China Economy

Foreign direct investment in China drops further

Mainland records drop in foreign direct investment for the ninth month, raising concern over the manufacturing industry

PUBLISHED : Wednesday, 21 November, 2012, 12:00am
UPDATED : Monday, 30 May, 2016, 5:00pm


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Foreign direct investment in the mainland fell last month for the ninth time in 10 months this year, while outward investment remained buoyant.

The steady decline in foreign investment highlights the challenges facing Beijing's new leaders as they cope with a global economic downturn while rebalancing the domestic growth model as rising labour costs begin to hurt the country's manufacturing competitiveness.

Foreign direct investment fell 0.24 per cent from October last year to US$8.3 billion, the Ministry of Commerce said yesterday. Despite the decline, it was still an improvement on September, when investment dropped 6.8 per cent.

For the first 10 months, FDI is down 3.45 per cent at US$91.7 billion. The figure excludes investments in the banking, securities and insurance sectors.

In comparison, outward investment by non-financial Chinese firms rose 25.8 per cent in the 10 months to US$58.2 billion.

"In future, China may gradually become a country with more investment outflows than inflows," said Huang Yiping, the chief economist for emerging Asia at Barclays Capital.

The downward trend in foreign direct investment was likely to continue as the country's manufacturing industry slowed and the global economic outlook remained bleak, said Huang. At the same time, conditions for Chinese companies to invest abroad were improving.

Investment from the United States reversed a drop seen in the first nine months, expanding 5.3 per cent in the January-October period to US$2.7 billion. Investment from the European Union fell 5 per cent to US$5.24 billion.

In more signs of the effects of the continuing downturn in Europe, the ministry said the US had overtaken the EU to become China's biggest export destination, based on trade data in the first 10 months. Meanwhile, the Association of Southeast Asian Nations surpassed Japan as the third-largest export market.

Ministry spokesman Shen Danyang said: "We remain confident that foreign investment in China will see growth again after an adjustment period."

Shen said the monthly data tended to be volatile as it was easily influenced by one-off deals that could run into billions of dollars. For example, capital related to a recent US Disneyland project in Shanghai "suddenly came into place", boosting FDI from the US.

Shen reiterated the difficulties for China in achieving a 10 per cent growth in its trade, a goal set by Beijing at the beginning of the year.

Premier Wen Jiabao and Commerce Minister Chen Deming are attending an East Asia Summit in Cambodia, where China, Japan and South Korea yesterday announced they would launch three-party talks on setting up a free-trade zone, according to a statement posted on the ministry's website.

The three countries are important trade and investment partners of each other. Their combined economies added up to US$14 trillion last year, accounting for 20 per cent of the world's total, the statement said.

Mainland China has 18 free-trade zone partners, including 10 Asean countries, Hong Kong and Taiwan. Imports and exports with these partners accounted for 24 per cent of its total trade, according to Shen.