Posted by: Bruce Einhorn on August 17, 2009
The Shanghai stock market fell 5.8% today following news from the Chinese government that foreign direct investment in July fell 35.7% to $5.36 billion. That’s ten months in a row of falling FDI. The July figure is far worse than the 6.76% drop in June and the worst FDI number since last November, when the world was in the worst of the post-Lehman panic. Last month, after an earlier round of dismal FDI numbers, the vice minister of commerce said the country faced “unprecedented difficulties” and pledged to come out with new policies to create incentives for companies to invest more in China. Since then, the Chinese government has arrested four Rio Tinto employees after the embarrassing collapse of an investment in the Anglo-Australian resources company by a Chinese state-owned enterprise.
Not exactly the sort of thing that creates incentives for companies on the fence about investing in China. But David Cohen, with Action Economics in Singapore, warns not to read too much into the new FDI numbers. He points out that investment by foreign companies through the first seven months of this year averaged a robust $6.9 billion per month. That’s less than the $8.7 billion during the first seven months of last year, but it’s still much better than the $5.3 billion monthly average for the same period in 2007. Cohen also doubts the Rio Tinto affair will have much of an impact on companies thinking about investing in China. With the country likely to grow more than 8% this year, “most companies will still find the attraction of the Chinese market quite alluring,” he says. “The Chinese market will continue to attract investment from around the world.”