Bloomberg News

China Foreign Investment Drops Amid Slowing Economic Growth

October 18, 2012

Foreign direct investment in China fell for the 10th time in 11 months, as companies reined in spending amid a slowdown in the world’s second-biggest economy.

Investment fell 6.8 percent from a year earlier to $8.43 billion, the Ministry of Commerce said in Beijing today. Spending in the first nine months of the year dropped 3.8 percent to $83.4 billion compared with a drop of 3.4 percent in the first eight months.

The decline underscores foreign investors’ concerns that moderating expansion in China, the world’s most populous nation, will weigh on sales and profitability. Economic growth slid to its weakest pace in more than three years, a government report showed yesterday, while Coca-Cola Co. said this week the nation’s slowdown may have a short-term effect on the industry and its soft-drinks business.

“China’s traditional advantages in attracting foreign investment, from cheap land and labor supply to high returns, are changing,” said Chen Bingcai, a Beijing-based researcher with the Chinese Academy of Governance, an institute that trains government officials. “As such, foreign investors may need to re-consider their China business strategies,” Chen, who previously worked at the nation’s foreign-exchange regulator, said before the release.

Investment Comparison

Foreign direct investment of $9.05 billion in September 2011 was the most for that month on record. The highest for a single month was $14 billion in December 2010, and investment of $116 billion in 2011 was the biggest annual figure.

The Shanghai Composite Index, China’s benchmark stock gauge, was down 0.1 percent at the 11:30 a.m. local-time break.

Non-financial outbound investment in the first nine months increased 28.9 percent from a year earlier to $52.5 billion, the ministry said, after a 39 percent gain in the first eight months. “Weak growth abroad and tighter liquidity conditions at home are hampering China’s ambitions to buy foreign assets,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, said in a note to clients.

China yesterday reported third-quarter economic growth eased to 7.4 percent from a year earlier, the seventh straight deceleration, and the International Monetary Fund last week cut its estimate for 2012 expansion to 7.8 percent from 8 percent.

At the same time, some monthly data showed signs of a pickup. Industrial production in September rose a more-than- estimated 9.2 percent from a year earlier, retail sales climbed 14.2 percent, the most since March, and fixed-asset investment excluding rural households for the first nine months of the year increased 20.5 percent.

Equipment Imports

Government figures signal investment from overseas may remain subdued. Equipment imported by foreign-invested companies has fallen for the past seven months and dropped 32.9 percent in September from a year earlier, according to customs bureau data. A statistics bureau report released yesterday showed fixed-asset investment from overseas fell 6.3 percent in the first nine months.

Shen Danyang, a spokesman for the commerce ministry, said today that the decline in investment is “very modest, especially when the property sector is excluded.” Changes in the structure of investment are “encouraging,” including higher spending in central China and in services industries, Shen said at a briefing in Beijing.

A territorial dispute with Japan along with concerns over rising costs and labor unrest may cap foreign investment.

Toyota Damage

Toyota Motor Corp., Honda Motor Co. and Panasonic Corp. reported damage to their operations in China last month as thousands marched in demonstrations sparked by Japan’s purchase of islands in the East China Sea, known as Diaoyu in China and Senkaku in Japan.

The row may prompt Japanese companies to shift more investments to Southeast Asia to reduce the risk of overexposure, according to Singapore-based analysts at Barclays Plc.

Japan’s investment in China rose 17 percent in the first nine months to $5.62 billion, the ministry said today. Trade between China and Japan still has great potential to grow if relations get back on their normal track, Shen said.

Labor conflicts are also rising as employees fight for better pay and conditions.

Workers at Sino-Singapore venture Henan Xinfei Electric Co. in central Henan province went on strike this month demanding higher wages at the appliance maker, according to the official Xinhua News Agency. They returned to work after reaching agreement for a pay raise of 300 yuan ($48) a month starting in October and another 200 yuan beginning in 2013, the agency said.

Foxconn Technology Group, the assembler of Apple Inc. iPhones, had to halt production this month after factory-line workers at one of its plants protested against increased pressure.

--Zhou Xin. With assistance from Ailing Tan in Singapore. Editors: Nerys Avery, Scott Lanman

To contact the reporter on this story: Xin Zhou in Beijing at xzhou68@bloomberg.net

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


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