16 May 2012

China's foreign direct investment (FDI) inflows dropped 2.4% to US$ 37.9 Billion for the first four months of 2012 versus last year

China's foreign direct investment (FDI) inflows dropped 2.4% in the first four months of 2012 versus last year, the longest period of declining inflows since the depths of the global financial crisis and a sign of external economic headwinds.

The Commerce Ministry said yesterday that the country drew US$37.9bil in FDI between January and April, down from US$38.8bil attracted in the same period in 2011. April's inflow alone was US$8.4bil, down from US$8.5bil a year earlier.

“We believe the negative trend reflects concerns over China's lower growth potential, lack of confidence in the global growth outlook, and poorer access to funding from deleveraging banks,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. “It is worrying that despite very favourable base effects, foreign direct investment is continuing to shrink.”

FDI is an important gauge of the health of external economy, to which China's vast factory sector is oriented, but it is a small contributor to overall capital flows compared with exports, which were worth about US$1.9 trillion in 2011.

FDI from the European Union dropped 27.9% year-on-year in the January April period, while inflows from the United States rose 1.9%. FDI from 10 Asian economies rose 0.6% to US$33.1bil in the same period, the ministry said.

A weaker-than-expected reading from economic data released last week raised investor concerns that a five-quarter long slide has not bottomed and more must be done to support growth.

Trade data had set the scene, with April's 4.9% annual rate of export growth barely half that forecast by economists and import growth at a standstill, expanding by just 0.3% versus expectations of 11% growth.

A ministry spokesman told a news conference after the FDI data was published that it was impossible to say whether the outlook for trade was either optimistic or pessimistic. “Looking from the trade data last month and the deals signed at the Canton trade fair, China's export situation is still severe.”

The just-concluded Canton Fair, a biannual export trade fair widely considered a barometer of China's export growth, saw the value of signed export deals shrink 2.3% from a year earlier, the first annual drop since the global financial crisis. - Reuters

Source: www.thestar.com.my


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