China foreign direct investment surges to two-year high

June inflow is the highest monthly total since 1997 with the economy on track to meet target

PUBLISHED : Wednesday, 17 July, 2013, 10:44am
UPDATED : Thursday, 18 July, 2013, 4:21am

Foreign direct investment into the mainland saw its strongest surge in more than two years last month with the US$14.4 billion of capital committed leaving the world's second biggest economy firmly on track to meet the government's target of US$120 billion of inflows this year.

Data published by the Ministry of Commerce yesterday showed first-half non-financial FDI had reached a total of US$61.98 billion.

June's reported inflow was the single highest monthly total since 1997, fuelled by solid double-digit increases from investors in Japan, the European Union and the United States and confounding analysts who had expected FDI inflows to have slowed alongside the mainland's slackening economic growth in the second quarter of the year.

Ministry of Commerce spokesman Shen Danyang told a news conference in Beijing yesterday that a gentle uptick in FDI was expected to be sustained for the rest of this year.

"We believe the FDI inflows will still keep relatively stable in the second half of this year," Shen said.

The gain in FDI comes against a backdrop of a struggling mainland economy, where growth in the second quarter of the year slowed to its weakest pace in a year, up 7.5 per cent, to mark the 11th quarter of slowing annual growth in the last 13.

The services sector was the main recipient of inward investment, the data showed, with inflows ticking up 12.4 per cent year on year in the first half of the year to US$30.6 billion. Manufacturing sector inflows were a more modest US$26.4 billion in the same period, down 2.14 per cent on a year ago.

Foreign direct investment has been one of the principal drivers of the mainland's breakneck economic growth in the past three decades.

FDI was worth US$111.7 billion last year. The mainland attracted US$8.44 billion of FDI in April, up only 0.4 per cent year on year, a sharp slowdown from the 6.32 per cent growth seen in February and 5.65 per cent in March.

In the first four months of this year, FDI inflows to the mainland, excluding those to the financial sector, grew just 1.21 per cent year on year to US$38.34 billion.

A separate report sponsored by a UN body said Hong Kong and the mainland saw the world's biggest foreign direct investment inflows last year, taking in a combined US$196 billion and eclipsing the US$168 billion invested in the US.

For the first time, emerging markets attracted more long-term capital than developed economies, according to the World Investment Report by the United Nations Conference on Trade and Development.

The decisive shift in capital flow came as FDI to developed economies plummeted to almost a 10-year low amid economic weakness, particularly in crisis-ridden Europe, the report said.