FDI dives 32.6pc amid slowdown

PUBLISHED : Tuesday, 17 February, 2009, 12:00am
UPDATED : Tuesday, 17 February, 2009, 12:00am

Foreign direct investment on the mainland dived 32.6 per cent to US$7.54 billion last month from January last year as the global downturn and a week-long holiday took their toll on economic activity.

The drop was the fourth consecutive decline after a 5.7 per cent slide in December, a plunge of 36.52 per cent in November and a fall of less than 1 per cent in October, according to the Ministry of Commerce.

The drop was due to a number of factors including the financial crisis, a high base figure in January last year and the Lunar New Year holiday, said Yao Jian, a spokesman at the ministry, yesterday.

Even excluding the impact of the holidays, the moderation in foreign investment was still an obvious trend this year, economists said. Investment has surged since China joined the World Trade Organisation in 2001, climbing 13.8 per cent year on year to US$82.66 billion in 2007 and jumping 29.7 per cent last year to US$108.3 billion.

However, the appeal of China to foreign investors has been on the slide since October last year as the financial storm sweeping key economies, falling domestic asset markets and a slower pace of yuan appreciation discourage fund inflows.

'China's annual [foreign investment] inflows will almost certainly be lower than last year, as advanced economies - the key sources of funds - are battered by recession and multinational firms remain cautious,' said Sherman Chan, an economist with Moody's Economy.com.

Intel Corp, the world's largest chipmaker, is moving its Shanghai assembly and testing facilities to Chengdu in Sichuan in an obvious attempt to cut costs.

Zhang Ming, a researcher with the Chinese Academy of Social Sciences, said foreign investment would contract year on year in coming months. There would be an outflow of the speculative money betting on further appreciation of the yuan, which inflated the investment figures in the first half of last year.

'Few people believe the yuan will appreciate sharply this year,' Mr Zhang said. 'A stable yuan exchange rate expectation will discourage hot money inflows and make the [foreign investment] figures cleaner.'

The commerce ministry said last month's foreign investment figure of US$7.54 billion was not too bad when compared with the average monthly foreign investment of US$7.69 billion last year.

Foreign investment in non-financial institutions dropped 27.4 per cent last year to US$92.4 billion, while investments in financial institutions surged 68.4 per cent to US$15.9.

In June, Credit Suisse became the first foreign firm to win approval to set up a joint-venture securities business to help mainland brokerages seeking fresh capital amid the market slump. The approval means it can officially start underwriting share sales and bond issuances.

'China's domestic investment banking services market has long been a coveted crown jewel for many global banks looking to expand their footprint in growing emerging markets,' Credit Suisse Asia-Pacific chief executive Kai Nargolwala said in December last year.