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FDI drops 15%, declines forecast for next few months

By Diao Ying (China Daily)
Updated: 2009-03-17 08:11

Inward foreign direct investment (FDI) declined 15.8 percent to $5.83 billion in February, the fifth monthly fall in a row, as a result of the credit crunch and economic downturn across the globe.

Related readings:  Trade surplus nations eyed by money traders  Local govts get nod to okay FDI up to $100m  Actually-used FDI falls for 5th month

"The slowdown of capital activities, in particular, will further affect capital inflows to China," Yao Jian, spokesman for the Ministry of Commerce, said yesterday.

According to a report released by United Nations Conference on Trade and Development, global FDI dropped by 21 percent last year, and is estimated to plunge by as much as 30 percent this year.

Analysts say the trend will continue for at least a few more months in China.

"Although the double-digit decline was disappointing, it was in line with expectations," said Sherman Chan, an economist with Moody's.

"Multinational firms are holding back on investment - especially in emerging markets - because of risk aversion, capital constraints and tight access to credit," Chan said.

Su Chang, a macro-economic analyst with China Economic Business Monitor, said the decline would continue for at least the first half of the year.

But Yao said China remains the most attractive destination for FDI with steady economic growth, large domestic market, low labor and manufacturing costs, and the opening up of the market.

Yao citied a survey by the United States-China Business Council as saying that more than 88 percent of foreign businesses in China are profitable, and 81 percent have a higher profit margin in China than elsewhere.

He pointed out that the government has adopted many policies to boost domestic demand and increase exports since the global financial crisis started.

"These policies will further boost the confidence of foreign investors, and FDI will show a steady increase," he said.

The commerce ministry last week eased investment rules in a bid to revive FDI inflows: Local governments are authorized to approve foreign investments worth up to $100 million without seeking ministry-level approval. This applies to business start-ups, acquisitions of domestic firms and expansion of production capacity by automakers.