China Lures Less Investment Than Southeast Asia, BofA Reports

China lured less foreign direct investment than Southeast Asia’s biggest economies combined in 2013 amid faster wage growth and a shrinking labor force in the Communist country, according to Bank of America Merrill Lynch.

Total foreign direct investment into Singapore, Malaysia, Indonesia, the Philippines and Thailand rose 7 percent to $128.4 billion last year, from $120 billion in 2012, economist Chua Hak Bin said in a report today. Investment into China fell 2.9 percent to $117.6 billion in the same period, declining for a second year, he said.

A drop in China’s working-age population is robbing President Xi Jinping of an engine of three decades of growth, even as it helps the government restructure the economy away from investment and manufacturing-led expansion. The situation is reversed in Southeast Asia’s developing nations as rising numbers of youth search for employment, luring companies seeking a cheap labor force and new domestic markets.

“Rising foreign direct investment into Asean will likely remain a favorable structural trend over the next few years, given favorable demographics, competitive wages and geopolitical competition between the superpowers which remain the major investors,” Singapore-based Chua said.

Japan Prime Minister Shinzo Abe last week stepped up a war of words with China, alleging an international campaign to taint Japan’s image by focusing on past militarism rather than decades of peace since World War II. China today retained a target for 7.5 percent economic growth in 2014, signaling limits on the leadership’s efforts to curb pollution and credit expansion in the world’s second-largest economy.

China’s ability to attract investment may be hampered by higher manufacturing wages and an appreciating currency, Chua said. Indonesia has overtaken China and India as the most promising country for Japanese companies for business development, according to a Japan Bank for International Cooperation survey.

“A large domestic market, low relative wages despite minimum wage increases and a weak rupiah may be helping to lure foreign investment” into Indonesia, Chua said.

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