Slowing growth takes toll on FDI

Outbound direct investment rises to $34.3b in the first five months

Growth of China's foreign direct investment in May dropped to just under 0.3 percent, an indicator that global companies remain hesitant to expand in China amid its economic slowdown.

According to the Ministry of Commerce, FDI was up just 0.29 percent from a year earlier to $9.26 billion, compared with a 0.4 percent increase in April and the slowest growth since February.

While China's FDI growth decelerated, its outbound direct investment saw robust gains, expanding by some 20 percent in the first five months of this year to $34.3 billion, according to the ministry.

The decelerating growth in inbound direct investment comes while the world's second-largest economy is further losing growth momentum. The economy grew at its slowest pace for 13 years in 2012.

But Shen Danyang, spokesman for the ministry, rebutted the notion that the nation is losing its appeal to multinationals as an FDI destination.

He said that "from a global perspective, China's FDI trend remains comparatively stable and good ... and positive growth (in FDI) for four consecutive months, to a large extent, shows the recognition of global investors on the competitiveness of the Chinese economy and the nation's investment environment".

Shen added: "I have to repeat that China's FDI growth this year will remain stable."

FDI in 2012 hit a record high of $111.7 billion. The nation has remained the most attractive FDI destination among developing countries for more than a decade.

But 2012 was the first year that the nation saw a drop in its annual FDI since 2009.

According to the ministry, during the first five months of 2013, FDI was up just slightly more than 1 percent from a year earlier to $47.6 billion, mainly led by developed nations and regions.

Investment from the United States was up by 22.6 percent, and that from the European Union increased 24.1 percent from January to May.

During a meeting with executives from more than 10 multinational companies that were to attend the Fortune Global Forum 2013 in Chengdu earlier this month, Premier Li Keqiang tried to clear up the foreign businesses' doubts by saying that "China has the ability and conditions" to sustain economic growth and "China will be committed to deepening the reform and opening-up policy".

Li encouraged the foreign companies to "cash in on the huge opportunities resulting from the nation's economic development and efforts toward industrialization and urbanization".

"Short-term fluctuations (in FDI) should not be a big concern. We have to see the bigger picture," said Wang Zhile, a senior researcher on foreign investment at the Chinese Academy of International Trade and Economic Cooperation.

"Undoubtedly, the new Chinese leadership is very enthusiastic about furthering its opening-up policy and attracting foreign companies. This is a very positive signal for China's prospects on FDI," he said.

James Lee, regional director of the Institute of Chartered Accountants in England and Wales in China, agreed.

"Some positive reforms and measures that China is taking on things such as urbanization are good news for foreign investors," he said.

Shen said he was confident of the strong momentum that China's ODI will maintain this year.

Developed nations and regions have led the robust growth. During the first five months, China's ODI into Australia gained by 93 percent, the United States 76 percent, and the European Union 47 percent, from a year earlier.