Thai floods may shift Japan investment to Indonesia, Vietnam

Nov. 15 (Bloomberg). Japanese companies, Thailand’s biggest foreign investors, may spend more to build factories in neighbors including Indonesia and Vietnam after the worst flooding in 70 years disrupted global production.

“Executives recognize the concentration risk after the floods,” said Takahiro Sekido, chief Japan economist at Credit Agricole CIB in Tokyo. “The recent trend of accelerating investment into Thailand will cool despite the fact that Thailand was such an ideal destination.”

Prime Minister Yingluck Shinawatra has proposed spending 130 billion baht ($ 4.2 billion) on reconstruction and steps to prevent future floods. She seeks to reassure investors that Thailand remains a safe place for business, as companies including Pioneer Corp., Honda Motor Co. and Toyota Motor Corp. scrapped profit forecasts after the floods shut factories.

The disaster has rippled through the supply chains of Japanese auto and electronics makers, as parts shortages affected operations across the globe.

The distribution of Japan’s supply chain across the region may shift as well amid increasing local consumption and plans to unify the region’s economy.

The 10-member Association of Southeast Asian Nations is targeting 2015 for the creation of a single-market economic zone modeled after the European Union, without a common currency. Japan was the biggest investor in the bloc from 2008 to 2010, topping the U.S. and China, according to Asean statistics.

“Indonesia has a large population and its domestic demand is quite strong, while Vietnam’s population is increasing,” he said. The two countries account for more than half of the 591 million people in the countries that comprise Asean, the organization’s statistics show.

Japanese direct investment in Thailand jumped 35 percent to about 100 billion baht in 2010, led by the auto, metals and machinery industries, according to the Thai Ministry of Industry’s Board of Investment.

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