Foreign funds into China trickled lower last month for the sixth consecutive month as investors tightened their belts amid the worst economic crisis since the Depression.
The Ministry of Commerce said yesterday that foreign direct investments shrank 9.5 per cent year on year, compared with a 15.8 per cent decline in February and a 32.7 per cent drop in January, ending the first quarter 20.6 per cent lower from a year earlier.
While the ministry spokesman Yao Jian said last month's decline showed signs of abating, more policies were in the pipeline to entice foreign investors, support small and medium-sized enterprises and encourage domestic demand.
Some economists said liquidity remained strong in the market despite shrinking inbound investments. This meant lower pressure for interest rate cuts.
'The decline in foreign direct investment is understandable in the context of the global financial weaknesses,' said UBS economist Wang Tao, who pointed out that the base of comparison in the first quarter last year was inflated by speculation on yuan appreciation.
The country's foreign-exchange reserves rose about US$7.7 billion in the first quarter to US$1.953 trillion on March 31, the smallest quarterly rise since the second quarter of 2001.
During the first three months, the manufacturing sector absorbed 11.5 per cent less in foreign investments, accounting for 56.9 per cent of the total. Investments in the service sector dropped 31.3 per cent, accounting for 38.7 per cent of the total.
As the country's 4 trillion yuan (HK$4.54 trillion) economic stimulus programme started hitting the market in February, Mr Yao expected last month's improvement in foreign direct investment would lay the foundation for recovery in the coming months.
He said the expansion in rural consumption was more promising, with home electrical appliances sales growing 70 per cent to 1.45 million units and 72 per cent to 2.24 billion yuan last month from a smaller base in February. Car sales jumped 11.1 per cent and furniture sales were up 24.1 per cent in the first three months of this year from a year earlier.
Mr Yao said the ministry would give more authority to local bureaus to approve investment plans and offer incentives.
However, the mainland still faced uncertainty in foreign fund inflows, with Mr Yao citing international estimates of a 30 per cent decrease in worldwide foreign direct investments this year.
The increase in the foreign exchange reserves in the first quarter, in US$: $7.7b