China lure risks crowding out Southeast Asia<\/p>\n
HONG KONG (Reuters): Southeast Asian economies must make an
\neffort to attract more investment if they are to close the gap
\nwith China in the region's north\/south investment divide, a
\nglobal investment conference was told on Thursday.<\/p>\n
China was an attractive market for foreign direct investment
\n(FDI), despite large gains there already this year, while India
\nneeded to address its chronic fiscal problems, participants said.<\/p>\n
"I think China is taking away FDI from the likes of Thailand
\nand maybe Indonesia," said Chris Tracey, investment director at
\nJP Morgan Fleming Asset Management, told a media briefing.<\/p>\n
"Thailand has not gone up the value added chain to a degree to
\nwhich Taiwan and (South) Korea have," he said.<\/p>\n
China, one of the fastest growing economies in the world,
\nattracts $40-$50 billion of FDI, accounting for nearly 80 percent
\nof the total foreign investment received by the region.<\/p>\n
"Five years back, China received 20 percent while rest of
\nAsia's share was about 80 percent," Tracey said.<\/p>\n
Greater outsourcing of high value added products by U.S.
\ntechnology firms to Taiwan and South Korea will increase the
\ninvestment inequality as Thailand clings to its traditional
\nindustries like textiles.<\/p>\n
"That divide as the secular trend continues will get wider,"
\nTracey said.<\/p>\n
That meant Southeast Asia also risked lagging an expected
\nU.S.-led recovery in stock markets in the final quarter of 2001.<\/p>\n
Markets like Taiwan and South Korea, which are dominated by
\ntechnology firms, will lead the regional recovery, Tracey said.<\/p>\n
China, which has bucked the trend of global equity sell-offs
\nand emerged as the best performing regional equity market, is
\nstill seen as a good bet for investors.<\/p>\n
"We believe that in the short-run there will be a technical
\ncorrection. But China has great growth momentum and will achieve
\na seven to eight percent growth target," said Geoff Lewis,
\nInvestment services manager at JF Asset Management.<\/p>\n
China's hard currency B-share bourses in Shanghai and Shenzhen
\nare Asia's best performing asset markets, rallying 127 percent
\nand 162 percent respectively so far this year, and have pulled
\nChina-linked shares listed elsewhere along with them.<\/p>\n
Lewis said despite a jump in China's H-shares -- mainland
\nincorporate companies listed in Hong Kong -- by 35 percent year-
\nto-date, the market remains very attractive with a price-earning
\n(P\/E) ratio hovering at around 10 times.<\/p>\n
Tracey said Indian shares also offered cheap valuations but
\nthe government's massive fiscal deficit clouded the outlook.<\/p>\n
India's fiscal deficit in 2000\/2001 (April-March) stood at 5.2
\npercent of gross domestic product, slightly above the target of
\n5.1 percent.<\/p>\n
Chronic fiscal deficits bloat government spending and limits
\nthe ability of the central bank to lower interest rates.<\/p>",
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