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Tuesday, May 15, 2012

China Foreign Investment Falls yet again

Foreign direct investment into China fell for the sixth straight month in April, the latest sign of trouble for the world's second-largest economy.

Shen Danyang, a spokesman for China's Ministry of Commerce, said Tuesday that a "sluggish" global economy has reduced investment in China from major developed economies like Europe and the U.S.

At the same time, "other developing countries have strengthened preferential policies to attract investment, meaning that China faces more severe competition" in attracting investment, he added.

Speaking at a press briefing, Mr. Shen also said that a "worse-than-expected" situation in Europe contributed to China's disappointing export figures in April.

FDI into China fell 0.74% from a year earlier to $8.4 billion in April, the ministry said in a statement. In March, FDI fell 6.1% from a year earlier to $11.76 billion.

In the first four months of the year, FDI fell 2.38% from a year earlier to $37.9 billion.

Mr. Shen said the rising labor costs, among other factors, have also weakened China's draw for investors. "Nevertheless, we remain confident about attracting foreign investment as the business environment in China is getting better and better," he said.

FDI from the U.S. rose by 1.9% to $1.05 billion in January to April, while FDI from the European Union plummeted by 27.9% to $1.9 billion, the ministry said. FDI from Japan, however, rose 16% to $2.7 billion in first four months.

HSBC economist Ma Xiaoping said the decline in FDI likely won't have a large direct impact on China's real economy, but she added it signalled the outside world has become cautious about China's prospects.

In past years, a torrent of foreign capital inflows forced the central bank to mop up liquidity by raising the level of deposits that banks must hold in reserve.

With inflows now declining, authorities have more room to loosen policy. Over the weekend, the People's Bank of China cut the level of required reserves at banks for the third time in six months.

While China's FDI slowed, outbound direct investment from China surged 72.8% to $23.2 billion in the first four months of the year, the ministry said. Beijing has actively encouraged Chinese companies to speed up overseas investments.

Mr. Shen also said China's trade surplus is likely to fall slightly this year due to the challenging global economic environment.

In 2011, China's trade surplus shrank 14.5% to $155.14 billion. In April, China's trade surplus swelled to $18.4 billion from $5.4 billion in March due to weak imports.

April exports rose 4.9% from a year earlier, down from 8.9% growth in March, while import growth slowed to 0.3% from 5.3% in March.

Aside from lower demand from Europe, the closure of factories for the Labor Day holiday also hurt exports, Mr. Shen said.

Imports in April were hurt by slowing domestic demand, declining global commodity prices, and a moderation in the processing trade, where components are imported for assembly into finished exports, he said

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