FDI confidence in China

Worries over China's growth prospects have recently intensified as foreign direct investment in the world's second-largest economy dropped in September for the 10th time in the past 11 months.

Given that China registered its seventh straight quarter of economic slowdown between July and September, such caution might seem justified.

Yet taking these signs as evidence that China is no longer attractive to overseas investors is unjustified, as the country became the world's largest recipient of foreign direct investment in the first half of this year.

A report released by the United Nations Conference on Trade and Development showed that China replaced the United States as the world's top destination for FDI by attracting $59.1 billion in the first six months of the year.

This is not the first time that China has been the largest recipient of FDI; it also claimed top spot in 2003. Nor will it be the last time that others claim that distinction, as initial indications show that FDI flows to the US might be stronger in the second half of 2012. But it is notable that at a time when global FDI is being squeezed by uncertainties ranging from a prolonged European debt crisis to a looming US fiscal cliff, China is proving the most attractive place for investment.

So those foreign companies that rush to adjust their investment plans according to some politically charged calculations rather than long-term economic fundamentals and business opportunities are taking a risk.

A recent Reuters survey suggested that almost a quarter of Japanese manufacturers are reconsidering their investment plans in China after having poured billions of dollars into Chinese factories since 1990.

A lasting global recovery will eventually come and those countries that have best prepared for it will benefit most. International investors are obviously eager to pick the winners.

The Chinese economy's double-digit growth over the past three decades certainly inspires confidence. But what really makes China the most attractive destination for FDI is not how well the Chinese economy has performed in the past, it is its deeds and determination to face up squarely to the challenges of economic transformation.