Investment Into China Declined During 2012

BEIJING — China’s foreign investment inflows fell last year for the first time since the global financial crisis, government data showed Wednesday, slipping 4 percent as a troubled world economy reduced investors’ enthusiasm for deals in emerging markets.

But the nation, with the world’s second-largest economy, after that of the United States, still drew $111.7 billion in foreign direct investment in 2012 after a record $116 billion in 2011 and maintaining the country as one of the top destinations for corporate expansion.

Foreign investment is an important gauge of the health of the global economy and of demand for the output of China’s huge manufacturing sector — though such investment is a small contributor to China’s overall capital flows when compared with exports, which were worth about $2 trillion in 2012.

Analysts said cooling growth in China’s foreign direct investment, or F.D.I., did not suggest that investors’ confidence in the country was waning. Rather, it shows China needs another catalyst to drive inflows after the increase from joining the World Trade Organization hit a natural plateau.

“We will see F.D.I. bouncing around $110 billion to $120 billion for some years,” said Tim Condon, an economist with ING in Singapore. “Hopefully, the current administration is going to intensify reform efforts, such as opening of the capital account. That could be momentous, in terms of attracting more F.D.I.”

A new government led by Xi Jinping, the incoming president, is set to take over in March, and investors are hoping that Beijing will pursue changes it had delayed, including the relaxing of capital account controls, to drive China into the next stage of growth.

Analysts forecast that data to be released on Friday would show China’s annual economic growth had rebounded to 7.8 percent in the fourth quarter of 2012 from 7.4 percent in the third — the weakest pace of expansion since the depths of the financial crisis in early 2009.

In December, F.D.I. in China fell 4.5 percent from a year earlier to $11.7 billion, the Commerce Ministry said at a briefing Wednesday.

China joined the W.T.O. in 2001, and foreign direct investment inflows have more than doubled since. Figures from the Organization for Economic Cooperation and Development show China now takes turns with the United States as the world’s top F.D.I. destination, with the United States pulling ahead of China by a slim margin in 2011.

Shen Danyang, a spokesman from the Commerce Ministry, acknowledged that China had to try harder to attract foreign investors, without elaborating. But he stressed that foreign funds were not leaving in a big way.

“It is true that some manufacturing companies are moving out of China,” Mr. Shen said. “But one point I want to remind you is that, so far, there is no big-scale pullout of foreign investment.”

Data showed European and Asian firms had cut their Chinese investment the most, even though Asian firms remained by far the biggest foreign investors in China.

Inflows from the European Union dropped 3.8 percent in 2012 from a year earlier to $6.1 billion, while F.D.I. from the top 10 Asian economies — including Hong Kong, Japan and Singapore — fell 4.8 percent last year to $95.7 billion.

That contrasted with investment from the United States, which rose 4.5 percent on the year to $3.1 billion.

Article source: http://www.nytimes.com/2013/01/17/business/global/investment-into-china-declined-during-2012.html?partner=rss&emc=rss