Antitrust probes 'not linked' to FDI slump

July investment dips 17% year-on-year

The Ministry of Commerce (MOFCOM) Monday ruled out any connection between July's slump in foreign direct investment (FDI) into China, a decline of nearly 17 percent year-on-year, and the country's ongoing anti-monopoly probes across multiple sectors, which some complain disproportionately target foreign firms.

Data from MOFCOM showed FDI into non-financial sectors was $7.81 billion, a fall of 16.95 percent over the same period last year.

In the first seven months of 2014, the world's second largest economy was the destination of $71.14 billion in foreign investment, down 0.35 percent year-on-year. A breakdown of the data showed that FDI from Japan, the US and the EU dropped 45.4 percent, 17.4 percent and 17.5 percent from those of the same period last year, while investment from the UK and South Korea rose by 61.2 percent and 34.6 percent.

The significant drop in July triggered speculations over whether it was a result of China's high-profile anti-monopoly probes into sectors such as the automobile industry, which saw Mercedes-Benz, BMW, Chrysler and Audi investigated.

However, Shen Danyang, MOFCOM spokesperson, said attempts to link the decline in FDI to the antitrust probe lack proof.

"As China's restructuring of its growth pattern deepens, fluctuation of FDI in certain months is normal, and cannot reflect the big picture. And this should not be linked to the ongoing antitrust probe of some foreign enterprises," Shen told a news conference in Beijing on Monday.

Last week, the European Union Chamber of Commerce in China issued a statement on the anti-monopoly probe, demanding that it should be implemented "in a transparent, impartial and consistent manner."

The European Chamber claimed that it had received numerous alarming anecdotal accounts from a number of sectors that administrative intimidation tactics are being used to impel companies to accept punishments without full hearings.

The American Chamber of Commerce in China Monday didn't directly address an inquiry about the FDI decline, but referred the Global Times to a report it released on China's investment environment in late April. The report said that "China maintains a more restrictive foreign investment regime than its major trading partners."

The Beijing-based Economic Information Monday quoted insiders as saying that antitrust probes into auto sector will be concluded by the end of August, with 12 Japanese spare parts companies facing a combined fine of at least 1 billion yuan ($160 million).

Shen insisted that all enterprises are equal before the Anti-monopoly Law, and the ongoing investigation doesn't only target foreign firms.

"A few cases can in no way scare foreign investors away," Shen said.

In fact, China is dwarfed in comparison to the EU and the US regarding antitrust probes.

A count conducted by news portal people.com.cn showed that among the top 25 largest antitrust fines issued in the past decade, 24 were issued by the EU and the US.

Experts tend to interpret the July FDI decline as due to underlying economic reasons, saying the core competitiveness of foreign enterprises in China is losing steam.

"Chinese companies are making great leaps forward in recent years and narrowing the gap with their foreign counterparts," said Tian Yun, an economist with the China Society of Macroeconomics, which is affiliated to the National Development and Reform Commission.

"Things happen very fast. Take the smartphone business for example. The high-end market was once dominated by foreign brands, but homegrown brands have routed foreign brands since last year save for Apple and Samsung," Tian told the Global Times.

The impact caused by the rise of China-made products also applies to the electronics, machinery, equipment manufacturing sectors, Tian noted.

Zhang Ning, a research fellow with the National Academy of Economic Strategy at the Chinese Academy of Social Sciences, said the slowdown of the yuan's appreciation, a highly competitive domestic market and bloating investment items in some sectors will all affect foreign investor decisions.

"Over the past two years property prices in Beijing have risen shoulder to shoulder with those of New York. Changes like this dampen investor sentiment," Zhang told the Global Times Monday.

Despite the July FDI slump, Tian said there is still a silver lining, citing the growth of foreign investment to Central China. The MOFCOM data showed that in the January-July period, FDI to Central China rose by 17.8 percent year-on-year.

Data from the ministry also showed that China's outbound investment in non-financial sectors grew by 4 percent year-on-year to $52.55 billion in the first seven months of 2014. The July figure, which stood at $9.21 billion, surged 84.9 percent from the same period of last year.

Shen predicted that China's FDI level in 2014 will stay at roughly the same level as that of 2013, which was around $117.59 billion, whereas outbound investment will grow relatively faster to achieve the expected annual growth rate of 10 percent. He even foresaw that in the future China's overseas investment will dwarf FDI into China as the "new normal."

Tian echoed the view, estimating that outbound investment will surpass FDI into China in two to three years.