Chinas 2012 FDI inflows slow, but $100 bn on cards

Written by Reuters | Beijing | Updated: Nov 21 2012, 09:18am hrs
Chinas foreign direct investment is on track to top $100 billion in 2012 even as the longest run of year-on-year declines in inflows since 2009 extended into October, dragged down by an uncertain outlook for corporate spending as global trade sags.

The commerce ministry said on Tuesday that China drew $91.7 billion in foreign direct investment between January and October, down 3.45% on the same period a year ago, marking the 10th month that aggregate year-to-date flows fell compared with the previous period.

We can see that there are still many uncertain factors weighing on the global economy and the most severe aspect is the weak world demand, commerce ministry spokesman Shen Danyang told a news conference.

China's economy is acutely sensitive to external demand, despite a gradual rebalancing towards domestic consumption.

Total exports were worth about 31% of GDP in 2011, according to World Bank data, and an estimated 200 million Chinese jobs are in the export sector or supported directly by foreign investment, making FDI a particularly important gauge of prospects for Chinas vast factory sector.

Despite the slowing rate of inflow, China remains firmly on course to secure more than $100 billion of FDI for the third successive year, according to data from the United Nations Conference on Trade and Development, which collates FDI statistics globally.

The FDI figure follows a raft of other economic indicators for October, ranging from exports to factory output and investment, that pointed to a recovery in the worlds second-largest economy gaining pace.

Chinas October export growth darted to a five-month high above 11%, surpassing the forecasts of economists in the benchmark Reuters poll, but analysts and officials alike are wary of over-interpretation of the strength of the trade bounce.

We must say that it is very difficult to achieve the 10% annual target for trade growth this year, Shen said.

Data from China's Customs Administration showed total trade expanded by 6.3% in the first 10 months of 2012 from year ago levels.

One thing is for certain we will spare no effort to continue to stabilise growth in exports and imports. Apart from that, we will pay particular attention to increasing Chinas share of global trade, Shen said.

We expect China's share of total global trade to rise further this year from last years 10.4%, he added.

To shield the economy from external uncertainties, Beijing has unveiled a slew of measures to help reduce the burden on exporters and importers, such as urging faster payment of tax rebate, cutting red tape and providing exporters easier access to bank loans.

Damp demand for exports was evident at the recent Canton Fair, Chinas largest biannual trade exhibition,

where total transactions this autumn season dropped 9.3% on 2011.

China's exports were worth about $1.9 trillion in 2011, capital flow from which dwarfs the overall contribution of FDI, though it has been long-term investment flows from manufacturers around the world, flocking to take advantage of China's hitherto cheap labour, that have underpinned export growth for years.

The trend has been changing in recent years, with FDI into China increasingly being committed by firms aiming to tap into a fast-growing consumer market.

Analysts at McKinsey reckon Chinas mainstream consumer class will comprise 400 million people with household incomes between $16,000 and $34,000 by 2020.

They reckon China's urbanisation could cure its economic imbalances and put it on a path to domestic consumption-led growth within five years to replace three decades of investment and export-driven development.

Services sector inflows in the first 10 months of the year were $43.7 billion, down 1.8% on a year ago. Within that sector, real estate inflows were down 6.1%. Excluding real estate, services inflows were up 2.1% year-on-year.

Manufacturing sector inflows meanwhile stood at $40.4 billion between January and October, down 7.3%versus the same period in 2011.

Despite that shift in investment patterns though, in the short-term data suggests it is the relative economic prospects in Chinas export markets that still dominate.

Investment from China's biggest export market the debt-ridden, recessionary European Union dropped 5.0% year-on-year in the January-to-October period.