China FDI Retracts For Eighth Successive Month

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Feb. 21 – Foreign investment into China has decreased for the eighth month in a row, with a year-on-year drop of 7.3 percent last month compared to January 2012, and the largest decline in three years. January 2013 realized net inflows of US$9.7 billion, according to the Ministry of Commerce. FDI dropped in total by 3.7 percent in 2012 from 2011, and was the weakest showing since 1999. China’s FDI has been slowing for 14 of the past 15 months. In terms of bilateral figures for January this year, American investment into China slowed by 20 percent to US$270 million, while Japanese investment also retracted by the same amount to US$640 million.

These gloomy figures, however, only tell part of the story. Last year’s total FDI inflows were US$111.7 billion, the second highest on record after 2011. Investments from the EU actually grew last month by 81.8 percent from a year ago to US$820 million, demonstrating that despite well-publicized problems in the Eurozone, the region remains a buoyant investor in China, comfortably outstripping both the United States and Japan. China has also suggested that FDI will rebound slightly during the full course of 2013, and has set a target to attract US$120 billion of FDI this year. Moody’s has also stated that they expect the Chinese economy to grow by between 7.5 percent and 8.5 percent during 2013.

The January and February figures as produced each year in China demonstrating economic performance are typically uncharacteristic in terms of assessing the potential for the year ahead as both the Western and Chinese New Year holidays tend to impact negatively on FDI inflows. However, there has been an on-going trend of a slowdown of investment in China over the past 15 months. China has also become more expensive a place to do business in terms of labor costs and other Asian countries, notably Vietnam and Indonesia, are becoming increasingly competitive.

“I think we’re seeing an extended blip,” says Chris Devonshire-Ellis of Dezan Shira & Associates. “The drop in FDI has also occurred at a time of global economic uncertainty, and China has also been rebalancing its economy at this same time. Rather than any long-term issue to worry about, we still see huge potential for foreign investment into China. Although the dynamics are changing away from export manufacturing – I believe that FDI into the country will remain robust for the foreseeable future. China is all about development as a market to sell to, and great opportunities still exist to do so.”

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.

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