What to Make of China's Falling FDI?

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.”

Reader Comments

Squeezebox

August 17, 2009 10:45 AM

Chineese should invest in their own economy, just as Americans should invest in America and Eurpeans should invest in their counries. By investing at home, you know the political and econmic risks already and it's much easier to research the companies you want to buy into. You also understand your home market much better than you understand somebody else's. The company you're investing in is much less likely to break some social taboo which would get it into trouble it doesn't understand.

steve

August 17, 2009 1:15 PM

This is great huh? I'm afraid to check

Downs

August 17, 2009 4:25 PM

What exactly had the 5.8% full of the Shanghai stock market yesterday anything to do with the falling FDI in July ? Are you sure you were reading the SSE right, Bruce ? You think those Chinese investors are looking at the ups and downs of the FDI before they decide to buy or sell ?

Bruce Einhorn

August 17, 2009 10:43 PM

Good point, Downs. You're right, it's unlikely the Shanghai market tanked just because of the bad FDI numbers. This is the tenth month of falling investment, after all. That said, with investors already feeling jittery about the bubbly market, the release of the data showing yet another month of falling FDI probably helped fuel more worries about the Chinese economy - and contributed to yesterday's fall.

cracker rednecks

August 18, 2009 1:20 AM

wow, it's always doom and gloom when it's anything related to china according to these eye one china "journalist".

i think it's just pandering to the weak ego of white men who are losing grip on the world. without white privileges, how can white men live. thus, that's is why these white male "journalist" are in asia.

if you want a perspective of asia, then why should it be seen through the perspective of white men only...ones who can't speak the language or know the culture.

it's just white men stroking the weak egos of other white men. how sad!

Money

August 18, 2009 2:05 AM

Chinese goes down less than others, as a spread impact of this financial crisis. Believe she be the early bird in recovery.

MCC

August 18, 2009 3:02 PM

I would say don't read too much into those FDI figures. In this economy, it's natural for it to go down. The 2009 July figure is still stronger than the 2007 July.

White man

August 18, 2009 11:20 PM

Dear Cracker Rednecks. I find your comments not only unreasonable and rascist but quite pathetic.

You couldn't even be bothered to read the whole article which was quite balanced and short enough even for your grasp of English. Try reading the second paragraph, take your time, maybe ask one of your white man friends to explain it to you.

As for your worn out cliche white men...ones who can't speak the language or know the culture, that's typical Asian arrogance always assuming white men are too dumb to ever be able to learn an Asian language. I think you are just stroking you own sad little ego.

Well Redneck I have lived half my life in an Asian country, Japan. I speak, read and write the language and I damn well know the culture. Although I suspect your concept of Asia would be China IS Asia like most Chinese.

whoisracist

August 19, 2009 5:03 AM

Who is more racist? The white man or cracker rednecks? My answer is both actually contains racist remarks anyway :). Does that means both are racist? hmm...hehehe

White Man you give urself away with this statement "Although I suspect your concept of Asia would be China IS Asia like most Chinese." Are you accusing majority chinese thinks that way?

woo..that is a pretty big accusation, sound racist rite? Typical of sterotyping.

If you try to criticise somebody atleast try not to be the devil itself. Else you lose all creditbility

Well i guess human is still human accept the fact that we all are born racists and when emotion is high all hell break lose. If not becoz of morality, religion and globlalisation we will nv change.

coco

August 20, 2009 11:49 PM

As a chinese, i'd like remind some of us, what used to make China a great nation is that we were modest and introspective and always learning from people even those with hostility. As long as we are ruled by a communist government, there is no way to get rid of all those biased reports from western journalists with cold war mindset, though i dont think this article is. Don't be so irritable, calm down and read, and learn. Even it is a curse, it reminds you that there may be certain potential crisis that we should pay more attention to.

To cracker rednecks, in no case we can criticise any human race as a whole. And to White Man, you have a better way to express your points rather than insulting people back. Besides, I am in Japan too, and japan is not the whole asia either.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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