Shaky political climate keeps investors away.
POLITICAL instability, rather than China's cheap labor, accounted for the decline in foreign investments in the Philippines, a leading China expert said. .
In a paper delivered at last week's annual meeting of the Philippine Economic Society, Ellen Palanca, executive director of the Ateneo Center for Asian Studies, noted that the macroeconomic and political stability of other Asian countries has helped them retain a fair share of incoming foreign direct investments even after the East Asian currency crisis of 1997. .
In contrast, countries like the Philippines and Indonesia, which both suffered from political instability, witnessed their share of investments decrease. .
Palanca also dismissed any crowding-out effect that China has had on its neighbors. China managed to retain investment inflows because it escaped the negative effects of the East Asian currency crisis, she said. .
"While Asian countries badly hit by the crisis suffered from contractions, China posted annual growth rates of 7 percent, which kept investor interest in its market alive,"" Palanca said. .
She added that it remains uncertain that the investments in China would have flowed instead into crisis-hit Asian economies. .
Citing direct investment inflows in Asia before the crisis, Palanca noted that no crowding-out effect was evident vis -vis the Asean Five (including the Philippines), all of which saw their share of foreign investments grow much like China's. .
Indeed, the Philippines' proximity to China should be a boon to the country, since foreign investors would find it easier to ship their goods to the Chinese market, she said. .
Furthermore, a growing Chinese economy that is integrated more into the world trading system would also increase Chinese investment outflows, especially to neighboring Asian countries like the Philippines, Palanca said. .
She noted that Chinese foreign direct investments in the Philippines have grown from 0.