News & Reports News Year 2012 May , 2012 China stays optimistic despite decline in FDI

China stays optimistic despite decline in FDI

FOREIGN direct investment in China fell for a sixth straight month in April as European investors continued to cut overseas spending.

However, capital from Asia and the United States picked up.

Inbound foreign investment was down 0.74 percent from a year earlier to US$8.4 billion last month, the Ministry of Commerce said yesterday.

The decline moderated from the cut of 6.1 percent in March, but was still much less than the 9.7 percent increase last year.

"Sluggish economic growth around the world and much fiercer global competition for new investment continue to weigh on China's strength in absorbing foreign capital," said Shen Danyang, a ministry spokesman. "Also, China is losing comparative advantage when production costs in the country are rising continuously."

But China still maintains its "prudent optimism" due to the country's improving environment for foreign investment, Shen said.

According to a recent report by Japan Bank for International Cooperation, China and India remain the top two investment destinations for Japanese manufacturers seeking overseas expansion.

Singapore's United Overseas Bank also listed China as the best choice for investment in its latest report.

"We are not pessimistic about the declining foreign investment in the past half year," Shen said.

He said the ministry had not detected any withdrawal of existing foreign investment. But the ministry couldn't rule out such a possibility in future, Shen said.

Xue Jun, an analyst at CITIC Securities Co, said that although China was losing the edge of cheap labor costs, the vast domestic consumer market remained a strong magnet for investment.

"Investors are looking for markets that can generate demand and produce profits amid a sluggish global economy, and China is the place," Xue said.

China's gross domestic product growth weakened to 8.1 percent in the first quarter, the slowest in nearly three years. But economists said that would be the bottom of this round of economic slowdown, with the pace picking up to around 8.5 percent in the current quarter.

In the first four months, foreign investors set up 7,016 new enterprises in China with a total investment of US$37.8 billion, a reduction of 2.38 percent compared with a year earlier.

Capital from the 27-member European Union lost 27.9 percent to US$1.9 billion in the January-April period.

In comparison, Japanese investors raised their investment by 16 percent to US$2.7 billion, and capital from the US gained 1.9 percent to US$1.05 billion.

China's outbound non-financial foreign direct investment climbed 72.8 percent to US$23.1 billion in the first four months, up dramatically from last year's growth of 1.8 percent, the ministry data showed.

Xu Sitao, global forecasting director for China at the Economist Intelligence Unit, said the world was set to see more investment from China from both state-owned and private companies.

He estimated outbound investment could reach US$200 billion with China's gross domestic product per head nearing US$10,000.