South-east Asia is winning more Japanese investment than China

[TOKYO] Japanese investment in South-east Asia continues to grow, owing to the region's potential and low labour costs, amid simmering tensions that reduce the appeal of China for some Japanese businesses.

For a third straight year, in 2015 the amount of foreign direct investment from Japan to the 10-member Association of South-east Asian Nations exceeded such investment in China and Hong Kong, according to figures compiled by the Japan External Trade Organization.

The pace has been accelerating - the outstanding amount of Japanese investment to Asean nations almost tripled from five years ago to 20.1 trillion yen (S$250 billion) at the end of last year, according to Bank of Japan data.

Japanese investment growth to China slowed after protests there intensified in 2012 following a territorial dispute over islands in the East China Sea, prompting Japanese companies to diversify investment risks.

With Japan's economic growth anemic and the nation's population aging and declining, companies have been searching for growth opportunities elsewhere in Asia.

"Asean markets are attractive from the Japanese perspective,"' said Ma Tieying, an economist at DBS Group Holdings in Singapore. "Many economies have great potential to grow, thanks to relatively low per-capita incomes and a young population profile."

The openness of markets in the region along with labour costs that are lower than in China also is attracting Japanese investment, he said.

Of manufacturers responding to a 2015 surveyon investment intentions, about 48 per cent said they intended to strengthen or expand businesses in China, versus 73 per cent in 2011.

The poll by the Japan Bank for International Cooperation found that about 56 per cent of the companies want to expand investment in the five key nations of Singapore, Thailand, Indonesia, Malaysia and the Philippines.

The other five members of Asean are Brunei, Cambodia, Laos, Myanmar and Vietnam.

BLOOMBERG