Chinese FDI in Southeast Asia: Growth in Tertiary Sectors with Focus on Less-Developed Economies

Chinese foreign direct investment (FDI) in Southeast Asia is growing rapidly but remains concentrated in tertiary industries such as finance, construction, and real estate, particularly in less-developed economies like Cambodia, Laos, and Myanmar. A recent study by Guanie Lim and Chengwei Xu, published on 10 September 2024, suggests that China’s FDI in these sectors may complement, rather than directly compete with, the economic dominance of Japan, South Korea, and Taiwan in the region.

The study highlights that Japanese companies maintain a strong presence in Southeast Asia, particularly in Thailand, where they dominate the automotive industry. Although Chinese investment has surged in part due to initiatives like the Belt and Road Initiative (BRI), Japan still holds a significant economic advantage. For instance, Japan has heavily invested in the region’s manufacturing sector, with 49.23% of its total FDI directed towards manufacturing. In contrast, Chinese FDI is largely focused on construction and real estate. South Korea and Taiwan have followed similar investment patterns, with 36.69% and 46.19% of their FDI, respectively, allocated to manufacturing, while less than 10% has gone to construction and real estate.

Japanese FDI in construction and real estate accounted for only 1.9% of its total investment in the region. Similarly, South Korea and Taiwan invested only 8.1% and 8.33%, respectively, in these areas.

Despite instances of direct competition, such as China’s victory over Japan in the Jakarta-Bandung High-Speed Rail project, broader trends show that Chinese investments are largely concentrated in less-developed markets. The report notes that China’s focus on the tertiary sector minimizes direct competition with its Northeast Asian counterparts, allowing Japan, South Korea, and Taiwan to maintain their dominant positions in more developed markets like Singapore, Malaysia, and Thailand.

However, the FDI landscape in Southeast Asia is continuously evolving, with new players emerging and established investors broadening their reach. For policymakers and businesses, understanding these shifting dynamics is crucial, as it provides important insights into the region’s investment trends and opportunities.

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