Growth in foreign direct investment in the five leading ASEAN economies (Singapore, Indonesia, Thailand, Malaysia, Philippines) led to speculation these countries have now displaced China as the leading destination for multinationals. However, closer examination shows China likely remains the world leader.
China publishes two series on foreign direct investment. The first, produced by the Ministry of Commerce (MOFCOM), shows only $118 billion in inflows in 2013. The second, produced by the State Administration of Foreign Exchange (SAFE) is more than twice as large.
Many analysts rely on the MOFCOM data because it is released monthly and provides great detail about the country of origin, industry, and structure of investment. However, the MOFCOM data undercounts foreign direct investment into China. First, it only covers investments by non-financial enterprises. Second, it does not include borrowing by foreign companies from their parent firms abroad. Third and most important, it does not include most of the reinvested earnings of foreign companies operating in China.
The large and growing discrepancy between the two statistics is mostly due to reinvested earnings. Reinvestments not reported as capital investments are not booked by MOFCOM. In China the profits of foreign companies and foreign investments will likely reach close to $218 billion in 2013. Based on data on U.S. multinationals in China at least half these earnings will be reinvested. Meanwhile, the reported capital investments by foreign companies totaled only $42 billion in 2013. This suggests reinvested earnings conservatively account for at least 60 percent of the gap between SAFE and Ministry of Commerce FDI data.
Although the SAFE data is less frequent and less disaggregated, it is the most comparable to other countries because it is based on international standards for calculating balance of payments. According to SAFE data China was the leading country for foreign direct investment inflows in 2012 and 2013. And at China’s pace of inflows it continues to close in on the European Union and the United States for the global lead in FDI stock. The ASEAN-5 still have a long way to go to catch up with China as the top destination for FDI growth.