INVESTMENT OUTLOOK FOR 2023 - 26 - China picked up, even though Chinese purchases fell short of the so-called Phase One deal signed in January 2020. Secondly, rather than reducing their reliance on Asian supply chains, US importers 1 have increased imports from the wider ASEAN region. Flows of foreign direct investment (FDI) to China have risen over the last six years (see Exhibit 1). Buying more from ASEAN does not mean buying less or decoupling from China No decoupling Buying more from ASEAN does not mean buying less or decoupling from China. Rather, this shift in the pattern of imports illustrates a so-called ‘China + 1’ strategy, in which companies keep producing in China for the local market while moving some capacity to ASEAN. Relocation is a means to manage the supply chain disruption due to economic, political and, most recently, Covid-19 considerations. This is reflected in the rising flow of FDI to ASEAN (see Exhibit 2). The persistence of investment in China underscores our long-held ‘Invest in China for China’ view since the US shifted its China policy from constructive engagement to strategic competition in 2016. 1. The ASEAN member states include Brunei, Cambodia, Indonesia, Lao, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. Exhibit 1: Foreign direct investment flows to China have continued - no signs of decoupling (balance of payments data, USD bln, 4 quarter rolling sum) 350 300 net FDI 250 gross inflows 200 150 100 50 0 -50 -100 1999 2001 2004 2006 2009 2012 2014 2017 2019 2022 Sources: CEIC, BNP Paribas Asset Management, data as of October.2022