Investment Flows from Japan and China to South Asia: Are They Matching with the Economic Prospects of the Region?

Abstract

In 2013, China and Japan accounted for about 16.8 per cent of world’s outward investment and 6.1 per cent of outstanding FDI stocks. Due to underlying objectives and strategies, they seem to differ in selecting economies for their investment. While the Japanese investors invest distinctively more in the developed economies, the Chinese investors invest mainly in the developing countries. This article, however, looks into the Chinese and Japanese investment in the South Asian economies and finds that they are yet to channel any significant amount of FDI to this region. This contrasts the investment positions that the Chinese and Japanese investors have followed in the economies of East and Southeast Asia. At the moment, Japan has much higher investment stocks than China’s in South Asia, though the Chinese investment in the region is catching up. However, the article argues that investments from these two major investing countries have not matched with the economic growth record and prospects of the region. In fact, most of the countries in the SAARC have the potential to grow more quickly than many other parts of the world, and Japan and China should take notice of this fact while devising their investment approach.