While China controls most of the real estate market, Japan continues to dominate ASEAN’s major economies

• 22 October 2024
• Construction Focus
• 142 Views

Though growing rapidly, Chinese foreign direct investment (FDI) in Southeast Asia remains more focused on tertiary industries like finance, construction, and real estate, and is particularly prominent in less-developed economies such as Cambodia, Laos, and Myanmar. According to a recent study by Guanie Lim and Chengwei Xu, China’s FDI in these sectors may complement, rather than challenge, the economic dominance of Japan, South Korea, and Taiwan. The study highlights that Japanese firms continue to have a significant presence in Southeast Asia, particularly in Thailand, where they dominate the automotive sector. The study was shared on 10 September 2024.

While Chinese FDI in the region has increased due to initiatives like the Belt and Road Initiative (BRI), Japan still holds a stronger economic footprint. For example, Japan invested heavily in the region’s manufacturing sector, with 49.23% of its total FDI allocated to manufacturing, compared to China’s heavily skewed towards construction and real estate. South Korea and Taiwan followed similar patterns, investing 36.69% and 46.19% of their FDI, respectively, in manufacturing, while allocating less than 10% to construction and real estate.

Only 1.9% of Japanese FDI was channelled toward construction and real estate. In a similar vein, South Korea and Taiwan invested only 8.1% and 8.33% of their total FDI in these activities.

Despite fierce competition, like in the case of the Jakarta-Bandung High-Speed Rail project where China won against Japan, the broader data shows that Chinese investment is still primarily concentrated in the less mature markets. The report indicates that China’s involvement in the tertiary sector reduces direct competition with its Northeast Asian neighbours, allowing these countries to maintain their dominant positions in developed markets such as Singapore, Malaysia, and Thailand.

However, it’s important to note that the FDI landscape in Southeast Asia is evolving, with new players emerging and existing investors expanding their reach. Understanding the dynamics of FDI inflows from these major sources is crucial for policymakers and businesses alike, as it provides valuable insights into investment trends and opportunities in the region.

• Analysis
• Business and Market
• Economy and Finance