Japan’s FDI strategy is to diversify away from China

Japan’s foreign direct investment (FDI) position nearly tripled over the past decade, even as domestic investment stagnated. Currently, 40% of FDI income comes from Asia, thanks to the high rate of return, especially in China.

What you will learn:

• In the 2000s, Japanese firms invested in Asia as a low-cost producer. More recently, however, serving local demand has become the driving force behind investment in both manufacturing and service sectors.
• While China remains the most popular destination due to promising returns and local demand, ASEAN 5 (Thailand and Vietnam, in particular) will continue to benefit from the diversifying of supply chains beyond China. Developed Asia (especially Singapore) will remain attractive as a regional hub for services.
• In addition to growth prospects of local markets, Japan’s FDI allocation in Asia will feel the effects of the decoupling pressures stemming from the US-China confrontation. And with sustainability rising on companies’ agendas, emissions reduction in each economy will increasingly determine Japan’s FDI allocation.