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Hong Kong is still Asia's best-performing host economy for foreign direct investment and the region's second largest FDI destination, according to the World Investment Report 2003 released by the United Nations Conference on Trade & Development.
On a global scale, Hong Kong ranked 15th in FDI inflows in 2002. Luxembourg was the largest FDI recipient last year, followed closely by Mainland China.
The organisation also forecasts that favourable economic prospects for China and Hong Kong, the CEPA, recovery in the US, and relaxation of restrictions for Mainlanders entering Hong Kong should all contribute to higher FDI inflows in the next 12-18 months.
Asia-Pacific economic prospects promising
While FDI inflows declined last year both globally and regionally in difficult economic conditions, the organisation predicts that promising prospects in 2003-04 will spur an upturn in FDI - particularly in Asia and the Pacific.
FDI flows to Asia and the Pacific declined for the second consecutive year, to US$95 billion last year from US$107 billion in 2001.
Hong Kong's FDI in 2002 reached US$13.7 billion, down from an adjusted US$23.7 billion in 2001. However, the city maintained its position as the second-largest recipient of FDI in Asia, behind the Mainland (US$52.7 billion).
HK's performance encouraging: Rowse
The next largest FDI recipients in Asia, after Hong Kong, were Japan (US$9.3 billion), Singapore (US$7.7 billion), Malaysia (US$3.2 billion) and South Korea (US$2 billion).
Commenting on the report, Director-General of Investment Promotion Mike Rowse said 2002 was a difficult year for the global economy and regionally, which is reflected in this year's results.
He said it is encouraging that Hong Kong was able to retain its position as second in FDI inflows and the best-performing host economy in Asia.
"This clearly confirms that multinational companies still see the advantages of investing in Hong Kong. Our business-friendly regulatory environment, rule of law and low tax system make us particularly attractive in difficult economic times, when investors face additional risks," he said.
HK ranked 3rd in inward FDI performance index
At the same time, he added, Hong Kong's proximity to the Mainland provides access to one of the fastest-growing economies in the world.
"The report's positive outlook going forward coincides with ours," Mr Rowse said.
Hong Kong ranked third globally in the inward FDI performance index, and 13th in the inward FDI potential index.
University of Science & Technology Prof KC Chan pointed out that the organisation labelled Hong Kong as the front-runner in both indices.
Mr Rowse said Hong Kong will not be complacent despite the high rankings, adding that the Government will study the analysis carefully and seek further improvements to boost the potential.
In its study, the organisation 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.
Asia remains the largest FDI recipient
Asia continues to be the largest FDI recipient among developing regions, according to the organisation. It also says that the region's longer-term prospects are favourable.
The factors that have contributed to the FDI downturn - slow global economic recovery, weak global demand, shaken corporate confidence and adjustments in industries like semiconductors/electronics - are expected to improve in 2003-04, helping to stimulate an increase in FDI.
The report indicates that global FDI inflows, down by more than 40% in 2001, fell by another 21% in 2002 to US$651 billion.
Driving this decline was a combination of factors including weak economic growth, tumbling stock markets, low corporate profits, financial restructuring and a loss of confidence in the wake of corporate scandals.
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