Asia can gain from more FDI, freer trade: ADB

The Asian Development Bank (ADB) noted in a report that the anaemic global recovery has hit trade growth in the region.
The Asian Development Bank (ADB) noted in a report that the anaemic global recovery has hit trade growth in the region.PHOTO: EPA

Stronger trading links and more foreign direct investment (FDI) could be Asia's answer to the rise of protectionism, according to the Asian Development Bank (ADB) yesterday.

It noted in a report that the anaemic global recovery has hit trade growth in the region, which slowed to 2.3 per cent last year.

This is lower than the global average of 2.7 per cent and well below the region's gross domestic product growth rate of 5.3 per cent.

Other factors contributed to the slowdown as well, including China's shift from low-cost manufacturing, while the risk of protectionism has grown and non-tariff barriers have become major obstacles to trade.

ADB deputy chief economist Zhuang Juzhong said at the launch of the bank's Asian Economic Integration Report here yesterday: "Trade and foreign direct investment have been key drivers of growth and prosperity in Asia and the Pacific. The region should guard against the threat of rising protectionism and make concerted efforts to push for freer trade and better investment policies to preserve the region's growth momentum."

The report said that greater trade openness and FDI can strengthen the region's resilience to slow global growth - but countries will need to improve their institutions, the business environment and policy effectiveness to attract more funds from overseas.

Still, Asia remained the world's top destination for FDI, attracting US$527 billion (S$747.64 billion) last year, up 9 per cent from 2014 and accounting for almost a third of the global total.

The report noted that FDI can contribute to growth through job creation, capital mobilisation and infrastructure development, while promoting productivity through technological and knowledge spillovers. It also fosters inclusiveness through better working conditions and rising wages.

But the benefits are "not automatic", the report added, because different types of FDI bring different benefits, and what works in one country may not work in another.

Ms Park Cyn Young, director of the regional cooperation and integration division at ADB's economic research and regional cooperation unit, told a panel discussion that there are growth opportunities for Asia beyond the short-term difficulties arising from today's less favourable trade environment.

"Instead of being the factory for the world outside of the region, Asia is now producing more for its own consumption," said Ms Park, pointing to China's move up the value chain, which will spell "a lot of implications for the neighbouring Asian countries".

"It's about how we see the change and how we adjust ourselves to take advantage of the change. We should be able to create our own market (and) our own demand."

A version of this article appeared in the print edition of The Straits Times on December 07, 2016, with the headline 'Asia can gain from more FDI, freer trade: ADB'. Print Edition | Subscribe