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Hong Kong retained its position as Asia's second largest destination for foreign direct investment (FDI), according to the "World Investment Report 2004", released today (September 23) by the United Nations Conference on Trade and Development (UNCTAD). The SAR also retained its position as second to the Mainland in FDI inward stock, with a total higher than the next five Asian markets combined.

While FDI inflows declined last year both globally and in North America, FDI flows to Asia and the Pacific rose from US$94 billion in 2002 to US$107 billion in 2003. Based on UNCTAD's surveys, investment flows are expected to turn upwards again, boosted by faster economic growth and improved corporate profitability.

Despite SARS and significant economic challenges, the FDI flow to Hong Kong in 2003 reached US$13.6 billion, up by 40% from an adjusted US$9.7 billion in 2002. The only larger recipient of FDI in Asia was the Mainland with US$53.5 billion, which, excluding Luxembourg, was the world's largest FDI recipient last year.

According to the Report, the next largest FDI recipients in Asia, after Hong Kong, were Singapore (US$11.4 billion), India (US$4.3 billion) and South Korea (US$3.8 billion). On a global scale, Hong Kong ranked 11th in FDI inflows in 2003.

The Director-General of Investment Promotion at Invest Hong Kong, Mr Mike Rowse, commented on UNCTAD's World Investment Report. He said, "It is extremely encouraging that Hong Kong remains 2nd in Asia in FDI inflows and has risen to become the 11th largest destination for FDI in the world, especially in a year when foreign investment has been declining globally. Despite challenges brought by SARS and difficult economic conditions during the first half of last year, companies continued to invest in our city and Hong Kong remains the preferred location for international businesses serving the Asia Pacific region.

"This result sends us a very important message - investors make their decisions based on long-term factors such as location, infrastructure, transportation and labour skills. The increase in FDI flows to Hong Kong suggests that foreign investors were aware of the advantages of investing in Hong Kong. It also reflects Hong Kong's strengthening position as a two-way platform for overseas investors accessing the Mainland and rest of the region - and for Mainland companies looking toward regional and global expansion."

"The report's positive outlook coincides with ours. Favourable economic forecasts for Mainland China and Hong Kong, joint investment promotion initiatives with Mainland cities overseas and the impact of CEPA and CEPA II should help bring higher investment flows in the next 12-18 months. The new investment facilitation policy announced by the Ministry of Commerce will also encourage more Mainland enterprises to invest in Hong Kong," Mr Rowse said.

UNCTAD measured an economy's performance by standardising FDI inflows to the size of the economy and assessed its investment potential by using a set of economic and policy factors of importance to foreign investors. Taken together, the Inward FDI Performance and Inward FDI Potential Indices indicate how countries are performing relative to their investment potential.

Hong Kong continued to be classified in the report as one of the "front-runner" economies, which means that the SAR out-performed its investment potential by attracting high FDI flows relative to its economic size.

Given the improving global economic situation, a healthier outlook for key industries, sub-regional and regional developments and country-specific factors, the report says that the region's prospects are promising. Higher corporate profitability should encourage transnational corporations (TNC) to raise their capital spending. Almost 60% of the TNCs and nearly 90% of the location experts surveyed by UNCTAD expect an improvement in FDI prospects over 2004-2005. In particular, prospects for Mainland China, India and Thailand were considered bright.

Hong Kong stands to benefit from these improved corporate prospects. The city has the highest "transnationality index" in the world, indicating the large contribution that multinational companies make to Hong Kong's investment performance.

UNCTAD forecast that the continuing liberalization of FDI regimes should contribute to investment and overall economic growth. The report pointed out that Hong Kong and other Asia-Pacific economies have carried out reforms that improved their investment climate, as well as co-operation within the region.

Ends/Thursday, September 23, 2004

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