1. GEOG 240 Topic 5: Globalization, Trade & Investment in Asia-Pacific Francis Yee Camosun College

2. Abbreviations  FTA – Free Trade Area  WTO – World Trade Organization  APEC – Asia Pacific Economic Cooperation  GATT – General Agreements on Trade and Tariff  ASEAN – Association of Southeast Asian Nations  NIE – Newly Industrialized Economies  FDI – Foreign Direct Investment  TNC – Transnational Corporations  NIDL – New international division of labour

3. Outline I. Trade and Investment Policies II. Foreign Trade III. Foreign Investment IV. Globalizing China

4. I) Trade and Investment Policies – shifting from import substitution in the early phase to outward looking policy in later phrase  A) Import Substitution  encourage domestic production,  restrict imports by tariffs, quotas, and licensing;  reduce trade deficits Malaysia has adopted an import substitution program until late 1970s (Photo by F. Yee 2007)

5. B. Outward Looking Policies  Trade and investment encouraged  remove restrictions on imports & exports  Incentives provided to TNCs (tax holidays, reduced fees on land and utilities)  Reduce government red-tape Vietnam adopted an outward looking policies by opening up for foreign investment since the late 1980s (photo by F. Yee 2010)

6. II) Foreign Trade A) Growth Pattern B) Structure of Trade C) Trading Partners

7. A. Exports: Major global exporters

8. A. Export Growth: double digital growth in most years and faster than world average

9. Impact of Global Crisis on Asia’s Exports : drastic drop in late 2008 & early 2009 but rapid rebound in 2010- 11. Global exports weakened in 2012.

10. Asia Pacific Exports: increasing share of world exports from Asia

11. B. Trade Structure  larger share of manufacturing in Asia than world average

12. Asia’s Export Structure most of the merchandise exports from Asia was in the manufacturing sector, particularly the office and telecom equipment sector.

13. C. Destinations of Asian Exports: intra- regional exports increased 2.5 times between 2000-2009 to more than half of total in 2010

14. III) Foreign Direct Investment A. Objectives of FDI B. Sources of Investment C. Sectoral Structural D. Geographical Distribution A Canadian bank in Kuala Lumpur (Photo by F. Yee, 2007)

15. A) Objectives of FDI 1. Resource access Control and ownership of oil, minerals, and other resources 2. Market oriented Open new market or Increase market share in host countries 3. Cost efficiency Reduce costs of land, labour, and other factors of production A Japanese TNC in Sydney, Australia (Photo by F. Yee 2006)

16. B. Flows of FDI to Asia: increased by 15 times and doubled its share of global FDI Source: UNCTAD 2013, UNESCAP, 2013.

17. C) Sources of Investment in Asia 1. Pre-1970s: dominated by USA & Europe 2. 1970s-1980s: Japan became one of the major investors in Asia and invested heavily in N America & Europe in the late 1980s (as a result of currency appreciation and protectionism in core countries) 3. 1990s on : Asian NIEs began to invest in Asia and beyond (large trade surpluses provided the capital for investment) 4. 2000 on: China emerged as a new investor at the global level Tokyo Stock Exchange is one of the top stock exchanges in the world controlling a large proportion of the capital flow to Asia (Photo by F. Yee, 2010)

18. Top Foreign Investors:  dominated by developed economies but increasing share by Asian countries

19. FDI from Asia: increasing investment from developing countries (NIEs)

20. Japan’s FDI : the world’s largest investor in late 1980s, stagnated since the 1990s and picked up again in the last 5 years (2011 total = US$962 billions)

21. Japanese FDI  1970s: Resource oriented to secure energy and raw materials  1980s: reduce cost of production by relocating to LDCs  Mid-1980s – establish branch plants in Europe and N America for market access and address protectionism measures A Japanese MNC in Singapore’s Science Park (Photo by F. Yee 2007)

22. TNCs from developing Asia: Total FDI stock from Hong Kong increased from US$12 billion in 1980 to US$1,046 billion in 2012 A privatized bridge built by Hong Kong investor in early 1980s in Fumen, China (Photo by F. Yee, 2005) A major grocery chain owned by Hong Kong’s Hutchison Whampoa in Guangzhou, China (Photo by F. Yee 2005)

23. C. Sectoral Structure of FDI: concentrated in both the manufacturing and the service activities – several Asian countries have recently opened their service sector for FDI and provide a higher rate of return than the manufacturing sector.

24. Location of FDI by Sector: Resource FDI concentrated in Indonesia (oil); Manufacturing FDI SE Asia, China; and Services FDI in Japan and NIEs A Japanese industrial TNC in Guangzhou, China (Photo by F. Yee, 2005) A French retail TNC in Singapore (Photo by F. Yee 2007)

25. D) Geographical Distribution The destinations of FDI flow in Asia changed during the last three decades.  1970s: most of the FDI split between NIEs (Taiwan, Hong Kong, Singapore & S. Korea) [mainly for cost-efficiency] & ASEAN-4 (Philippines, Thailand, Malaysia, and Indonesia) [primarily resource oriented or for market access]  1980s: equally shared by NIEs, ASEAN-4, and China (open door policy and low labour costs)  1990s on: China became the leading recipient and received the lion’s share of FDI in the region [for both cost efficiency & market access]

26. Manufacturing Relocation  China: Relocation from coastal to inland regions of China (FDI to inland increased from 12% in 2008 to 18% in 2012)  Labour intensive industries: some relocated from China to SE Asia, e.g. Cambodia (labour costs 1/3 of China), Vietnam, and to Bangladesh in S Asia  Vietnam: Nike’s production increased from 25% in 2005 to 41% in 2012  Upgrades in China: Samsung has a joint venture in Suzhou to produce the latest generation of LCDs and a $7 billion facility in Xi’an to produce flash memeory (Samsung’s largest overseas investment)  (UNCTAD 2013)

27. Destinations of FDI Stock: Hong Kong, China, & Singapore topped the list

28. IV. China’s Globalization A. Open Door Policy B. Special Economic Zones and Economic Development Zones C. Foreign Trade and Investment D. China in SE Asia and Africa

29. A. Open Door Policy (1978 on) promote foreign trade, encourage foreign investment, establish special economic zones, and import foreign technology A banner in Shenzhen to support open door policy initiated by Deng Xiaoping (photo by F. Yee, 2009)

30. B. Special Economic Zones  established in 1979 in Shenzhen, Zhuhai, Xiamen, and Shantou (southern China)  Encourage foreign investments from Hong Kong, Macau, and Taiwan  Provide tax incentives, lower land use and utility fees, reduce import and export duties and restrictions, and lower cost labour  Shenzhen’s population exploded to over 10 million in 2010 and a per capita income of US$15,000 (highest in China)

31. Economic Development Zones: coastal cities and open economic regions  14 coastal cities were opened to foreign investment since 1984,  well established transport and industrial infrastructures,  connections to overseas Chinese communities  e.g. Tianjin, Qingdao, Shanghai, Ningbo, Fuzhou, Guangzhou

32. Open Economic Regions (1988 on)  attempts to diffuse the economic benefits of the open door policy and the SEZs to other regions  allows greater economic cooperation between the economic zones and cities  3 Open Economic Regions Yangzi (Chang Jiang) Delta Economic Region (around Shanghai), the Pearl River (Zhujiang) Delta Economic Region (around Guangzhou), and the Minnan Delta Economic Region (around Xiamen) Shanghai’s Pudong district experience a rapid urban and economic growth in the past decade (photo by F. Yee 2012)

33. C. Foreign trade and investment  Largest trading nation in the world and large trade surplus generated  Both EU and US are important export markets for China (40% of total)  Joined WTO in 2001 after 10 years of negotiation with US  Expanding urban population with rising income, are attractive for foreign corporations for trade and investment  China also has a large pool of labour force which makes it competitive in labour costs

34. China’s Export Market: led by US & EU

35. FDI in China Why China was able to increase its share the world’s total FDI inflows from 0.1% to 8% in the past three decades?

36. American FDI in China A retail giant in Kunming, China (Photo by F. Yee, 2002) Large influx of FDI to China since 1980s for both market access and to Reduce production costs. A photo of Motorola in Beijing by F. Yee, 2007

37. Sources of China’s FDI: 70% from Asian countries

38. Foreign Investment Spatial Patterns  Concentrated in the South in early phase but spread to the north when the 14 coastal cities were established  Investments in the interior, including Wuhan and Chongquing, began to emerge  Most FDI originated from Asian countries and directed into places with Chinese family ties in earlier place while increasingly investment pours into large cities, such as Shanghai, Beijing, Tianjin

39. D. China in SE Asia and Africa 1. SE Asia  Economy: model of economic reform for SE Asia  Culture - Expanded broadcasting and education exchanges with SE Asian countries  Migration - Increased in migration from Yunnan and other border provinces to Burma and Laos  Resources – rapid industrialization increased China’s demands for lumber and minerals from SE Asia

40. 2. China in Africa  Oil resources – Africa became an increasing important source of oil supply for China  Non-intervention policy – China follows a policy of non- intervention in other countries’ internal affairs  Aid – extractive activities are combined with aid projects in road construction and dam building  Chinese exports – provided low cost products to consumers  Conflicts – domination of local markets