Corporate foreign direct investment (FDI) is slowing down. FDI has long become the driver of globalization. It reflects weakened business sentiment amid a global trend toward a trade war. Yet, foreign investment in China and Southeast Asia is going down.
In the first half of 2019, the number of new greenfield investment (GFI) dropped. Greenfield investment covers the factories, research centers, and offices that a company builds when it enters a foreign country. The number goes at the same level as in the second half of 2009.
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Besides, withdrawals of overseas investments are also increasing. According to the U.N. Conference on Trade and Development, the outstanding balance of global FDI totaled $30.9 trillion in 2018. The number is down 4% from the previous year for the first contraction since 2008.
Giants Affected by Trade War
This is the first decreases in 10 years. The decreasing economy reflects an increasingly uncertain outlook for economic activity amid the trade war between the U.S. and China.
For instance, Delta Electronic is increasing domestic production and decreasing its production ratio in China. Delta Electronics is a Taiwanese power-supply units. The company used to have big production in China.
Besides, Samsung Electronic has also closed a smartphone plant in Tianjin, China. The total ratio of production for overseas business advances has dropped by more than 3 percentage points, over the past decade.
Business advances into China and Asia decreased by 30%, in the first half of 2019. Moreover, the number of business advances into Japan logged also drop by more than 20%.
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Increasing U.S.-China tensions over tariffs and technological hegemony are dampening business sentiments. The number of business advances into China from the U.S. in the first half of 2019 decreased more than 10% from a year earlier to 104. In particular, direct investments decreased by more than 30%.
The weaken foreign Investment in China and Southeast Asia is shown from the number of GFIs in the Asian region, including Japan and China, dropped to a 16-year low of 1,365 in the first half of 2019. Moreover, investments are sluggish almost across the board.
Even in Vietnam, GFIs decreased by 50%. Taiwan witnessed a 30% fall. The country is drawing strong attention as production shifts out of China to avoid higher U.S. tariffs, but that still cannot let Vietnam avoid the fall.
