Singapore most preferred Destination for Chinese Investors, says EIU

Singapore tops the ranking as the most attractive destination for Chinese investors. Its appeal lies in its status as an established global business hub, its cultural ties to China and its neutrality in the tensions between China and the West, the Economic Intelligence Unit (EIU) said.

In its report entitled “China Going Global Investment Index 2023,” EIU said that all of these factors suggest lower operational risks for Chinese companies and investors, who often encounter restrictions in other countries.

In addition, the affluent city state serves as a headquarters for Chinese firms looking to tap into the rapidly growing market of Southeast Asia. Its acclaimed technological expertise also offers research-and-development opportunities.

Altogether these factors render Hong Kong (ranked 4^th)—a Special Administrative Region (SAR) of China and another business hub in Asia—less attractive in comparison. However, EIU highlighted the emergence of policy uncertainties as Singapore places more emphasis on social inclusion, such as an increased focus on wealth taxation and wage increases for low-income workers, which could disproportionately affect certain industries.

“Southeast and South Asia have climbed steadily in our ranking since 2013, reflecting the regions’ robust growth outlook, growing middle class, abundant strategic natural resources, and relative openness towards Chinese investors. As export hubs, many countries maintain strong supply- chain ties with upstream Chinese suppliers, while benefiting from reduced tariffs in key export markets downstream,” the EIU said in the report.

Indonesia is ranked second and stems from its nickel reserves, abundant cheap labour and vast market size, followed by Malaysia (3^rd) and Thailand (5^th) and they are enticing because of their relatively established infrastructure and complementary supply chains. The appeal of India (11^th), which theoretically offers significant opportunities, is hampered by its strained relations with China.

The report noted that rising ranking of many emerging markets can be attributed to their strong ties with China, natural resources, market size and/or their pivotal role in the global supply chain.

China’s import diversification strategy dictates that it will not rely on a single market for commodity supply, and a wide range of well-endowed countries are therefore present, from Latin American countries such as Chile (10^th) to Middle Eastern markets such as Qatar (16^th). Mexico (22^nd) is notable for supply-chain opportunities tied to market access in North America.

“However, its geographical distance and less friendly bilateral relations, especially in comparison with Asian economies, have prevented a further rise in the ranking. Conversely, Turkey (72^nd) has lost its allure for Chinese investors because of an unpredictable foreign and economic policy landscape, the report said.

The ranking of many advanced markets, including the US (28^th), Japan (36^th), Canada (55^th) and the UK (60^th), has plunged due to their deteriorating relations with China and the subsequent screening of inbound investment present significant hurdles for Chinese investors.

Investment from China in sensitive sectors such as advanced manufacturing and telecommunications now faces heightened scrutiny. Nonetheless, their unmatched market size, high income levels, stable operational environments and prowess in technology and innovation have ensured that they remain attractive to investors in non-sensitive sectors. In this context, Switzerland (7^th) and New Zealand (14^th) distinguish themselves by remaining in the ranking’s top 20.

Risk Considerations

Risk considerations are evident in the index and the rankings for Russia (15^th) and Iran (43^rd) have declined or stayed low as Chinese investors seek to avoid the potential for secondary sanctions. Despite this, Russia remains in the top 20 because of its resource endowment and market size, particularly with the withdrawal of Western companies leaving market gaps in sanctions-free sectors, EIU said.

Central and Eastern European countries like Poland (61^st) have become less receptive to Chinese investment, especially after Russia’s invasion of Ukraine reignited concerns over European security. Many Central Asian countries rank lower than other emerging markets, given their less-open markets and political volatility.

Taiwan (75^th) experienced the steepest drop in ranking, as cross- Strait relations have deteriorated to one of their lowest points in recent decades. Controls on inbound Chinese investment have tightened considerably, the EIU said.