China’s Foreign Direct Investment Declines for Eighth Month

China’s foreign direct investment fell for an eighth month in January, a sign that the recovery in the world’s second-largest economy has yet to revive confidence among overseas companies.

Inbound investment dropped 7.3 percent from a year earlier to $9.27 billion, the Ministry of Commerce said in a statement today in Beijing. Non-financial outbound investment rose 12.3 percent to $4.91 billion, the ministry data showed. China’s economic data in the first two months are distorted by the timing of the weeklong Lunar New Year holiday, which fell in January last year and February this year.

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Commercial buildings stand in the Pudong area in Shanghai. Rising employee and land costs have diminished China’s attractiveness as a destination for foreign investors, with labor-intensive manufacturers leaving for other Asian countries. Photographer: Tomohiro Ohsumi/Bloomberg

Rising employee and land costs have diminished China’s attractiveness as a destination for foreign investors, with labor-intensive manufacturers leaving for other Asian countries, HSBC Holdings Plc said in a report last month. Inbound investment dropped 3.7 percent last year as economicexpansion was the weakest since 1999.

“Foreign enterprises are saying, ‘OK, China’s not growing as fast as in the past, maybe we should pull back a little bit,’”Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said in a Bloomberg Television interview. “The big picture is that Chinese growth potential is being lowered by less appetite by foreign businesses to move their operations into China.”

At the same time, inflows are likely to rebound by 4.5 percent this year as businesses realize growth is improving and the nation won’t have a “hard landing,” Kowalczyk said.

‘Quite Worrying’

The drop, the 14th in 15 months, extends the longest streak since the global financial crisis in 2008-09 and is the largest since July. “The January data is quite worrying because we’ve had a string of declines,” Kowalczyk said.

The Shanghai Composite Index fell 0.1 percent as of the 11:30 a.m. local-time break, poised for its first three-day drop since November.

FDI will be stable this year while the broader situation stays relatively grim, Shen Danyang, a Commerce Ministry spokesman, said at a press briefing today.

Japanese investment in China fell 20 percent in January to $640 million, while U.S. spending dropped 20 percent to $270 million, the ministry said. Property-related FDI was down 14 percent.

China’s economy expanded 7.9 percent in the final three months of 2012 from a year earlier, halting a seven-quarter slowdown. The full-year expansion of 7.8 percent last year was the slowest since 7.6 percent 13 years ago.

Growth Forecast

Growth may recover to 8.1 percent in the first quarter, according the median estimate of 30 analysts surveyed by Bloomberg News last month.

“A wide range of indicators showed that growth in the Chinese economy had stabilized, underpinned by public spending and somewhat stimulatory financial policies,” the Reserve Bank of Australia said in minutes of its Feb. 5 meeting released yesterday.

Metro AG, Germany’s biggest retailer, said Jan. 16 that its Media-Saturn consumer electronics unit, which has seven stores in China’s Shanghai area, will exit the country. That will eliminate about 40 million euros ($53 million) of losses for 2013, according to John Kershaw, an analyst at Exane BNP Paribas.

--Zheng Lifei, with assistance from Kevin Hamlin and Nicholas Wadhams in Beijing and Rishaad Salamat in Hong Kong. Editors: Scott Lanman, Sunil Jagtiani

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing atlzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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