Foreign investment up 29pc despite unrest on labour line

PUBLISHED : Wednesday, 18 August, 2010, 12:00am
UPDATED : Wednesday, 18 August, 2010, 12:00am

Foreign direct investment (FDI) in the mainland accelerated last month despite a series of high-profile labour disputes involving multinationals that prompted concern overseas companies would rethink their commitment to the country.

FDI rose 29.2 per cent to US$6.9 billion in July from a year earlier, but represented a sharp slowdown from June's US$12.5 billion. Economists played down the single-month fluctuation, saying the country's vast market will continue to make it a hot investment destination.

A series of high-profile labour disputes at foreign-funded ventures including suppliers to Japanese carmaker Honda Motor highlighted the pitfalls of investing in the world's second-biggest economy.

China drew US$58.35 billion in foreign direct investment in the first seven months of the year, up 20.7 per cent from the same period last year. 'Foreign direct investment showed a continued recovery. It was a pretty good performance,' Commerce Ministry spokesman Yao Jian said yesterday.

Jing Ulrich, chairman of JP Morgan's China Equities and Commodities, said the mainland remains an attractive destination for foreign investment, given its superior growth rates and favourable government policies. She said the country's central and western regions had been receiving a growing share of FDI.

Jian Chang, an economist with Barclays Capital Research, expected that the country would attract slightly more than US$100 billion in FDI for 2010, more than last year's US$94 billion and the second highest ever. The record was the US$108 billion invested in 2008.

FDI inflows, which surged after the country joined the World Trade Organisation in 2001, have recovered steadily this year following the global economic slowdown. Economic growth slowed to 10.3 per cent in the three months ended June 30, down from 11.9 per cent the previous quarter as the government wound down its stimulus and reined in bank lending. Other data had also shown a slowdown in fixed-asset investment, factory output and retail sales.

The Ministry of Commerce said the current export recovery was uneven, and overseas shipments would probably continue to slow over the next few months.

China aims for more balanced trade, and the trade surplus for 2010 will 'surely' fall this year, Yao said.

China recorded its biggest trade surplus in a year and a half last month, due to a big fall in imports growth.

The trade surplus widened to US$28.7 billion in July from US$20 billion in June. Exports rose 38.1 per cent year on year, a slowdown from June's 43.9 per cent rise, and imports grew 22.7 per cent, down sharply from June's 34.1 per cent.

Chang said China still faces some headwinds in maintaining its competitiveness. 'An expected rise in the cost of setting up companies, an expected rise in wage inflation as well as rising rents will affect foreign companies' decision-making,' Chang said. She noted that some foreign firms had in the past couple of years moved their production to cheaper countries such as Vietnam.

However, Chang added that China would maintain its edge, citing its better infrastructure, educated population, better-organised supply chain and vast market.

'Moreover, recent government policy to develop strategic sectors, together with policies to encourage foreign investment in these areas, should allow the country to attract more hi-tech, high-value-added industries,' Chang said.

Capital destination

Overseas investment is flowing into China

FDI in July was down from June but rose strongly from a year earlier to, in US dollars, $6.9b

In the first seven months of the year, FDI increased 20.7 per cent to, in US dollars, $58.4b