Biden presidency to lead FDI to Asia with tight China tack

Posted on 16 November 2020

 Asia is set to secure a significant push for pandemic recovery from the incoming Biden administration, which is likely to maintain a hardline stance against China that would drive foreign investors to relocate elsewhere.

While Joe Biden would probably be less aggressive to Beijing than Donald Trump, Oxford Economics, a think tank, said the Democrat is likely to sustain pressure on China by keeping some tariffs enforced by his predecessor, save for hefty steel and aluminum levies. 

That, in turn, is likely to continue the exodus of companies to other Asian countries, trying to avoid getting caught in the crossfire between Washington and Beijing. 

“We don’t expect a Joe Biden administration to be a significant game change for Asia. But a less confrontational and more predictable approach to foreign policy, with lower risk of punitive tariffs, could provide a positive tailwind to our projected Asian economic recovery,” Siean Fenner, lead Asia economist, said in a note on Wednesday.

“We expect the shift in global supply chains over recent years to continue,” he added.

That said, companies’ aversion to what Biden could do with China would only strengthen an ongoing phenomenon of moving away from the world's second largest economy. That has been the case for quite a time, but the “desire” to shift global supply chains just got more convincing after the pandemic that started in China stopped manufacturing hubs and scared away investors.

While economies had since reopened, Fenner said the search for alternative investment sites would persist and countries with young demographics and good infrastructure like China stand to benefit. Vietnam is considered top of the list of relocators, but most of Asia are likely to be on the map.

“Indeed, while foreign direct investment (FDI) inflows across key Asia countries (excluding China) fell 8.7% (year-on-year) in H1 2020…, we believe favorable labor dynamics, high-quality or improving infrastructure and supportive investment policies will underpin a recovery in FDI in the region next year,” he explained.

FDI up in August

In the Philippines, job-generating FDIs have started to pick up after months of slump. Latest central bank data released Tuesday showed net FDI inflows grew 46.9% year-on-year to $637 million in August, a fourth month of uptick. A net inflow indicates more investments entered than left.

Broken down, new FDIs — also known as equity capital placements — jumped 30.1% on-year in August to $118 million, offsetting $10 million worth of investments that headed for the exit, which were nonetheless up 7.1%. That yielded a net equity capital investments of $107 million, up 32.9% annually.

Firms engaged in manufacturing, real estate, financial and insurance, and professional, scientific, and technical industries drove growth that month.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said investor confidence was regained, thanks to fiscal and monetary stimulus deployed to fight coronavirus disease-2019, as well as “easing of quarantine measures in the country.” Analysts, however, have repeatedly called for bigger state intervention to get the economy back on track.

“The continued rise in FDI net inflows reflects the burgeoning confidence of investors in the eventual resumption of more business and economic activities as quarantine conditions are eased,” said Cid Terosa, senior economist at University of Asia & the Pacific School of Economics, in a text message.

In the first 8 months, FDI net inflows remained down 5.6% on-year to $4.4 billion, on track for its third straight year of decline under the Duterte government. 

Beyond FDI, Oxford Economics’ Fenner said Asia would likely get an export boost under Biden next year, which in turn would strengthen currencies in the region. “For Asian currencies, a reduction in trade uncertainty and a potentially weaker dollar under a Biden presidency would also be supportive,” he said.

Source : Philstar