10/03/2005, 00.00
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India and China draw overseas capital with research and innovation

According to the United Nations, overseas capital investments in Asia are on the increase. India and China are reaping the lion's share of the benefits; they offer skilled work forces, dynamic companies, a stable political scenario and a huge market.

Geneva (AsiaNews/Agencies) – Skilled workers, national companies ready to adopt innovative procedures and a stable socio-economic setting, added to a huge potential market. Such an "offer" by India and China is a strong draw for technological research and development investments, which multinational corporations are increasingly moving to developing countries. This was revealed in the annual World Investment Report of the UN Conference on Trade and Development.

According to the report, investment in overseas markets amounted to 730 billion US dollars in 2004, an increase of 18% after a two-year decline. Higher prices of commodities, especially oil and minerals, have prompted greater investment in the mining and refinery sectors in countries rich in mining resources.

The phenomenon of shifting productive activities to developing countries is nothing new, however multinationals now "consider some parts of the developing world as key sources not only of cheap labour, but also of growth, skills and even new technologies," said UN Secretary-General Kofi Annan in the preface to the study. In the past, companies invested in foreign markets to adapt their products to local needs but now they want to create development units for their technology, to be at the service of local or even global markets. For example, one-third of global semiconductors industry is now in southeast and east Asia, from where it was totally absent 10 years ago. Firms from the United States now take at least 10% of their "research and development" activities to Asia, compared to 3% in 1994. In China, the total of foreign firms in the research and development sector has shot up from nil to 700 in 10 years.

International companies like General Electric, Vodafone Group and Ford Motor consider China as the best location for future research and development units, because of the low labour costs and the huge potential market. The United States and India came next. However activities have also been shifted to Singapore, South Korea, Taiwan and Thailand.

China and India, in turn, are now managing important investments abroad. For example, China's growing energy demands has prompted it to subsidise large investment projects in Latin American countries.

"These states are not only attracting [funds] but also becoming overseas investors," said Kai Hammerich, president of the World Association of Investment Promotion Agencies, referring to India and China. "Other countries that I think will join in ... [are] Russia, Malaysia, Brazil, Mexico, South Africa and Turkey."

The UN report said around half of overseas investments came from companies based in the United States, Great Britain and Luxembourg. Foreign investment by businesses in the European Union declined by 25% and Asia and Oceania turned out to be the top receivers of capital. In 2004, this region attracted 148 billion US dollars in funds, almost 50% more than in 2003. China and Hong Kong were the favourites, while southern Asia received seven billion dollars, mainly going to India. Hong Kong received 34 billion dollars in overseas investments while in turn investing 40 billion dollars abroad (including in China).

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