Tags: China | Foreign | Direct | Investment

China’s Foreign Direct Investment Falls for a Third Month

Thursday, 16 February 2012 09:05 AM

Foreign direct investment in China fell for the third month in January as slowing economic growth and Europe’s debt crisis prompted companies to rein in spending.

Foreign investment declined 0.3 percent to $9.997 billion last month from a year earlier, the Ministry of Commerce said in a statement in Beijing today. Spending dropped 12.7 percent in December after a contraction the previous month that was the first since 2009.

The outlook for foreign investment in China, which attracted a record amount of spending last year, is “not optimistic,” the ministry said in December. Weaker global growth and changes to the nation’s policies on overseas funding for some industries may temper gains this year.

“Foreign investment will still grow this year although the pace may slow because global growth is weak,” Fang Sihai, Beijing-based chief economist with Hongyuan Securities Co., said before today’s release. “But China will continue to stand out as an attractive place for investors, especially at a time when other major economies are recovering slowly.”

Foreign investment rose 23.4 percent in January last year to $10 billion, ministry data show.

More U.S. companies plan to increase their investment in China this year, according to a survey from the American Chamber of Commerce in Shanghai released yesterday. Seventy-seven percent of respondents intend to boost spending, compared with 72 percent in 2011, the chamber said.

Hiring Difficulties

Even so, companies are less confident about their business prospects in China amid rising costs, difficulty in hiring and retaining skilled labor and intensifying competition, according to the survey. Businesses are also finding it harder to generate higher profitability, it said.

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

The new investment rules, which took effect last month, aren’t deterring companies including Volkswagen AG and Salvatore Ferragamo SpA from expanding in China, where the International Monetary Fund estimates economic growth will be more than four times faster than the U.S. this year.

The average disposable income of urban households rose 14 percent last year, government data show.

Boost Capacity

Ferragamo, the Italian luxury-goods maker plans to enter as many as eight new Chinese cities over the next three to five years, Chief Executive Officer Michele Norsa said in an interview in Shanghai on Jan. 19.

Volkswagen plans to add a seventh plant in China as it expands production capacity to 3 million vehicles a year, the Wolfsburg, Germany-based carmaker said last month. The factory in the eastern city of Ningbo will have the capacity to assemble 300,000 units when it’s completed by 2014, the company said.

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