FDI In China Falls For The First Time In 28 Months

By: EW News Desk Team   Date: 16 December 2011

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EW News Desk Team

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16 December 2011

Foreign direct investment into China shrunk by 9.8 percent year-on-year to $8.8 billion last month, according to data released by the Chinese Commerce Ministry on Thursday.

The figure was the first time in 28 months that FDI growth for China had decreased, with the weakened global economy, particularly in the United States and Europe, seen as the primary cause for downturn.

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"Many reasons have caused the decline in FDI from the US, but the most important one is its weak economic growth, which impaired the capacity of foreign investment," said Commerce Ministry spokesman Shen Dayang, as quoted by Xinhua.

"The impact of the global economic climate means the foreign trade environment is very severe," added Shen, as cited by The Guardian.

Despite the slowdown in FDI growth in November, the total FDI into China this year has thus far reached $103.8 billion, which still leaves 2011 to be poised as a record-breaking year for FDI.

According to Hua Zhongwei, an economist with Huachuang Securities in Beijing, the long-term allure to global investors of the world's second biggest economy remained strong, meaning that a reasonably swift return of FDI should occur.

"The Chinese market is too big to be neglected for most foreign companies," said Hua, as quoted by Reuters. "Once the dust settles, foreign investment inflows into China are expected to rise steadily again."

Still, Chinese Vice-Premier Li Keqiang has called for a boost to domestic consumption in order to compensate for the loss in FDI.

Amid the "grim and complicated" global outlook, China needs to strengthen market capacity and growth by encouraging private investment, increasing investment in affordable housing projects and accelerating urbanization, said Li, according to the China Daily.

Greater promotion of the service industry is also needed, said the Vice-Premier, who described the industry as the largest "employment creator and innovation driver".

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According to HSBC’s chief China economist Qu Hongbin, the Chinese government also needs to consider making more changes to its fiscal and monetary policies.

"Growth momentum remains weak with additional downside risks from exports and the property market not yet fully filtering through," said Qu. "With inflation quickly shifting to disinflation, the Chinese government can and should make more aggressive easing on both fiscal and monetary fronts to stabilize growth and jobs."


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