FDI falls 15.8pc as multinationals reduce spending

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

Actual foreign direct investment on the mainland fell for a fifth month in February as multinational companies trimmed spending to weather the financial crisis.

Despite the fall in inbound investment, the Ministry of Commerce yesterday said it would make it easier for domestic firms to invest abroad by delegating approval power to provincial governments.

Actual foreign investment totalled US$5.83 billion last month, down 15.8 per cent from a year earlier, pulling the figures in the first two months down 26.2 per cent to US$13.37 billion, ministry spokesman Yao Jian said yesterday.

Last month's foreign investment was smaller than the US$7.54 billion recorded in January, when it plunged 32.7 per cent.

However, it is more accurate to consider the two-month figures together as the week-long Lunar New Year holiday fell in January this year but February last year.

Economists said the decline in investment inflows since October showed the global recession was hurting not only mainland exports.

Sherman Chan, an economist with Moody's Economy.com, said the February figure was in line with expectations as multinational companies were holding back on investments, especially in emerging markets, because of risk aversion, capital constraints and tight access to credit.

The ministry approved the setting up of 1,265 foreign-funded enterprises last month, down 13 per cent from a year earlier, following a 48.7 per cent slump in January. However, Mr Yao said the mainland remained the most attractive destination for foreign investment.

'With the government's series of measures to stimulate domestic demand and stabilise export, FDI in China will maintain its steady growth.'

Explaining a new regulation on outbound investment announced by the ministry, he said only large deals would need the central government's approval.

'Under the revised rules, about 85 per cent of outward investment applications reviewed by the central government last year would now be reviewed by local governments,' Mr Yao said.

With the country's US$2 trillion in foreign reserves, mainland companies are looking to outbound investment aggressively as cheaper commodity and share prices encourage bargain hunting.

Last month, mainland firms pledged more than US$50 billion into Russian and Brazilian oil deals and stakes in Australian mining firms Rio Tinto Group and OZ Minerals.

In relaxing rules for inbound and outbound investments, Beijing last week allowed local governments to approve foreign investments worth up to US$100 million without seeking approval at the ministry level.

Mr Yao said Beijing would send more business missions abroad in the near future to look for opportunities, following a high-profile trip led by Minister of Commerce Chen Deming this month to Europe.