the share of OFDI from these three economies to ASEAN as a percentage of their OFDI to the world (Figure 3). Comparatively Taiwan invests a higher share of its world OFDI in ASEAN than China and Hong Kong. In 2009, Taiwans OFDI to ASEAN accounted for 11.72 per cent of its total OFDI, whereas the
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percentage of China and Hong Kong were 3.14 and 3.01 respectively. (Figure 3 about here) China At the beginning of the reform era, China adopted a cautious OFDI policy to internationalize Chinese state owned enterprises, thus the scale of investment was small in the 1980s (Taylor 2002). Throughout the years there were expansion and regulation and in 2001 Chinas encouragement for OFDI was formalized through the Going Global directive (zou chu qu ) (Buckley et al. 2007; Lunding 2006). Favourable OFDI measures introduced include improvements to the availability of commercial loans, finance of the Export-Import Bank of China (using Chinas extensive foreign exchange reserves) and preferential arrangements concerning foreign exchange and corporate income tax for qualifying firms and projects (Buckley et al 2008:119). In addition, in 2007, following Singapore and South Koreas reserve management, China established a state investment company, called the China Investment Company (CIC) to manage a $200 billion fund drawn from the countrys huge foreign exchange reserves (Kawai 2007: 6-7). These, coupled with Chinas WTO entry in 2001, result in dramatic increase in Chinas OFDI stock, from US$27 billion in 2000 to US$229 billion in 2009 (UNCTAD 2010: Annex Table 4). This is a great leap forward as [h]istorically, the Chinese government has capped Chinas total ODI at some USD 10 m while requiring companies investing in excess of USD 10 m to gain special approval concerning cross-border capital and foreign exchange transfer (Lunding 2006: 6). China continued its liberalization in the post-WTO period and it was reported in the World Investment Report 2010 that in 2009-2010,
Chinas State Council released opinions encouraging FDI, and indicating that the threshold of foreign-invested projects in the encouraged or permitted categories that triggers central level approval will be raised to $300 million, up from $100 million. The implementing regulation encourages, among others, foreign investment in high-tech industries, new energy, energy-saving and environmental protection industries (UNCTAD 2010:78).

The Going Global policy was found a strong driver of intended OFDI in a survey of 1104 Chinese companies in various provinces in 2009 conducted by Asia Pacific Foundation of Canada and China Council for the Promotion of Foreign Trade. Other motivating factors include seeking new markets and advanced technologies, reducing production costs and taking advantage of preferential policies of host countries,
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obtaining well-known product brands, overcoming trade barriers and accessing natural resources (Asia Pacific Foundation of Canada and China Council for the Promotion of Foreign Trade 2009:17). These findings are similar to the results of a poll conducted in 2006 by IBM Institute for Business Values among 60 large Chinese state owned and private companies (Lunding 2006: 4-5). East and Southeast Asia are top choices for Chinese OFDI, according to the two surveys. Chinese funds are directed at the bamboo network (Quinlan 2008: 350) which consists of companies across Asia run by overseas Chinese in host countries where Chinese investors find cultural as well as geographical proximity (Buckley et al. 2007; Quinlan 2008). According to UNCTAD (2007:45), "Chinese companies have focused on energy, infrastructure and related services in a number of ASEAN member States. With the establishment of China-ASEAN Free Trade Area (CAFTA) in January 2010, ASEAN will continue to be the preferred destinations of Chinese OFDI and the level of Chinas OFDI to ASEAN is expected to further boost in the years to come. Hong Kong Being an export-oriented economy, Hong Kong has always been on the look out for cost reduction and new markets (Dunning et al. 2008). It has long been the top or one of the top sources of OFDI since its rapid industrialization period in the 1960s and 1970s. Another major motivation for OFDI in the textile quota era was for quota hopping (Wells 1983: 74). As its economy upgrades, firms in Hong Kong tend to invest more in high value added services, ranging from trade and finance to tourism, as well as in some manufacturing niches (UNTCAD 1997: 83). Hong Kongs OFDI has a long presence in Southeast Asia. Economic considerations aside, FDI outflows from Hong Kong to SEA is also rooted in cultural considerations of the need to access to local business through Chinese networks and ethnic connections (Chiu et al. 2010: 111). Chiu and her associates, from their research on FDI links between Hong Kong and five SEA countries, namely, Cambodia, Indonesia, Malaysia, Thailand and Vietnam, found that Hong Kong had been serving as a host of SEA round tripping activities. Based on interview data collected from professionals, they concluded that legal and institutional setting for property right protection, financial service and political stability are the major reasons for SEA investors to use Hong Kong as a host for round tripping activities (Chiu et al. 2010: 123). Taiwan In 1994, Taiwan government promoted the Go South policy, encouraging Taiwan
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investors to go to SEA to spread the risk of investing in China while at the same time imposing constraints on Taiwanese FDI to China (Huang and Ju 2010; Sim and Pandian 2007). The Go South policy helped Taiwanese firms to sustain their growth in the face of escalating production costs at home (Jou et al. 2004). Taiwans OFDI in SEA are mainly in the greenfield (Cheng 2006). Similar to Hong Kong, the primary motivations of Taiwanese investment in SEA are cost reduction and market seeking, brought together by ethnic networks as Taiwanese investors tend to invest in areas populated with ethnic Chinese people (Jou et al. 2004; Sim and Pandian 2007). Many Taiwanese investors request their suppliers of important parts and bulky products to come with them and foreign buyers ask Taiwanese SMEs to invest in SEA (Jou et al 2004) which explains Taiwans strong FDI presence in SEA. ASEAN as Destinations of Outflows Because of their high dependence on IFDI for economic development, ASEAN countries have been continuously making efforts to liberalize their investment regimes and invest in infrastructures to attract foreign investment (Chen 2002; Chia 1999; Cammack 2009; Felker 2003; Lee 2007; Quang Tran 2008; Wu et al. 2002; UNCTAD 2009). The latest effort to stimulate IFDI was made in 2009 when ASEAN member countries agreed on an ASEAN Economic Community (AEC) Blueprint which together with two other Blueprints and one Work Plan constituted the Roadmap for an ASEAN Community (2009-2015) (ASEAN 2009). The AEC is targeted for realization by 2014 which will be characterized by (a) a single market and production base, (b) a highly competitive economic region, (c) a region of equitable economic development, and (d) a region fully integrated into the global economy (ASEAN 2009: 22). In realizing the AEC, there will be free flow of good, services, investment, capital and skilled labour. It is expected that not only will the AEC strengthen intra-ASEAN FDI flows but it will also foster stronger intra-regional investment within East and Southeast Asia. This section evaluates the attractions and constraints of ASEAN countries as destinations of FDI outflows, using survey data from Japan External Trade Organization (JETRO) and the World Bank. The JETRO survey covers investment costs in major Asian cities. ASEAN capital cities covered included Singapore, Bangkok (Thailand), Kuala Lumpur (Malaysia), Jakarta (Indonesia), Manila (Philippines) and Hanoi (Vietnam). I select Shengzhen (China), Hong Kong and Taipei (Taiwan) and compare their business costs in 2009 with those of the six ASEAN cities (Table 5). ASEAN cities except Singapore and Kuala Lumpur had a
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comparative advantage in wages of employees at different levels. In terms of industrial estate rents, Singapore, Jakarta, Manila and Hanoi edged over Shengzhen but rents were cheaper in Taipei than in the ASEAN cities except for Hanoi and the lower end market in Singapore. All ASEAN cities appeared to have no comparative advantage in expenses of leasing offices and houses, except when compared to Hong Kong where property price is known to be one of the highest among global cities. In regard to communications cost, the internet connection fee on ASEAN cities, except in Jakarta, were all higher than that in the Greater China cities. The same observation can be made of the electricity cost. For transportation costs, using petrol price as an indicator, Kuala Lumpur, Jakarta, Manila and Hanoi were more competitive than the Greater China cities. Finally, in regard to personal income tax and corporate tax, Hong Kong was the most competitive. Within ASEAN, all cities were competitive when compared to Shengzhen and Taipei except that the corporate income tax in Bangkok and Manila were higher than the two Chinese cities. (Table 5 about here) The World Bank conducted World Enterprise Surveys among companies in the manufacturing and services sectors in various ASEAN countries including Cambodia, Indonesia, Laos, Malaysia, Philippines, Thailand, and Vietnam, among other developing countries (Table 6). In terms of the amount of time senior management had to spend in dealing with requirements of government regulations, those in Thailand spent the least (0.43% of their weekly time) while those in the Philippines spent the most (9.14% of their weekly time). Across the various measures of corruption, Cambodia was the most corrupt while Indonesia seemed to be the least corrupt among the countries where corruption data were available. Thailand appeared to be the best in terms of crime loss and security cost and the Philippines and Malaysia were the worst. Concerning access to finance, the high collateral required for taking loans in Cambodia, Loas and Vietnam, had deterred firms from accessing finances for investment from banks. Regarding infrastructure, overall speaking, Malaysia was the best. Finally, in terms of trade, the Philippines was the worst in the time needed to clear imports and exports through customs whereas Thailand was the fastest in clearing exports and Indonesia, imports. (Table 6 about here) In addition to asking objective questions, the World Bank surveys also asked perception questions. Firms in each country were asked to indicate business
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constraints (Table 7). Comparing the rating across ASEAN countries, Thailand was the poorest in almost all respects except that in terms of corruption while considered by 31 per cent as a major constraint, it still fared better than Cambodia which was considered a major constraint by 54 per cent of the firms surveyed. Other major constraints in Cambodia were practices of competitors in the informal sector (33 per cent), electricity (21 per cent), crime, theft and disorder (19 per cent), tax rates (16 per cent), and tax administration (15 per cent). The evaluation of Vietnam were most positive in that most of the indicators were considered constraints by a very small proportion of the firms except in access to finance (15 per cent), practices of competitors in the informal sector (14 per cent) and transportation (12 per cent). Indonesia was also rated quite positively whereby in five of the indicators, its constraints rating was lower than other countries transportation (10 per cent), customs and trade regulations (5 per cent), tax administration (5 per cent), labour skill level (5 percent), tax rates (4 per cent). (Table 7 about here) Table 8 shows the biggest obstacle considered by firms in investing in each of the six ASEAN countries. The top three obstacles for each of the countries are presented in Box 1. Overall speaking, the more commonly mentioned ones in the list of top three obstacles were access to finance, practices of the informal sector, political instability, tax rates and inadequately educated workforce. (Table 8 and Box 1 about here)

Conclusion This paper provides an overview of the recent trend of IFDI to SEA from China, Hong Kong and Taiwan. In addition to market seeking and cost reduction, geographical and cultural proximity are also important motivations of Chinese investments in SEA. State policy and support, in the area of securing natural resources in particular, plays an important role in Chinas ODFI in SEA. Together, China, Hong Kong and Taiwan are now important FDI sources for emerging SEA markets such as Myanmar, Cambodia, Laos, and Vietnam whose advantages are low wage rates and access to natural resources. Within ASEAN, there are country-specific advantages and constraints. Whether or not ASEANs approach of acting in concert to improve the regions attractiveness will
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ease the constraints of each member country is yet to be seen. With the growth in China, its OFDI liberalization policies and the establishment of China-ASEAN Free Trade Area (CAFTA) in January 2010, ASEAN countries can expect to receive more FDI from China in the years to come. Regarding Taiwans OFDI to ASEAN, the conclusion of the Economic Cooperation Framework Agreement (ECFA) between China and Taiwan in June 2010 might divert Taiwans investment from ASEAN to China as investment cooperation between China and Taiwan strengthens. In the case of Hong Kong, corruption, political instability, low labour skill level and poor infrastructure in some ASEAN countries are major concerns. These countries need to work on these areas to maintain confidence of Hong Kong investors. References ASEAN. 2009. Roadmap for an ASEAN Community (2009-2015). Retrieved from http://www.aseansec.org/publications/RoadmapASEANCommunity.pdf, on March 3, 2011. ASEAN Secretariat. 2006. ASEAN Statistical Pocketbook 2006. Retrieved from http://www.aseansec.org/22109.htm, on January 18, 2011. ___________. 2008. ASEAN Statistical Yearbook 2008. Retrieved from http://www.aseansec.org/22109.htm, on January 18, 2011. __________. 2010. ASEAN Statistics Table 27: Top Ten Sources of Foreign Direct Investment Inflow to ASEAN as of 15 July 2010." Retrieved from http://www.aseansec.org/stat/Table27.pdf, on January 17, 2011. Asia Pacific Foundation of Canada and China Council for the Promotion of Foreign Trade. 2009. China Goes Global: Survey of Outward Direct Investment Intentions of Chinese Companies. Vancouver: Asia Pacific Foundation of Canada. Retrieved from http://www.asiapacific.ca/sites/default/files/filefield/China_Goes_Global3_final.pdf, on April 11, 2011. Buckley, Peter J., Jeremy Clegg, Adam R. Cross and Hui Tan. 2005. Chinas Inwards Foreign Direct Investment Success: Southeast Asia in the Shadow of the Dragon. The Multinational Business Review, 13(1): 3-31. Buckley, Peter J., L. Jeremy Clegg, Adam R. Cross, Xin Liu, Hinrich Voss and Ping Zheng. 2007. The Determinants of Chinese Outward Foreign Direct Investment. Journal of International Business Studies, 38: 499-518.
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Buckley, Peter J., Jeremy L. Clegg, Adam R. Cross, Hinrich Voss, Mark Rodes and Ping Zheng. 2008. Explaining Chinas Outward FDI: An Institutional Perspective. Pp. 107-157 in The Rise of Transnational Corporations from Emerging Markets, edited by Karl P. Sauvant, Kristin Mendoza and Irmak Ince. Cheltenham: Edward Elgar. Cammack, Paul. 2009. The Shape of Capital to Come. Antipode, 41(S1): 262-280. Chantasasawat, Busakorn, K.C. Fung, Hitomi Iizaka and Alan Siu. 2005. FDI Flows to Latin America, East and Southeast Asia and China: Substitutes or Complements? Retrieved from http://econ.ucsc.edu/faculty/workingpapers/fung3.pdf, on January 29, 2007. Chen, Jo-Hui. 2002 The Effects of Trade Incentives and Fiscal Policy on Foreign Direct Investment: An Empirical Analysis. Asia Pacific Journal of Economics & Business, 6(1): 82-100. Cheng, Yung-Ming. 2006. Determinants of FDI Mode Choice: Acquisition, Brownfield, and Greenfield Entry in Foreign Markets. Canadian Journal of Administrative Sciences, 23(3): 202-220. Chia, Siow-Yue. 1999. Trade, Foreign Direct Investment and Economic Development of Southeast Asia. The Pacific Review, 12(2): 249-270. Chiu, Catherine C. H., Kevin Hewison and Chong-wong Tiong. 2010. Foreign Direct Investment Links between Hong Kong and Southeast Asia. Asia Pacific Forum, 47: 106-126. Das, Dilip K. 2007. Foreign Direct Investment in China: Its Impact on the Neighboring Asian Economies. Asian Business & Management, 6: 285-301. Dunning, John H., Changsu Kim and Donghyum Park. 2008. Old Wine in New Bottles: A Comparison of Emerging Market TNCs Today and Developed-Country Thirty Years Ago. Pp. 158-180 in The Rise of Transnational Corporations from Emerging Markets, edited by Karl P. Sauvant, Kristin Mendoza and Irmak Ince. Cheltenham: Edward Elgar.

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Felker, Greg B. 2003. Southeast Asian Industrialization and the Changing Global Production System. Third World Quarterly, 24(2): 255-282.

Huang, Chao-Jen and Haw Ju. 2010. A Comparative Study on Taiwanese Enterprises FDI in Southeast Asia and China. Asia-Pacific Forum, 47: 4- 21. (In Chinese) JETRO. 2010. The 20th Comparative Survey of Investment-Related Costs in 29 Major Cities and Regions in Asia. Retrieved from http://www.jetro.go.jp/en/reports/white_paper/trade_invest_2010.pdf, on March 27, 2011. Jou, Sue-Ching, Dung-Sheng Chen and Michael Hsin-Huang Hsiao. 2004. Re-territorialized Guanxi Networks: Taiwanese Capital in Southeast Asia under the Shadow of Go West. Asia Insights, 3: 17-19. Kawai, Masahiro. 2007. Overview of Foreign Direct Investment: US, Europe, Japan and Emerging Asia. Retrieved from http://www.nomurafoundation.or.jp/data/20071113-14_Masahiro_Kawai.pdf, on March 27, 2011. Lee, Sung-Ah. 2007. South-South Investment in South, East and South-East Asia. Asia-Pacific Trade and Investment Review, 3(1): 55-86. Lunding, Andreas. 2006. Global Champions in Waiting: Perspectives on Chinas overseas Direct Investment. Frankfurt: Deutsche Bank Research. Retrieved from http://www.dbresearch.ru/PROD/DBR_INTERNET_EN-PROD/PROD000000000020 1318.pdf, on March 17, 2011 Mercereau, Benoit. 2005. FDI flows to Asia: Did the Dragon Crowd Out the Tigers?. IMF Working Paper WP/05/189. Retrieved from http://zunia.org/uploads/media/knowledge/wp051891.pdf, on March 17, 2011 Ng, Beoy Kui. 2009. The Economic Emergence of China: Strategic Policy Implications for Southeast Asia. Pp. 187-210 in Connecting & Distancing: Southeast Asia and China, edited by Khai-Leong Ho. Singapore: Institute of Southeast Asia Studies.

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Pritchard, Bill. 2006. More Than a Blip: The Changed Character of South-East Asias Engagement with the Global Economy in the Post-1997 Period. Asia Pacific Viewpoint, 47(3): 311-326.

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Wells, Louis T. Jr. 1983. Third World Multinationals: The Rise of Foreign Direct Investment from Developing Countries. Cambridge: MIT Press. World Bank. Various years. World Enterprise https://www.enterprisesurveys.org, on May 2, 2011. Surveys. Retrieved from

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Source: UNCTAD (2010: Annex Table 1).

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Table 1. Share of Total FDI Inflow from China, Hong Kong and Taiwan to ASEAN
Country China Hong Kong Taiwan Total of China/HK/ Taiwan Malaysia Singapore USA Japan EU Korea Others Total FDI Inflow 100.00% to ASEAN Total Amount 28230.57 (US$ million) Note: Data in 1995 - 2005 are from ASEAN Secretariat (2006), Data in 2006 - 2008 are from ASEAN Secretariat (2008) and Data in 2009 are from ASEAN Secretariat (2010). Source: Calculation based on data from ASEAN Secretariat (2006: Table 2.1.6 -Table 2.1.16; 2008: Table VI.1, VI.2 and VI.3; 2010: Table 27). 30208.59 34098.55 22406.26 27374.82 23541.28 19197.41 15772.70 19663.91 25661.14 38082.93 54967.20 69481.60 60596.00 39623.00 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 2.73% 10.57% 15.30% 20.01% 17.89% 2.34% 22.95% 2.36% 7.93% 17.14% 17.49% 24.37% 1.67% 22.90% 1.83% 10.48% 14.52% 15.34% 18.57% 2.12% 28.76% 2.58% 7.23% 14.38% 17.57% 24.78% 0.41% 23.53% 1.20% 3.27% 21.49% 6.16% 35.82% 1.94% 25.87% 0.37% 2.72% 30.98% 2.14% 57.21% -0.18% 0.94% 1.14% 9.98% 25.36% 8.47% 35.70% -1.40% 8.20% 6.76% 11.76% -3.86% 11.25% 22.63% 0.79% 45.68% 3.29% 6.71% 6.07% 12.27% 30.91% 2.76% 34.19% 2.36% 5.18% 15.27% 12.16% 30.62% 2.66% 27.81% 1.89% 2.77% 22.97% 8.31% 18.70% 1.65% 39.92% 1.25% 10.77% 6.20% 18.60% 19.42% 2.28% 35.88% 1.29% 10.41% 9.13% 12.06% 26.46% 4.50% 30.80% 4.97% 9.70% 5.60% 12.63% 20.54% 2.11% 38.55% NA NA 8.47% 13.40% 18.42% 3.59% 46.59% 8.22% 6.14% 8.39% 9.51% 4.25% 5.82% 12.55% 4.98% 3.80% 3.94% 3.79% 5.60% 5.36% 5.91% 9.54% 1995 0.48% 4.50% 3.24% 1996 0.39% 3.07% 2.68% 1997 0.18% 5.53% 2.68% 1998 1.30% 5.19% 3.02% 1999 0.23% 2.55% 1.47% 2000 -0.57% 4.79% 1.60% 2001 0.77% -2.08% 13.87% 2002 -0.47% 2.73% 2.72% 2003 1.00% -0.01% 2.82% 2004 2.61% 0.14% 1.19% 2005 1.50% 1.49% 0.81% 2006 1.85% 2.33% 1.43% 2007 1.77% 2.34% 1.26% 2008 2.47% 1.02% 2.41% 2009 3.81% 3.99% 1.74%

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Table 2. FDI Inflows to ASEAN from China, Hong Kong and Taiwan (US$ million), 1995-2009
1995 China Hong Kong Taiwan Total of China, Hong Kong and 2321.51 Taiwan 1855.67 2860.95 2130.92 1162.63 1370.81 2410.12 785.66 747.68 1011.91 1442.59 3080.30 3721.60 3579.90 3779.50 136.73 1271.08 913.70 1996 117.86 927.54 810.27 1997 62.15 1884.81 913.99 1998 291.25 1162.19 677.48 1999 62.53 697.58 402.52 2000 -133.38 1128.34 375.85 2001 147.46 -399.86 2662.52 2002 -74.34 430.27 429.73 2003 195.81 -1.83 553.70 2004 670.27 35.87 305.77 2005 569.81 566.21 306.57 2006 1016.20 1278.80 785.30 2007 1226.90 1622.40 872.30 2008 1497.30 619.50 1463.10 2009 1509.50 1582.10 687.90

Source: Calculated based on data from ASEAN Secretariat (2006: Table 2.1.6 - Table 2.1.16; 2008: Table VI.2; 2010: Table 27).

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Table 3. Share of FDI Inflows from China, Hong Kong and Taiwan to ASEAN Countries
1995 Country Brunei Darussalam Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam A 582.76 150.70 4346.00 88.40 5815.00 317.60 1577.00 11502.67 2070.04 1780.40 B 0.96% 0.00% 2.26% 2.90% 9.34% 2.77% 11.74% 5.65% 18.24% 25.29% A 653.60 293.70 6194.00 128.00 7297.00 580.00 1618.00 9302.95 2337.65 1803.00 1996 B 0.89% 0.00% 1.84% 0.38% 5.09% 2.66% 10.41% 3.76% 15.27% 26.25% A 701.74 168.10 4678.00 86.30 6323.00 878.80 1261.00 13532.54 3881.77 2587.30 1997 B 1.04% 0.00% 5.30% 3.37% 7.57% 0.58% 8.19% 5.61% 14.64% 26.56% A 573.25 242.90 -356.00 45.30 2714.00 683.40 1718.00 7594.25 7491.16 1700.00 1998 B 1.45% 0.00% 10.55% 6.47% 7.57% 1.95% 19.42% 8.05% 6.75% 28.70% A 747.61 232.30 -2745.06 51.61 3895.05 304.23 1247.02 16067.40 6090.75 1483.92 1999 B 0.03% 0.00% 6.03% 7.81% 7.55% 4.55% 11.10% 1.83% 5.80% 15.59% A 549.16 148.50 -4549.98 34.00 3787.63 208.00 2239.62 16485.40 3350.25 1288.70 2000 B 0.06% 0.00% 2.85% 30.59% 9.20% 2.16% 2.17% 1.43% 14.85% 27.55% A 526.44 149.37 -3278.53 23.90 553.95 192.01 195.00 15649.00 3886.00 1300.27 2001 B 0.26% 47.32% 5.69% 62.80% -84.93% 2.73% 1.52% 15.35% 7.18% 22.37% A 1035.34 145.11 144.89 25.38 3203.37 191.40 1542.00 7338.10 947.00 1200.11 2002 B 0.19% 28.30% 14.76% 8.63% 8.16% 6.58% 0.94% 2.28% 12.78% 11.84% A 3122.96 83.99 -596.09 19.51 2473.16 291.23 490.81 10376.20 1952.00 1450.14 2003 B 0.13% 37.33% 13.09% 10.51% -1.53% 59.11% 1.78% 1.55% 23.46% 1.78% A 212.01 131.38 1894.50 16.92 4623.89 251.13 687.80 14819.40 1414.00 1610.00 2004 B 2.62% 39.07% 18.31% 0.71% 4.17% 46.07% -7.11% -0.59% 12.52% 16.04% A 288.54 381.22 6107.31 27.73 3964.79 71.76 1132.46 20080.50 4007.81 2020.81 2005 B 0.16% 31.52% 5.02% 16.52% 0.30% 49.26% 22.76% -0.31% 9.52% 19.08%

A = Total inflows from all sources (US$ million) B = Share of inflows from China, Hong Kong and Taiwan Source: Calculation based on data from ASEAN Secretariat (2006: Table 2.1.6 -Table 2.1.16).

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Table 4. Share of FDI Inflows to ASEAN from China, Hong Kong and Taiwan by Economic Sector, 1999-2005 Economic Sector Agriculture, Fishery and Forestry Mining and Quarrying Manufacturing Construction Trade/Commerce Financial Intermediation and Services Real Estates Services Others Total Total Amount (US$ million) 1999 -6.64% 0.04% 13.20% 2.35% 14.03% 49.60% 2.98% 22.05% 2.39% 100% 864.76 2000 3.67% 0.10% 7.89% -0.55% 28.15% 13.97% 2.20% 15.37% 29.19% 100% 1011.82 2001 -0.49% -0.04% 16.31% -0.10% -0.21% 74.25% 3.67% 3.54% 3.06% 100% 2809.91 2002 4.59% 2.56% 169.14% -0.74% -21.36% -7.39% 0.85% 5.89% -53.53% 100% 425.46 2003 2.75% 21.54% 57.71% 0.38% 18.42% -53.21% 9.44% 8.81% 34.15% 100% 786.09 2004 1.33% 48.97% 16.94% 1.76% 19.35% -18.69% 8.44% 14.11% 7.80% 100% 939.44 2005 1.87% 5.26% 31.52% 1.15% 5.46% 0.78% 17.83% 22.13% 14.00% 100% 1321.43

Source: Calculation based on data from ASEAN Secretariat (2006: Table 2.3.1 and Table 2.4.1).

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Figure 3. FDI Inflows to ASEAN as a Percentage of World FDI Outflows of China, Hong Kong and Taiwan, 1995-2009

60% 50% 40% Percentage 30% 20% 10% 0% -10% -20% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

China

Hong Kong Year

Taiwan

Source: Calculation based on data from ASEAN Secretariat (2006: Table 2.1.6 -Table 2.1.16; 2008: Table VI.2; 2010: Table 27) and UNCTAD (2010 Annex Table 2).

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Table 5. Comparison of Business Costs among China, Hong Kong and Some ASEAN Capitals, 2009 (US$)
Indicators Shenzhen (China) Hong Kong Taipei Singapore Bangkok Kuala Lumpur Workers salary/month Engineers salary/month Middle-level managers salary/month Industrial estate rents (per m2 monthly) Expenses for office lease / month/m2 Expenses for house rent for foreign representative Internet connection fee: telephone line (monthly basic charge) 43.94 33.0 9.39- 30.54 259.25 73.01 47.31 143.11 32 355.01 183.936 1,172 - 1,904 2,062 1,584 16.11 34.7 - 110.9 16.2 38.56 54.26 2,160 4,321 1,430 1,977 19.77 18.68 25.78 988 1,946 1,800 3,675 1,312 1,858 2,100 4,000 20 17.82 27.5 - 56.5 4.39 Nil 1.14 0.56 - 1.58 6.39 Nil 3.5 - 4 1.53 0.15 - 0.19 1,064.6 3,197.0 1,773.6 3,357.0 1,341.5 1,485.0 811.58 1,013.4 822.3 235 567 1,306 1,880 888 1,152 970 1,997 231 540 257 745 148 294 296 392 104 287 Jakarta Manila Hanoi

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Electricity cost for business/ KWh

Basic monthly charge: 0 - 6.44 Rate per kWh: 0.032 0.17

Basic monthly charge: 3.87 Rate per kWh:0.128 0.129

Basic monthly charge: 5.24 7.42 Rate per kWh: 0.076 - 0.098

Basic monthly charge: 5.37 Rate per kWh: 0.1599 0.1611

Basic monthly charge: 6.94 Rate per kWh: 0.11

Basic monthly charge: 179.64 Rate per kWh: 0.08

Basic monthly charge: 3.2 Rate per kWh: 0.05

Basic monthly charge: 66.24+10. 57/kw Rate per kWh: 0.095

Basic monthly charge: Nil Rate per kWh: 0.028- 0.104

Normal petrol price (1 litre) Personal income tax (highest rate, %) Corporate income tax (effective tax rate, %)

0.89 - 1.04

1.81

0.946 - 1.015

1.2869 -1.3301

1.1

0.54

0.5

0.94

0.914

45

15

6 - 40

20

37

26

30

32

35

25

16

(1) up to 5,000NT: exemption from taxation (2) 5,000NT more - up to 10,000: 15 (3) 10,000NT more: 25

17

30

25

25

30

25

Source: JETRO 2010.

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Table 6. Investment Climate in ASEAN Countries

Cambodia Regulations Senior Management Time Spent in Dealing with Requirements of Government Regulation (%) Corruption % of Firms Expected to Pay Informal Payment to Public Officials (to Get Things Done) % of Firms Expected to Give Gifts to Get an Operating License % of Firms Expected to Give Gifts In Meetings With Tax Officials % of Firms Expected to Give Gifts to Secure a Government Contract Value of Gift Expected to Secure Government Contract (% of Contract) % of Firms Believing the Court System is Fair, Impartial and Uncorrupted Crime Losses Due to Theft, Robbery, Vandalism, and Arson Against the Firm (% of Sales) Security Costs (% of Sales) Finance Internal Finance for Investment (%) Bank Finance for Investment (%) Southeast Asia Research Centre Working Paper Series, No. 112, 2011 44.28 6.09 88.33 6.36 97.24 0.00 46.15 32.77 75.87 12.23 28.22 53.00 82.28 12.70 21 0.42 1.01 0.37 0.49 0.26 0.62 0.97 2.44 1.10 1.03 0.11 0.36 0.25 0.66 61.23 .. 60.25 76.79 14.93 25.29 14.89 25.92 14.01 38.11 1.75 69.63 39.83 88.17 26.20 .. .. 44.90 .. .. .. .. .. .. 18.64 10.55 21.76 58.55 16.41 47.89 .. .. .. .. .. .. 52.54 15.16 33.68 43.74 2.49 48.61 5.64 1.63 1.18 7.80 9.14 0.43 4.59 Indonesia Lao PDR Malaysia Philippines Thailand Vietnam

Loans Requiring Collateral (%) Value of Collateral Needed for a Loan (% of the Loan Amount) Infrastructure Number of Power Outages in a Typical Month Value Lost Due to Power Outages (% of Sales) If a generator is used, Electricity from Generator (%) Delay in Obtaining an Electrical Connection (days) Delay in Obtaining a Water Connections (days) Delay in Obtaining a Mainline Telephone Connection (days) Trade Average Time to Clear Direct Exports Through Customs (days) Average Time to Clear Imports from Customs (days) Survey conducted in Sample size Source: World Bank (Various years).

89.89 173.68

83.58 52.74

100.00 307.56

60.42 64.60

64.12 238.41

89.38 131.13

90.80 217.73

26.95 2.44 .. 15.48 6.48 4.46

2.05 2.09 27.58 15.54 22.10 15.47

1.54 .. 100.00 .. 44.04 3.25

0.81 3.00 1.41 10.73 9.63 7.78

0.88 3.87 6.23 23.06 31.87 12.85

1.28 1.53 6.17 27.93 43.13 27.39

1.98 3.60 10.12 29.57 18.65 4.19

1.53 .. 2007 502

2.25 3.39 2009 1444

7.52 10.62 2009 360

2.72 4.20 2007 1115

10.04 15.79 2009 1326

1.32 4.93 2006 1043

4.15 10.89 2009 1053

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Table 7. Major Business Constraints in ASEAN Countries Constraint 1. Access to Finance (%) 2. Business Licensing and Permits (%) 3. Corruption (%) 4. Crime, Theft and Disorder (%) 5. Customs & Trade Regulations (%) 6. Electricity (%) 7. Functioning of the Courts (%) 8. Labor Regulations (%) 9. Labor Skill Level (%) 10. Practices of Competitors in the Informal Sector (%) 11. Tax Administration (%) 12. Tax Rates (%) 13. Transportation (%) Survey conducted in Sample size Cambodia 15.40 7.71 53.73 18.54 12.87 21.00 12.51 3.48 15.53 32.83 14.77 16.26 12.92 2007 502 Indonesia 14.30 5.63 14.08 12.59 4.84 13.77 5.15 2.50 4.50 14.67 4.80 4.41 9.79 2009 1444 Lao PDR 18.97 2.62 19.76 0.88 6.81 22.28 18.86 0.99 18.69 6.91 24.67 43.16 11.55 2009 360 Malaysia 14.93 10.34 16.27 19.53 14.70 15.51 -13.40 20.19 16.19 16.85 21.38 10.58 2007 1115 Philippines 13.44 7.45 22.16 11.67 10.19 16.93 6.76 5.14 7.81 23.66 15.18 19.53 15.07 2009 1326 Thailand 26.39 12.27 41.04 30.82 32.28 26.67 -20.88 38.81 -34.86 36.00 21.24 2006 1043 Vietnam 15.00 1.59 5.09 0.92 8.54 6.60 0.72 0.96 8.87 14.34 5.33 6.34 11.65 2009 1053

Note: The percentages are firms that consider the constraint to be major. Source: World Bank (Various years).

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Table 8. Biggest Obstacle in Investing in ASEAN Countries Obstacle Access to Finance (%) Access to Land (%) Licenses & Permits (%) Corruption (%) Courts (%) Crime, Theft & Disorder (%) Customs & Trade Regulations (%) Electricity (%) Inadequately Educated Workforce (%) Labor Regulations (%) Political Instability (%) Practices of the Informal Sector (%) Tax Administration (%) Tax Rates (%) Transportation (%) Total (%) Survey conducted in Sample size Source: World Bank (Various years).
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Cambodia 4.93 2.78 2.82 24.08 1.54 6.26 2.03 16.60 2.92 0.82 16.47 9.05 1.94 5.08 2.68 100 2007 502

Indonesia 47.87 3.90 3.27 1.63 0.24 3.00 1.38 6.46 4.35 1.27 6.91 13.74 0.35 1.27 4.34 100 2009 1444

Lao PDR 21.16 6.75 0.50 0.20 0.27 0.11 1.48 8.91 16.51 0.00 0.00 3.98 0.55 36.78 2.79 100 2009 360

Malaysia 7.22 2.31 15.15 11.11 0.00 2.16 5.05 0.00 33.62 4.76 0.72 0.00 17.89 0.00 0.00 100 2007 1115

Philippines 14.78 0.81 5.84 4.90 0.20 4.39 3.76 11.31 2.63 1.86 6.16 26.41 1.60 13.04 2.32 100 2009 1326

Vietnam 24.66 6.89 1.38 3.25 0.25 1.02 4.24 4.29 10.23 0.89 0.44 19.33 6.35 3.48 13.30 100 2009 1053

Box 1. Top Three Obstacles in Investing in Each ASAEN Country Country Cambodia Top Three Obstacles Corruption (24 per cent) Electricity (17 per cent) Political Instability (16 per cent) Indonesia Access to Finance (48 per cent) Practices of the Informal Sector (14 per cent) Political Instability (7 per cent) Lao PDR Tax Rates (37 per cent) Access to Finance (21 per cent) Inadequately Educated Workforce (17 per cent) Malaysia Inadequately Educated Workforce (34 per cent) Tax Administration (18 per cent) Licenses & Permits (15 per cent) Philippines Practices of the Informal Sector (26 per cent) Access to Finance (15 per cent) Tax Rates (13 per cent) Vietnam Access to Finance (25 per cent) Practices of the Informal Sector (19 per cent) Transportation (13 per cent) Source: World Bank (Various years).
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