Zhou Fang (CGTN Radio Reporter)
In recent years, global inflation, rising trade protectionism and the increasingly complicated international geopolitics have brought more uncertainties to the world, affecting cross-border investment globally.
According to UNCTAD’s World Investment Report 2023, global foreign direct investment fell by 12% in 2022 to 1.3 trillion U.S. dollars, due mainly to overlapping global crises, including the Ukraine crisis and high food and energy prices.
Global Inflation
Firstly, the high inflation in countries led by the United States and subsequent monetary policies triggered by rate hikes have caused the U.S. dollar to surge and global cross-border capital flows to become abnormal, with a large influx of capital into the U.S. market.
Inflation will lead to a decline in investors’ real rates of return, affecting their expectations of future returns and risks and influencing their decision-making.
Faced with the pressure of inflation, people may choose to invest in tangible assets such as real estate or gold to preserve and increase their value. This may divert funds away from the financial market and put pressure on financial assets such as stocks and bonds.
Trade Protectionism
Secondly, there are still “trade protectionism” and “decoupling” policies. Trade protectionism often leads to higher trade barriers, which will restrict the free flow of international trade and weaken the stability of global supply chains and markets.
Trade protectionism can also disrupt multilateral trading systems, intensifying tensions between countries and affecting trade and investment.
The International Monetary Fund has warned that if there is severe trade fragmentation, its long-term costs could account for 7% of the global output. If technological decoupling is added, the losses for some countries could reach up to 12% of the GDP.
Geopolitics
Thirdly, geopolitical factors, such as political stability or instability in a country, can greatly affect investment decisions. Investors generally prefer stable political environments that provide a predictable and secure business climate. Political instability, conflicts, or changes in government can create uncertainty and increase risks for investors.
High-tech Development and Green Development
Fourthly, high-tech development and green development have had a transformative impact on the global industrial chain and investment. For example, high-tech development has led to the emergence of new industries and the transformation of existing ones. Technologies such as artificial intelligence, robotics and the Internet of Things have revolutionized manufacturing, logistics and services.
Green development has driven the growth of renewable energy, energy-efficient technologies, and sustainable practices in various sectors. These developments have reshaped the global industrial chain by creating new opportunities and disrupting traditional business models.
APEC can play a significant role in addressing the challenges mentioned above.
APEC covers 38% of the global population, 48% of the global trade volume and 62% of the global GDP, making it the most extensive, representative and highest-level cooperation mechanism in the Asia-Pacific region.
According to a recent report by the United Nations Economic and Social Commission for Asia and the Pacific, the Asia-Pacific region remains the largest contributor to preferential trade agreements, with about half of the world’s preferential trade agreements taking place in this region. These agreements aim to reduce trade barriers, promote market access, and enhance economic integration among member countries. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the ASEAN Free Trade Area (AFTA) are good examples of this.
Many countries in the region have established investment promotion agencies and implemented investment-friendly policies to attract foreign direct investment. These policies include tax incentives, streamlined administrative procedures and protection of intellectual property rights.
Regional Financial Institution and Trade Agreement
Countries in the region can also enhance the role and capabilities of regional financial institutions, such as the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB). These institutions can support regional development projects and provide financial stability.
The Asia Pacific region can focus on strengthening regional trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These agreements can promote intra-regional trade and investment, reducing the need for US dollar transactions in international trade.
Green Development
Many countries in the region are making significant investments in renewable energy sources such as solar, wind, and hydropower. For example, China is the world’s largest investor in renewable energy and has been actively promoting the development of solar and wind power. Other countries like Japan, South Korea, and Australia are also increasing their investments in renewable energy projects.
There is a growing focus on sustainable infrastructure projects in the region, including investments in green buildings, energy-efficient transportation systems, and eco-friendly urban planning.
Green Finance
The Asia Pacific region is witnessing a surge in green finance initiatives. Governments, financial institutions, and investors are increasingly supporting green projects through the issuance of green bonds, the establishment of green investment funds, and the integration of environmental, social, and governance (ESG) criteria into investment decision-making.
As one of the most important economies in Asia, China will continue playing a significant role in further boosting trade and investment in the region.
In the past decade, projects launched by China under the framework of the Belt and Road Initiative have also improved connectivity in the Asia-Pacific region.
The interconnectivity has greatly facilitated trade, investment and personnel flow, effectively driving the regional economy.
By promoting regional connectivity to facilitate trade and investment within the region, the Asia-Pacific region is expected to make a significant contribution to global growth.
Meanwhile, other member countries in the region should also play a more positive role in the joint facilitation of trade and investment and promotion of the regional economy.
Countries that like playing supply chain tricks or so-called strategies excluding China from key international supply chains for critical products should see more clearly the current situation.
While the so-called strategies may get them some short-term victories, they cannot completely remove China’s influence from the entire supply chain.
China will continue to consolidate its advantages by promoting domestic and international circulation, advancing the construction of the Belt and Road Initiative, the Regional Comprehensive Economic Partnership and the China-ASEAN Free Trade Area, which can help stabilize the supply chains in the Asia-Pacific region.
Continuing to strengthen diplomatic and economic engagement is also beneficial for promoting investment and economic cooperation.
This includes high-level visits, trade delegations and participation in regional forums like the Asia-Pacific Economic Cooperation.
