China 'confident' in outlook despite FDI fall

World economy among reasons cited but investment set to rebound

Foreign direct investment fell for the sixth consecutive month in April, while capital flow from the European Union into China continued to drop sharply, according to the Ministry of Commerce.

But the ministry said the drop is temporary and China is "confident" in the long-term FDI outlook.

FDI decreased by 0.7 percent, from a year earlier, to $8.4 billion in April. It fell 6.1 percent in March. This is the longest period of continuous decline in FDI since the financial crisis.

FDI fell 2.4 percent in the first four months, from a year earlier, to $37.9 billion but outbound direct investment grew by 72.8 percent to $23.2 billion.

ODI is expected to register an annual growth rate of 17 percent from 2011 to 2015, reaching $150 billion in 2015, the ministry said on its website on Tuesday. Contracted value for the nation's engineering projects is expected to reach $180 billion in 2015.

"There are various reasons (behind the drop in FDI)," including a faltering global economy, said ministry spokesman Shen Danyang, at a news briefing on Tuesday.

Domestically, China is more discerning in the type of investment it wants.

"We are now entering a period where we choose the foreign investment," rather than absorb all types of foreign investment, Shen said.

The first four months saw FDI from the EU slump by 27.9 percent to $1.9 billion from a year earlier but investment from the US rose 1.9 percent to $1.05 billion during the same period.

A recent report by the United Nations Conference on Trade and Development showed that green-field investment and cross-border mergers and acquisitions dropped during the first quarter.

The drop in FDI was mainly due to the weak global economy, said Xu Sitao, chief representative of the China Economist Group.

And Xu agrees with Shen on the policy shift in FDI. "China should raise the threshold for foreign investment."

Foreign investment from Japan, in the first four months, surged by 16 percent, year-on-year, to $2.7 billion and 10 Asian nations and regions, including Hong Kong and Taiwan, invested $33.1 billion, a 0.6 percent rise, in the same period.

Some developed nations, led by the US, began to launch preferential policies to attract foreign investment.

"Many foreign companies are under pressure" to invest in their own countries, which partly explains why Chinese FDI fell, Gerard Worms, chairman of the International Chamber of Commerce, said.

"But this is a short-term phenomena," he said.

The risk of a further slowdown in the economy also adds to the reluctance of foreign investors, experts said.

The economy expanded 8.1 percent from a year earlier in the first quarter, the fifth straight slowdown and the smallest in almost three years.

And the economy is projected to decelerate further in the second quarter.

Export and import growth slowed in April and industrial output was the slowest since 2009. Economic data released last week were all below market expectations.

The central bank announced a cut for bank reserves, the third in six months, in a bid to boost liquidity.

Optimistic

"We are prudently optimistic about prospects for FDI," Shen said.

US industrial group General Electric announced this month a link-up with Shanghai-listed XD Electric, agreeing to pay $535 million for a 15 percent stake.

"The government need not worry about the drop in FDI ... it cannot last long," said Worms, who told China Daily that many of the member companies of the chamber said they expected to increase investment in China.

"I cannot disclose their names, but China is still attractive," considering the "huge consumption market," he said.

A report by Japan Bank for International Cooperation showed China and India are the top two destinations for Japanese companies.

"But the government needs to show more openness to foreign companies and be more cooperative," Worms said.