Foreign Direct Investment in China Tumbles on Crisis

Monday, June 15, 2009

Foreign direct investment in China fell for an eighth month from a year earlier as companies cut spending to weather the worst economic slump since the Great Depression.

Investment slid 17.8 percent in May to $6.38 billion, the commerce ministry said at a briefing in Beijing today, after falling 22.5 percent in April.

China is relying on government-led spending under a 4 trillion yuan ($586 billion) stimulus plan to revive growth. Investment from abroad may increase when the global economy recovers from what the World Bank forecasts will be a contraction of almost 3 percent this year.

“Companies have just been trying to survive the crisis, I don’t think they’re in the mood for aggressive overseas expansion,” said Wang Qing, chief Asia economist for Morgan Stanley in Hong Kong. “It’s too soon to see a pick-up.”

For the first five months of the year, foreign direct investment declined 20.4 percent.

Premier Wen Jiabao cautioned during a tour of Hunan province on June 12 and 13 that the world economic outlook remains unclear, the government said in a statement on its Web site yesterday. China has yet to establish solid foundations for a recovery, he added.

The Chinese economy expanded 6.1 percent in the first quarter from a year earlier, the slowest pace in almost a decade. Full-year growth may be 7.5 percent, according to a Bloomberg News survey of economists last month.

Overcapacity, Unemployment

The nation’s economic problems include slumping exports, falling profits, industrial overcapacity, unemployment and potential budget shortfalls, the premier said. Positive signs include a bumper summer harvest, gains in retail sales, rebounding industrial output, improving market confidence and faster growth in urban fixed-asset investment, Wen said.

China “mustn’t underestimate” the difficulties and needs to prepare to tackle them over “a long-term,” the premier said.

Foreign-invested businesses account for 30 percent of industrial output, 55 percent of trade and 11 percent of urban jobs, according to the commerce ministry.

China will further relax and streamline procedures for investment from abroad, commerce ministry spokesman Yao Jian said at today’s briefing. The nation wants to create jobs and to attract money for high-technology industries, backward regions, and environmental protection, Yao said.

Tesco Plc , the biggest U.K. retailer, is among foreign companies still expanding in China, saying it will spend an average of 500 million yuan ($73 million) on each of four new shopping centers.


(Bloomberg)