Japanese Foreign Direct Investment in China slows as tensions rise, but Asean 5, Asian Tigers benefit

China’s slice of Japan’s FDI pie is now smaller than that of both the Asian Tigers and the Asean 5 of Thailand, Indonesia, Vietnam, Malaysia, Philippines

The slowdown comes amid diplomatic tensions inflamed by former PM Shinzo Abe’s comments on Taiwan, but Oxford Economics says China is still Tokyo’s ‘favourite’

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Former Japanese Prime Minister Shinzo Abe, seen on a screen during a meeting in Taipei, has sparked Chinese anger with his comments on Taiwan. Photo: AP

Published: 8:30pm, 9 Dec 2021Updated: 9:26pm, 9 Dec 2021

Japanese investment in China is slowing as tensions between the two countries grow, new research shows.

In 2020, Japan spent a greater percentage of its Foreign Direct Investment (FDI) in the “Asean 5” group of economies – Thailand, Indonesia, Vietnam, Malaysia, and the Philippines – and the “Asian Tigers” of Singapore, South Korea, Hong Kong, and Taiwan than it did in mainland China, according to an Oxford Economics note on Thursday.

Thirty-two per cent of Japanese FDI went to North America, 10.2 per cent went to the Asian Tigers, 9.2 per cent went to the Asean 5, and only 7.5 per cent was spent in mainland China. That compares to five years ago, when 35 per cent went to North America, and investment in the Asian Tigers, Asean 5 and China was roughly equal at 9 per cent each.

By country however, China has the biggest slice of Japanese foreign investments among Asian countries.

Even so, the return from Japan’s investments in China still far outweighed any of its other foreign investments, at an average 15.2 per cent between 2018 and 2020, up from about 11 per cent five years ago. The Asean 5 returned 11.1 per cent over the same period, while North American investments returned just 5.8 per cent.

The slowdown comes amid efforts by Tokyo to cut its reliance on the China market, following pressures caused both by the coronavirus pandemic and the worsening of relations between Tokyo and Beijing.

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