• Wed
  • Sep 3, 2014
  • Updated: 1:54pm
BusinessEconomy

China battles to boost investment inflows

With investment inflows up just 0.2 per cent in June, concerns remain over mainland's appeal, but credit data provides hope for GDP boost

PUBLISHED : Wednesday, 16 July, 2014, 1:15am
UPDATED : Wednesday, 16 July, 2014, 7:56am

Foreign direct investment (FDI) into the mainland barely grew last month as surging labour costs hurt the economy's competitiveness, though monthly credit data reported by the central bank showed an upside surprise that may have helped boost economic growth in the second quarter of the year.

The National Bureau of Statistics will release quarterly gross domestic product data today.

The mainland lured the equivalent of HK$111.8 billion in FDI last month, up 0.2 per cent from a year earlier - and better than a 6.7 per cent fall in May, which was the worst performance since January last year.

Germany's Volkswagen was among multinationals that increased spending, announcing a plan to invest €2 billion (HK$21 billion) to build two new factories with mainland partner FAW.

Despite the lacklustre growth in FDI, Ministry of Commerce spokesman Shen Danyang told a briefing yesterday that the domestic market remained "full of business opportunities", particularly as Beijing had been easing market access for foreign players.

Shanghai's municipal government trimmed a list of sectors off limits to foreign investors in the city's free-trade zone this month, providing wider access to industries. Still, pessimism towards investing on the mainland has built up. Nearly half of European companies believe the "golden age" for multinationals is over, a survey by the European Union Chamber of Commerce in China showed in May.

A breakdown of the FDI data paints a mixed picture. Inflows from South Korea and Britain, the two nations where China's top leaders paid state visits over the past month, surged by 45.6 per cent and 76.4 per cent, respectively, in the first half from a year earlier.

However, investment from key trade partners such as the United States, other members of the European Union and Southeast Asian countries all declined, and flows from Japan nearly halved to US$2.4 billion. A Citigroup report said last month that political tensions between Beijing and Tokyo had caused Japanese investment to be diverted to members of the Association of Southeast Asian Nations.

Shen said export and import growth might "pick up markedly" in the second half thanks to recovering demand from developed markets. He said the official trade growth target of about 7.5 per cent for this year might be achievable "through hard work" - but only if the impact of the abnormally high growth early last year due to trade companies' arbitrage activities was excluded.

Analysts expect second-quarter GDP expanded at a similar pace to the 7.4 per cent seen in the first quarter. Despite the cooling property market, quicker infrastructure investment growth fuelled by eased liquidity is expected to underpin economic expansion in the rest of the year.

New yuan loans soared to 1.08 trillion yuan (HK$1.36 trillion) last month, beating market expectations of 955 billion yuan. Aggregate financing hit 10.6 trillion yuan in the first half of the year. Foreign exchange reserves reached US$3.99 trillion.

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