BEIJING, Sept 19: China’s foreign direct investment (FDI) inflows fell 3.4 p ercent in the first eight months of the year versus a year ago, the longest run of decline since the 2008/09 financial crisis, as global economic headwinds hold investor spending plans at bay.
The Commerce Ministry said on Wednesday China drew $75.0 billion in FDI between January and August, with August’s inflow down 1.43 percent on a year ago at $8.3 billion.
Year-on-year falls were recorded in investments from the debt-wracked European Union, China’s single biggest export market, and the main drag on the country’s export growth.
‘Although the total investment from EU’s 27 countries dropped 4.1 percent in the first eight months, FDI inflows from some European countries – such as Germany, the Netherlands and France – still showed growth from a year ago,’ Ministry spokesman Shen Danyang told a news conference.
A raft of weak economic data for August released earlier this month pointed to sluggish exports and slowing factory output, leaving investors betting that more policy action will be needed by the government to shore up growth.
Two cuts to interest rates, the easing of bank reserve requirements that freed about 1.2 trillion yuan ($190 billion) for lending and the approval of infrastructure projects worth more than $150 billion have so far failed to arrest the decline.
Economists expect China’s six-quarter long economic slowdown may extend into the July-September quarter, with full-year growth for 2012 likely to fall to 7.7 percent according to the latest Reuters poll – the lowest since 1999.
Commerce Ministry data showed investment inflows from European Union dropped 4.1 p ercent year-on-year in the first eight months, while investment by U.S. Firms fell 2.85 percent.
FDI inflows from the top 10 Asian economies, including Hong Kong, Japan and Singapore, fell 5.0 p ercent between January and August versus a year ago, the Ministry said.
China’s central bank and commercial banks sold a net 17.4 billion yuan ($2.8 billion) in foreign exchange last month, an additional sign that investors may be reducing their exposure after years of surging inflows.
DOMESTIC DEMAND RISKS
With export demand slack, investors are increasingly concerned about the risk of softening domestic demand if Beijing steps up measures to curb real estate speculation as signs emerge that property prices are beginning to pick up again, despite a two-year long campaign to calm the market.
The real estate sector directly affects 40 other business areas and a slowdown in development is widely seen by analysts as dampening domestic economic activity.
A surprise fall in imports in August intensified investor worries about domestic demand as companies run down inventory and scale back production in the face of faltering export growth.
China’s exports grew 2.7 percent in August, missing the market expectations of 3 percent. China aims to grow total trade by an average of 10 percent in 2012 and officials say that target is looking increasingly hard to meet.
China unveiled a slew of measures last week to help stabilise export growth, including faster payment of export tax rebates and boosting loans to exporters.
FDI is an important gauge of the health of the external economy, to which China’s vast factory sector is oriented, but its contribution to total capital flows is dwarfed by exports.
China drew a record $116 billion in foreign direct investment last year. The Commerce Ministry aims to attract an average of $120 billion in each of the next four years. It is roughly on course to hit the target in 2012.
China’s outbound direct investment from non-financial firms in the first eight months totalled $47.7 billion, up 39.4 p e rcent year on year, the Ministry said.
(agencies)
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