Is
the sun setting on China's once unrivalled attractions as a
manufacturing base? Its a controversial question and most readers would
argue the opposite -- that China continues to act as a magnet for
manufacturing FDI and, most controversially, jobs once done in the west.
But a recent report from IBM Global Services on investment by multinationals suggests that the magnet's pull is weakening.
The report looks at both the locations and types of investment favoured by multinationals. Perhaps its most surprising finding is that Europe regained the top postion in 2005, attracting 39% of all FDI projects in 2005.
Runner-up was Asia-Pacific which attracted 31% of all projects globally in 2005, a fall of three percentage points from the previous year. China remains Asia's number one destination for manufacturing, attracting almost half of all the region's manufacturing FDI projects in 2005. But the number of projects in China dropped by a third from 840 in 2004 to 560.
Globally, the number of manufacturing projects dropped only 20% so China seems to be suffering hardest in the secular shift from manufacturing to services. According to the survey, business services are now the most popular area for FDI. Investment in R&D, another key area for FDI, remained fairly stable worldwide, although the number of R&D investment projects in China dropped from 143 to 126.
In contrast with China's cooling attractions for FDI, Vietnam continued its strong performance, particularly in manufacturing, attracting 9% of the inward investment into Asia-Pacific.
The rise of Vietnam as a manufacturing base is recent but the country seems intent on learning lessons from China by transforming itself into a modern, export-oriented market economy.
Its going to be a long journey -- Vietnam had a trade deficit of over $4.5bn in 2005 -- but at least one seasoned China watcher thinks that Vietnam is moving in the right direction. After a recent visit to Vietnam, Dan Harris of the excellent ChinaLawBlog, writes:
Vietnam, however, is indisputably a rising centre for manufacturing and agriculture and it is in these two areas that I see it growing fast over the next few years. Low end manufacturing costs are rising in China and I can see more of that business moving to Vietnam.
EngagingVietnam anyone?
