China Economy

FDI extends fall in China

The 7.3 per cent decline last month is blamed on the global economic downturn, not big changes in the country's competitiveness

PUBLISHED : Thursday, 21 February, 2013, 12:00am
UPDATED : Thursday, 21 February, 2013, 6:07am


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Foreign direct investment in the mainland extended its fall last month, a sign that may prompt Beijing to consider further steps to boost domestic consumption and upgrade industries.

Despite China's gradual loss of status as the world's factory due to demographic shifts, some expect a mild global economic recovery may improve business sentiment in the country later this year.

Investment coming into the mainland dropped 7.3 per cent last month to US$9.27 billion from a year earlier, dragged down by a 14 per cent decline in property investment, the Ministry of Commerce said yesterday. FDI fell 3.7 per cent last year.

HSBC analyst Trinh Nguyen in January pointed out a "great migration" of investment, where multinationals had been gradually shifting businesses to emerging markets such as Vietnam and Indonesia due to rising costs from higher wages and currency appreciation on the mainland, which had hurt its competitiveness.

The ministry's spokesman Shen Danyang, however, said yesterday that the fall in FDI in a single month might not necessarily represent the picture for the whole year.

China was still the world's second-largest recipient of foreign investment last year after the United States, he said.

Everbright Securities chief economist Xu Gao said the decline in FDI was mainly due to a global economic downturn rather than any big changes in the country's competitiveness.

"As the world economy improves mildly this year, the downturn in FDI may not last very long," he said.

The ministry's data showed that FDI flowing into the services sector dropped 9.8 per cent from a year earlier in January, sharper than a 5.8 per cent fall in investment in the manufacturing sector.

Investment from the European Union, hurt dramatically by the sovereign debt crisis in the past year, gained significantly last month, rising 81.8 per cent from a year earlier to US$820 million.

In comparison, investment from 10 Asian nations fell 9 per cent on average. Investment from Hong Kong declined 10.2 per cent to US$5.7 billion.

Still, monthly foreign investment data can be volatile due to the impact of certain one-off deals or sometimes holiday factors, economists say.

While China's exports and imports showed a combined rise of 26.7 per cent year on year last month, Shen cautioned against being too optimistic.

"It's hard to conclude that the trade situation this year will be better than last year. On the contrary, we think it remains serious as overseas markets have yet to show a clear recovery," he said. China's trade increased 8.1 per cent last month, holiday factors excluded, he said.

Shen added that Beijing "will actively support" Hong Kong in a free-trade zone set up by mainland China and the Association of Southeast Asian Nations.