INVESTMENT OUTLOOK FOR 2023 - 27 - Crucially, a large share of the FDI flows to ASEAN comes from China, which accounts for 40% of the total now as compared to only 10% a few years ago. This actually strengthens the supply-chain integration between ASEAN and China rather than weakening it. Components used to be shipped from ASEAN to China, which then sold them to the world markets. That made China the world’s factory. Now the process appears to be reversing: China supplies ASEAN with products that power the region’s exports to the world. This shift in the supply-chain integration process has expanded the world’s factory to now include Asia. The persistence of investment in China underscores our long-held ‘Invest in China for China’ view Implications Asia’s supply chain shift also reflects China’s ‘dual circulation’ policy. Beijing aims to use its internal growth impetus to drive domestic and regional growth. This potential is a strong basis for long-term investment in emerging Asia and China. From a macroeconomic perspective, this development will likely lead to strong intra-regional economic linkages confounding the deglobalisation trend. With inflation concerns rising and companies facing higher input price pressures, the cost advantages of sourcing from Asia, whose supply chains have integrated further with China, are becoming more obvious. Subtle shifts are underway to make Asia an emerging production hub for world markets. We see little evidence yet of global and regional decoupling from China. One can run, but not hide, from the Middle Kingdom. Exhibit 2: Rising foreign direct investment inflows to ASEAN (balance of payments data, USD bln) 200 180 160 140 120 100 80 60 40 20 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 Sources: CEIC, BNP Paribas Asset Management, data as of October.2022