Big foreign investment drops down for the first time in China

Big foreign investment drops down for the first time in China

China’s economic growth could be slowing further as data on Thursday showed the first year-on-year drop in foreign direct investment in 28 months and a fresh fall in new orders signaled a further contraction in factory activity.

The data highlights increasing risks to China’s growth emanating from a deterioration in developed market economies while domestic demand is being dented by government efforts to rein in rampant real estate inflation.

"Growth momentum remains weak with additional downside risks from exports and the property market not yet fully filtering through," said Qu Hongbin, chief China economist at HSBC.

"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."

Qu’s comments accompanied the release of the HSBC flash manufacturing purchasing managers’ index (PMI), which showed China’s factory activity shrank again in December after new orders fell.

The PMI, the earliest indicator of China’s industrial activity, is likely to entrench views that manufacturers are struggling with waning global demand and tight domestic credit conditions.

The contraction indicated by the PMI came swiftly after Commerce Ministry data revealed the first year-on-year fall in foreign direct investment growth in China in 28 months.

November’s $8.8 billion of commitments were down 9.8 percent on November 2010, the first fall since July 2009’s 35.7 percent year-on-year collapse to $5.4 billion.

A  sharp drop in inflows from the United States was a particular drag, slowing year-to-date growth in FDI flows to 13.2 percent from 15.9 percent in October’s data.

Still, total FDI in the year to date of $103.8 billion suggest 2011 is poised to be a record-breaking year.

The slowdown in FDI growth comes after the first outflow in net capital from China in four years in October, part of a recent trend of capital flight from emerging markets largely driven by Europe’s festering debt crisis.

But Hua Zhongwei, an economist with Huachuang Securities in Beijing, says the long-term allure to global investors of the world’s second-biggest economy remained strong and he expected a reasonably swift rebound.

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

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Posted by Hassan Ali on Dec 15 2011. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry