Why Singapore Became the World's Second-Largest FDI Destination? — The Logic of Investment Promotion Has Changed

In 2025, global foreign direct investment (FDI) recovered modestly to $1.6 trillion after two consecutive years of decline, but the recovery was highly concentrated: the top 20 destinations absorbed more than 80% of the increase. In Asia, a years-long reshuffling of capital finally reached a landmark point—Singapore leapt to become the world's second-largest FDI destination with annual inflows of $150.9 billion, trailing only the United States, and for the first time surpassing Hong Kong and China.

This shift is no accident. It reminds investment promotion agencies around the world that FDI competition has entered a new phase: the traditional model of wooing investors with low costs and large markets is giving way to comprehensive considerations of institutional quality, supply chain resilience, and hub functions. This article draws on the United Nations Conference on Trade and Development (UNCTAD) World Investment Report and Singapore's official data to analyze the capital logic behind Singapore's rise, and distills a methodological framework of reference value for international investment promotion practitioners.

I. The Changing Global FDI Landscape: The Traditional Investment Attraction Model Is Failing

Over the past few decades, foreign investment policies in developing economies typically revolved around three things: opening markets, lowering costs, and offering tax incentives. In recent years, however, the frame of reference for multinational corporations' investment decisions has been shifting. Take Singapore as an example: its FDI inflows in 2025 exceeded $150 billion, while China recorded $104.7 billion and Hong Kong $116.5 billion over the same period. Notably, China and Hong Kong still have enormous FDI stock, but the direction of incremental capital has clearly tilted away.

UNCTAD data show that Singapore's FDI inflows more than doubled from $71.1 billion in 2020 to $150.9 billion in 2025; China, by contrast, fell from a peak of $189.1 billion in 2022 to $104.7 billion, a decline of nearly 45%. Behind this contrast lies investors' re-pricing of "certainty." Supply chain security, institutional stability, the rule of law, and the efficiency of cross-border capital allocation are replacing simple factor costs as the key variables determining FDI flows.

For investment promotion agencies, this means that the old "investment pitch" and the "toolbox of preferential policies" no longer work automatically. Merely emphasizing market size or labor costs is increasingly unable to persuade the multinational enterprises that are reconfiguring their supply chains around the world.

II. Singapore's Rise: From Numbers to Logic

Singapore's jump in ranking is not the result of any single factor. According to official statistics, finance and insurance account for as much as 65.5% of its FDI stock, while wholesale and retail trade and manufacturing account for 13.4% and 8.0%, respectively. This reveals an important characteristic: what Singapore attracts is not traditional production-oriented investment, but "functional investment" centered on regional headquarters, asset management, and global trade.

This also explains why the competition between Singapore and Hong Kong is so direct—both are vying for the same "Asia headquarters" niche. Yet Singapore has pulled ahead over the past six years, and its approach deserves closer examination.First, the “Singapore+1” model. Due to limited land and electricity resources, Singapore has not tried to keep all industrial functions within its borders. Instead, it retains high-value-added headquarters, R&D, and financial functions locally, while shifting data storage and some production activities to Johor, Malaysia, just across the strait. The Johor-Singapore Special Economic Zone has further institutionalized this cross-border division of labor. This is a regional resource integration mindset, not a single-city competition mindset.

Second, a two-way hub strategy. In 2025, Singapore’s outward foreign direct investment reached USD 94.2 billion, up 70% year-on-year, rising from ninth to sixth globally and roughly on par with Hong Kong. This means Singapore is not only a destination for capital inflows, but also a transit point for regional capital reallocation. For multinational corporations, entering Singapore means gaining access to a compliant, efficient capital channel leading to Southeast Asia and the wider world.

In addition, the source structure of Singapore’s FDI reflects its institutional appeal. North America and Europe together account for more than half of the stock, while Latin America and the Caribbean—represented mainly by the Cayman Islands and the British Virgin Islands—account for 22.9%, reflecting the prevalence of international holding structures. In other words, Singapore plays the role of connector between offshore finance and the real economy.

III. A Reusable Framework: Five Key Factors in Hub-Type Investment Promotion

From Singapore’s experience, one can attempt to distill an analytical framework for “hub-type investment promotion.” This framework does not advocate copying Singapore, but rather offers a way of thinking for diagnosing one’s own conditions.

First, redefine “location.” Singapore positions itself as the “gateway to Asia,” not a small city of 6.7 million people. Investment promotion must first answer: In the global value chain, what is the most scarce connective function in this region? Is it a manufacturing node, an innovation node, or a capital market node?

Second, institutional supply is better than policy incentives. Singapore’s rule-of-law transparency, property rights protection, and dispute resolution mechanisms are the cornerstone of long-term international capital trust. Preferential policies can attract projects in the short term, but institutional quality determines whether capital stays and reinvests.

Third, industrial focus rather than full coverage. Singapore treats finance and insurance as the ballast of FDI, while also targeting strategic industries such as semiconductors, data centers, and renewable energy. Investment promotion without industrial focus easily falls into homogeneous competition.

Fourth, proactively build cross-border ecosystems. “Singapore+1” shows that the boundaries of investment promotion can go beyond administrative regions. Through bilateral economic zones, supply chain cooperation agreements, and joint investment attraction, cities can shift from zero-sum competition to coordinated positioning.

Fifth, extend from “bringing in” to “going global.” Two-way investment capacity is a core feature of hub economies. IPAs should not only serve foreign investors, but can also support local enterprises in investing abroad, thereby building deeper capital linkages.

IV. Future Directions: Where Is Investment Promotion Heading

The Singapore case also points to several ongoing changes in the industry.First, the datafication of investment promotion. In the past, it relied on personal connections and promotional events; now it is necessary to use FDI intelligence systems, industry big data, and corporate network mapping to identify high-potential investors.

Second, the increasing complexity of investor decision-making. Geopolitical pressures are causing multinational corporations to incorporate "risk redundancy" into their site-selection criteria, making transparency, resilience, and supply chain depth key points of communication.

Third, the rise of regional economic corridors. Cross-border cooperation zones similar to the Johor-Singapore Special Economic Zone may increase, and investment promotion agencies need to possess cross-jurisdictional communication and brand co-building capabilities.

In addition, the application of AI tools in investor matching, scenario simulation, and personalized communication will accelerate, but what remains truly scarce is "relationship capital" based on institutional trust.

Conclusion: The Essence of Competition Is System Building

Singapore's becoming the world's second-largest FDI destination does not mean other economies need to emulate the "Singapore model." But it reveals a more universal rule: as global capital flows shift from chasing incremental markets to reshaping supply networks, the essence of competition among investment promotion agencies has shifted from "selling resources" to "building systems."

This system includes clear positioning, credible institutions, focused industries, an open ecosystem, and two-way capital channels. For global investment promotion practitioners, the real question to ask is not "why does Singapore win," but "what structural uncertainties have we resolved for investors." Once the answer is clear, the method will naturally emerge.