Curious if you have seen Brad Setser's work on FDI flows
The TLDR is that almost all FDI is for tax evasion purposes and is not what most have in their heads as "investment". He goes over the World Bank data and he really goes after exactly what you intuit of like greenfield/factories. He claims that is such a small percent of FDI and that people use it interchangeably with actual investment in their heads is wrong.
"The most valuable foreign direct investment in the world today is almost certainly Apple (CA)'s ownership of Apple Ireland. Apple Ireland generates (technically) more of Apple's global profit than Apple (CA) and maybe pays a bit more tax ..."
Brad Setser tweet
This is a link to a tweet on percentage of greenfield FDI...
Yes - I have talked about this - and how I think it distorts a lot of economic data. This type of FDI is now really what I am talking about though - although in terms of market impact, this has been huge.
I always read your pieces on Japan with great interest. What's your take on Japanese infrastructure investments in Asia? Do you see them as a possible engine of growth for the country?
Here’s a bit from my article on the return of neomercantilism in Tokyo for "American Affairs". I’m really curious to hear your opinion on this:
"Xi Jinping announced the BRI in 2013, launching a competition for infrastructure investment in Asia. The rivalry escalated in 2015, when Japan lost a bid for a high-speed rail project in Indonesia. Abe unveiled the Partnership for Quality Investment in that year, in response to China’s launch of the Asian Infrastructure Investment Bank. Although Japan is reluctant to admit that the PQI is an attempt to counter the BRI, the competition is taken seriously by Japan. In 2020, Tokyo secured 240 infrastructure projects in the region, investing $367 billion, compared to Beijing’s $255 billion across 210 projects...
Hironori Sasada observes that expectations among Japanese corporations for overseas infrastructure projects are immense. As Keidanren (Japan Business Federation) announced: “We need to promote infrastructure system exports to emerging countries, including those in Asia, as this strengthens host countries’ basis for growth and creates greater market demand, and that in turn contributes to the growth of our economy.” (https://americanaffairsjournal.org/2024/05/japans-quiet-revolution/)
So I agree that Japan is competing with China for influence in the region- and this is great for the region. However, Japan has been investing in Asia for decades, with no meaningful effect on GDP growth at home. In Trumpian thinking, they have just been building up economic competitors that have put downward pressure on wages at home. I think a policy that focuses on growing investment in Japan would make a huge difference...
policies to promote domestic production , would have to start with an effective framework for migrant workers. I don't know if the Japanese are ready for that. But Japan would definitely be a great place to establish businesses if it chooses to be hospitable to foreign companies and workers. Making all regulation and governments services available in English would also make a huge difference.
I think that Japan and China (for different political reasons) have swapped places. Japan has chosen aggressive reflationary policies whereas China has decided to "lie flat" and opted for deflation.
The strongest equity market in Asia (recent rout notwithstanding) is in Japan, while the strongest bond market is in China.
Ultimately, the events of the last 10 years have taught me that it is the consumer that holds upper hand. The USA is still the consumer of last resort (for all its pros and cons).
Curious if you have seen Brad Setser's work on FDI flows
The TLDR is that almost all FDI is for tax evasion purposes and is not what most have in their heads as "investment". He goes over the World Bank data and he really goes after exactly what you intuit of like greenfield/factories. He claims that is such a small percent of FDI and that people use it interchangeably with actual investment in their heads is wrong.
"The most valuable foreign direct investment in the world today is almost certainly Apple (CA)'s ownership of Apple Ireland. Apple Ireland generates (technically) more of Apple's global profit than Apple (CA) and maybe pays a bit more tax ..."
Brad Setser tweet
This is a link to a tweet on percentage of greenfield FDI...
https://x.com/Brad_Setser/status/1787535329622118419
Yes - I have talked about this - and how I think it distorts a lot of economic data. This type of FDI is now really what I am talking about though - although in terms of market impact, this has been huge.
I always read your pieces on Japan with great interest. What's your take on Japanese infrastructure investments in Asia? Do you see them as a possible engine of growth for the country?
Here’s a bit from my article on the return of neomercantilism in Tokyo for "American Affairs". I’m really curious to hear your opinion on this:
"Xi Jinping announced the BRI in 2013, launching a competition for infrastructure investment in Asia. The rivalry escalated in 2015, when Japan lost a bid for a high-speed rail project in Indonesia. Abe unveiled the Partnership for Quality Investment in that year, in response to China’s launch of the Asian Infrastructure Investment Bank. Although Japan is reluctant to admit that the PQI is an attempt to counter the BRI, the competition is taken seriously by Japan. In 2020, Tokyo secured 240 infrastructure projects in the region, investing $367 billion, compared to Beijing’s $255 billion across 210 projects...
Hironori Sasada observes that expectations among Japanese corporations for overseas infrastructure projects are immense. As Keidanren (Japan Business Federation) announced: “We need to promote infrastructure system exports to emerging countries, including those in Asia, as this strengthens host countries’ basis for growth and creates greater market demand, and that in turn contributes to the growth of our economy.” (https://americanaffairsjournal.org/2024/05/japans-quiet-revolution/)
So I agree that Japan is competing with China for influence in the region- and this is great for the region. However, Japan has been investing in Asia for decades, with no meaningful effect on GDP growth at home. In Trumpian thinking, they have just been building up economic competitors that have put downward pressure on wages at home. I think a policy that focuses on growing investment in Japan would make a huge difference...
policies to promote domestic production , would have to start with an effective framework for migrant workers. I don't know if the Japanese are ready for that. But Japan would definitely be a great place to establish businesses if it chooses to be hospitable to foreign companies and workers. Making all regulation and governments services available in English would also make a huge difference.
Already huge increase in number of South Asians working in Japan
I think that Japan and China (for different political reasons) have swapped places. Japan has chosen aggressive reflationary policies whereas China has decided to "lie flat" and opted for deflation.
The strongest equity market in Asia (recent rout notwithstanding) is in Japan, while the strongest bond market is in China.
Japan can devalue without upsetting the world now - while China cannot
VERY important point.
Ultimately, the events of the last 10 years have taught me that it is the consumer that holds upper hand. The USA is still the consumer of last resort (for all its pros and cons).