US-China trade dispute dents investments, but optimism remains

12 March 2020 Consultancy.asia

Inbound investment into Asia has undoubtedly taken a hit due to the US-China trade dispute, but a new report form consultancy YCP Solidiance applies a wider lens to the market.

In its latest whitepaper, Asia-centric strategy consultancy YCP Solidiance has delved into the impact of trade tensions on investment trends in the region, noting a huge drop in aggregate foreign direct investment from 2018 into the first half of last year. In addition to the uneasily resolved US-China trade spat, the market uncertainties triggered by the tariff tit-for-tat are now being compounded by the coronavirus outbreak and its dire effect on consumption and supply.

Setting the stage, the whitepaper outlines the 10 percent rise in aggregate FDI into the Asian region from 2016 to 2018 in the period leading up to US-China trade breakdown – achieved against a backdrop of an international FDI decline of 30 percent. Presented as a ratio, this disparity translates to the Asian region having captured a near one third share of worldwide FDI by 2018, up from around a quarter the year prior and just the one fifth in only 2016.

Drop in foreign direct investment into Asia between 2016 and 2019

Since those highs, foreign direct investment into Asia has plummeted – from pushing toward $420 billion to below $200 billion. China alone saw a 58 percent decrease in US investment from 2018 into the first half of 2019. When looking at merger & acquisition activity – which was reasonably steady during the FDI boom, with China holding up the market with two thirds of the deal value – again the trade tensions have bit; China down 11 percent in the subsequent period. 

Yet, one quirk of the data is that the overall drop in FDI occurred at the same time as a major surge from American investments into Asia, with China of course accounting for a significant share of the region’s economy and thus tilting the aggregates. US investors in the front of 2019 in fact more doubled their input into the region compared to the first half of the year prior, with Singapore, Australia, Indonesia and Thailand experiencing at least more than twice the backing.

For Thailand, that figure was in excess of 1000 percent. Pointing to further trade data around net exports, which at a regional level (including India, Pakistan and Australia) remained relatively steady across the study period but grew significantly in Southeast Asia and China (the latter by around 30 percent), the initial conclusion of the consultancy’s researchers is that the collective figures tell a story of ongoing interest in the overlying region regardless of the trade tensions.

Reduction in China investment activity due to trade tensions

Helping to confirm this summation, YCP Solidiance as part of its research paper also conducted a survey among senior management actively involved in Asia, finding that three quarters of companies haven’t altered their basic investment strategies due to the current destabilisation – indicating, in the words of the firm, that they continue to view Asia as a primary region for growth and expansion in the near to mid-term. Despite hiccups, China also remains on the radar.

While 30 percent of respondents have permanently cancelled investment initiatives in China due to the current climate, and around one quarter say that the trade issues have had a significant negative effect on their view of China as a growth market, 42 percent still believe there has been no change in China’s importance. The majority have delayed investments, with altogether close to two thirds expecting that the lingering effects of trade tensions will be resolved within three years. This year’s US election is an important point of note as to resolving certain uncertainties.

“Despite the trauma of the last 2-3 years, companies are for the most part maintaining their interest in the region and its inevitable long-term opportunity,” concludes the report. “A few have abandoned China as a primary investment focus while others have put their investment initiatives on the back burner. Yet some are being more proactive in their China strategies in order to exploit the current chaos in hopes of finding more attractive deals or investment terms.”


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