Foreigners keener on Chinese stocks than direct investment
Slowing economy, an increase in business costs and anti-monopoly probes deter overseas players from directly investing in the mainland
China's foreign investment mix is changing, with portfolio investors buying more stocks but foreign direct investment falling to a two-year low on a slowing economy, rising business costs and anti-monopoly probes and crackdowns on foreign firms.
A plateau in foreign investment could be a challenge for China as it offers manufacturers an alternative source of capital to the banking system. Any shortfall is unlikely to be made up for by portfolio flows, which favour more liquid stocks and are limited by quotas.
"Foreign capital coming here needs to get a lot more discriminatory," said Gary Reischel, the founder of venture capital firm Qiming Venture Partners in Shanghai, referring to overall investment.
The stock market has risen for the past six weeks, its longest streak since March 2012, after being among the worst performers in the first half of the year. Investors are drawn to Chinese shares by low valuations for large-cap shares after a four-year slump, a rallying yuan and the prospect of a pilot project to allow foreigners to buy yuan-denominated stocks on the country's exchanges.
Non-financial foreign direct investment was US$7.81 billion last month, the lowest in two years, and fell 0.4 per cent year on year in the first seven months of the year. Chinese regulators have warned against reading too much into a single monthly foreign direct investment figure, and many economists agree.
Still, in the context of July data that included softness in manufacturing, lending, housing prices and fixed-asset investment, the numbers have prompted some debate.