Bloomberg News

China’s Foreign Direct Investment Falls for Fourth Month

March 14, 2012

U.S. companies are becoming less confident in business prospects in China amid rising costs and difficulties hiring and retaining skilled labor. Photographer: Nelson Ching/Bloomberg

U.S. companies are becoming less confident in business prospects in China amid rising costs and difficulties hiring and retaining skilled labor. Photographer: Nelson Ching/Bloomberg

Foreign direct investment in China fell for a fourth straight month in February as companies reined in spending amid a slowdown in the world’s second-biggest economy and the prolonged European debt crisis.

Investment declined 0.9 percent to $7.73 billion last month from a year earlier, the Ministry of Commerce said in a statement today, following a 0.3 percent drop in January. Overseas spending in the first two months decreased 0.6 percent to $17.7 billion.

The outlook for foreign investment in China is “grim,” ministry spokesman Shen Danyang said last month, citing “slack” external demand, rising operating costs and funding difficulties faced by some companies. Spending by overseas businesses, which climbed to a record $116 billion last year, may stabilize at around $100 billion, according to ING Financial Markets.

“Investors are cautious now due to the sluggish global recovery,” Pan Xiangdong, a Beijing-based economist with China Galaxy Securities Co., said before the release. At the same time, “China will continue to attract foreign investment because it has an expanding middle class that offers attractive opportunities.”

U.S. companies are becoming less confident in business prospects in China amid rising costs and difficulties hiring and retaining skilled labor, according to a survey from the American Chamber of Commerce in Shanghai released last month. Businesses are also finding it harder to generate higher profitability, it said.

At the same time, 77 percent of respondents said they intended to boost spending, compared with 72 percent in 2011, the chamber said.

The nation will stop encouraging foreign investment in industries including automobile manufacturing while opening up other markets such as medical services, the commerce ministry and the National Development and Reform Commission, the top economic planning agency, said in December.

European Union Trade Commissioner Karel De Gucht last month called on China to open its markets more to foreign investors, especially in areas dominated by state-owned companies.

--Zheng Lifei. Editor: Nerys Avery, Scott Lanman

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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