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Foreign direct investment in China fell for a fifth straight month in March as European investors continued to curb their spending. Capital from Asia and the United States, however, increased.
Inbound foreign investment fell 6.1 percent from a year earlier to US$11.7 billion last month, the Ministry of Commerce said yesterday. The decline was much sharper than February's 0.9 percent drop and compared with a 32.9 percent jump a year earlier.
The 27-member European Union's investment shrank 31.2 percent in March.
Ministry spokesman Shen Danyang told reporters in Beijing that China faced new challenges in attracting foreign investment this year with the domestic economy slowing, other emerging markets strengthening efforts to draw foreign investment and developed countries expected to hang on to capital. "It seems global investors are charting new routes for their funds when a changing world offers many new opportunities."
He said the destination of foreign investment had become diversified when there were equitable deals in Europe and favorable policies in other emerging markets while, in China, production costs were rising rapidly.
"China targets a stabilized scale of foreign investment this year and will continue to improve its foreign investment structure to encourage more quality projects," Shen told reporters.
Less investment from Europe and a high comparative base contributed to the contraction in foreign investment in China in recent months. Also, the correction in China's property market and the country's rein-in policies affected foreign investors' decisions, Shen said, adding that nearly a quarter of foreign funds were channeled into the real estate sector in the past two years.
During the first quarter, foreign capital flowing into the property sector lost 6.3 percent, compared with a 38.6 percent surge a year earlier.
In total, China absorbed US$29.4 billion in foreign investment in the January-March period, down 2.8 percent on an annual basis.
Investment from the United States rose 10.1 percent to US$893 million in March and that from Japan grew 13.2 percent.
Xue Jun, an analyst at CITIC Securities Co, said that although China was losing its edge in cheap labor costs, the vast domestic consumer market remained a strong magnet. "Investors are looking for markets that can generate demand and produce profits amid a sluggish global economy, and China is the place," Xue said.
China's gross domestic product growth weakened to 8.1 percent in the first quarter, the slowest in nearly three years. But economists said that would be the bottom of this round of economic slowdown.
China's outbound non-financial foreign direct investment rose 94.5 percent to US$16.5 billion in the first quarter, a dramatic increase on last year's 1.8 percent growth, the ministry said.
Shen said many Chinese companies were taking the chance to go global with the crisis in Europe leading to low prices there. "Chinese investors are relatively successful in purchasing overseas assets or acquiring foreign companies recently."
