Service sector shines as FDI in China hits US$40b for January-April period

Central government keen to attract greater foreign direct investment in services, high-end manufacturing and environmental industries

PUBLISHED : Friday, 16 May, 2014, 11:52am
UPDATED : Saturday, 17 May, 2014, 12:56am

Foreign direct investment into China grew 5 per cent to US$40.3 billion in the first four months of this year, with the biggest share going to the nation's service industry, the Ministry of Commerce said yesterday.

"The figures have shown that foreign investors are generally taking an optimistic view of China's long-term economic growth despite some discouraging economic data in recent months," said Xu Gao, the chief economist with China Everbright Securities.

In a briefing, ministry spokesman Shen Danyang said the government is "cautiously optimistic" on the trade performance in 2014 and believes it can achieve the original target of 7.5 per cent growth it has set for the whole year.

"Chinese companies have been under bigger pressure in the face of competition from Vietnam, which has begun to enjoy preferential duties from the European Union since this year," Shen said.

"But we should also be aware that China has developed new advantages in technology, brand, quality and services based on the labour-intensive manufacturing model."

China's services industry continued to be a strong magnet for overseas investors, absorbing 56 per cent of foreign direct investment between January and April.

During the period, it attracted US$22.5 billion, up 19 per cent year on year.

In April alone, foreign direct investment rose 3.4 per cent year on year to hit US$8.7 billion.

Investment in the manufacturing sector though fell 11 per cent to US$14.5 billion.

For the first four months, Hong Kong remained a top investor in the mainland with US$27.8 billion, followed by Singapore and Taiwan with US$2 billion each.

Investment from South Korea, the fourth largest investor in China, rose at the quickest pace during the period, surging 139 per cent from a year ago to US$1.8 billion. Investment by the United States dropped 11 per cent to US$1.2 billion.

A total of 6,661 overseas enterprises set up business on the mainland during the period, the ministry said.

Despite the growth in foreign direct investment, China's non-financial direct outbound investment fell 12.9 per cent to US$25.7 billion in the first four months.

"This is likely due to the tightening of liquidity in the country and the pessimistic view by domestic investors over a slowing economy," Xu said.

In the first four months, 66.5 per cent of China's outbound non-financial investment went to seven economies: Hong Kong, Asean, the EU, Australia, the US, Russia and Japan. Investment in the seven totalled US$17.1 billion.

China's trading performance has improved in April, with both exports and imports recording minor growth compared to the declines seen in March.

The country is also increasing its support for the trade sector. The State Council said in a document on Thursday that a series of new measures, including more tax breaks, credit insurance and currency hedging options to exporters, will be launched.

The government wants to attract foreign direct investment to the services sector, high-end manufacturing, and environmental industries instead of into low-value added factories, and wants local firms to increase offshore investment.