China's attractiveness to foreign investors waned last year for the first time since the global financial turmoil as the world's economy slumped and labour costs rose.
Foreign direct investment (FDI) dropped 3.7 per cent in 2012 to US$111.7 billion, as less capital flowed into China's real estate market and manufacturing, the Ministry of Commerce said yesterday. In December, FDI fell 4.5 per cent from a year earlier.
Last year's drop was sharper than the 2.56 per cent fall in FDI recorded in 2009, when the global financial crisis eroded the investment environment.
Preventing a sharp drop in foreign investment and a slowdown in trade growth are set to be major economic challenges for the country's new leaders.
"Multinationals have increasingly been shifting investment to other regional markets, such as the Philippines and Vietnam, as the mainland's competitiveness weakens," Nomura International chief China economist Zhang Zhiwei said.
Zhang expected the value of foreign investment to drop further by about 5 per cent this year.
Commerce Minister Chen Deming has tried to reassure the business community that the government will improve the investment environment to maintain the country's position as one of the world's top foreign investment destinations over the past two decades.
"Despite some uncertainties, foreign direct investment is expected to be basically unchanged from 2012," Chen told representatives from foreign-invested companies on Monday.
He said new opportunities would open up in areas such as environmental protection and development of smaller cities.
Ministry spokesman Shen Danyang said yesterday that Wal-Mart Stores had pledged to "greatly increase" new stores in China. Veolia Environmental Services and other companies also had confidence in the country's outlook, Shen said.
The number of Chinese workers aged 15 to 59 years started shrinking in 2010.
At the same time, migrant workers' wages rose over 10 per cent per year on average in the past decade.
But Cai Fang, director of the Institute of Population and Labour Economics at the Chinese Academy of Social Sciences, said China still had advantages over other developing countries in labour quality and productivity.
The ministry aimed this year to keep trade growing at a similar pace as the domestic economy, Shen said. He said the ministry wanted to "further stabilise and expand" China's shares of global imports and exports. China's trade grew 6.2 per cent last year, below the government's annual goal of about 10 per cent.
Outward investment by China's non-financial companies rose 28.6 per cent last year to reach US$77.22 billion. Investment in Russia was the biggest growth area, expanding 117.8 per cent. Investment in the United States, Japan, Hong Kong, and Association of Southeast Asian Nations all recorded double-digit increases.