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China economy

China’s foreign direct investment plunges 27.6 per cent in November on trade war worries

  • Investors spooked as fears of further tariff increases cause sharp deterioration in business confidence about China’s economic outlook
  • November drop came before trade war truce agreed by Trump and Xi
PUBLISHED : Thursday, 13 December, 2018, 9:13pm
UPDATED : Friday, 14 December, 2018, 6:14am

Foreign investment in China fell sharply in November as concerns over the tariff battle between China and the United States hit investor confidence.

According to figures released by the Ministry of Commerce on Thursday, foreign direct investment (FDI) in the month fell 27.6 per cent year on year to US$13.6 billion.

The slide came despite Beijing making the stabilisation of foreign investment one of its top economic policy priorities. Although even before November, the FDI growth rate had being slowing for the past three months, hitting a four-month low of 7.3 per cent in October.

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The plunge also happened before Chinese President Xi Jinping and his US counterpart Donald Trump agreed a 90-day trade war truce in Buenos Aires on December 1, at a time of high uncertainty about the impact the dispute was having on China’s economy.

Beijing was quick to play down the latest figures.

“The monthly decline is due to the high base of comparison in the same period of last year,” commerce ministry spokesman Gao Feng told a regular briefing.

Economists said the slump in foreign direct investment was inevitable given the impact the trade tensions between Beijing and Washington had had on business confidence.

“Given the prospect of additional tariffs, foreign companies are afraid to invest in China now,” said Shen Jianguang, chief economist at JD Finance in Beijing.

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The trade war was not only hurting foreign investment, but also forcing some companies in the industrial supply chain to move out of the country, causing further damage to the US$12 trillion economy, he said.

“That is why China is now struggling to reach a deal with the US,” he said. “It is inevitable that China will offer a compromise.”

Zhao Jian, head of the Atlantis Finance Research Institute, said the latest figures showed the economic damage caused by the trade war was increasing.

“The influence has spread to the micro level, hurting the confidence and expectations of entrepreneurs,” he said.

But Shao Yu, chief economist at Orient Securities in Shanghai, said it was too early to say if the slump in the November FDI figures was solely due to the tariff dispute.

“It may have something to do with the trade war, but data for a single month doesn’t represent a trend,” he said.

Foreign direct investment in China in the first 11 months of 2018 fell 1.2 per cent year on year to 793.7 billion yuan (US$115.3 billion).

The latest evidence of dwindling confidence among foreign businesses came on Monday when action camera maker GoPro said it would move production of its models for the US market out of China by the summer over tariff concerns.

Similarly, smartphone maker Samsung said it planned to close its factory in the northern Chinese city of Tianjin at the end of the year, according to mainland media reports.