China and ASEAN: Rivals for Foreign Direct Investment

The competition for scarce capital, particularly in the form of foreign direct investment, with its ability to create employment, increase wages, and transfer industrial technology, managerial expertise, and marketing know-how, as well as stimulating the development of local industries, has intensified between Southeast Asia and China. From 1986 to 1990, ASEAN rapidly liberalized and garnered an increasing share of the foreign direct investments flowing into East Asia. However, from 1991-93, as China sharply expanded the list of industries and regions open to foreign investment, the upsurge in investment inflows into China was at ASEAN's expense. ASEAN, particularly Indonesia, responded to the competitive pressure from China by further deregulations in 1993-94. An assessment is made of the implications of such rivalry on the future economic and political development of East Asia.