Foreign Direct Investment in China Fell 36.5% on Year

By Li Yanping

Dec. 10 (Bloomberg) -- Foreign direct investment in China fell 36.5 percent in November from a year earlier as gains by the yuan stalled and the world’s fourth-biggest economy cooled.

Investment was $5.3 billion, the commerce ministry said on its Web site today, the least in 14 months.

The World Bank is forecasting China’s weakest growth in almost two decades next year after export demand and construction slumped. The central bank has stalled gains by the yuan against the dollar since mid-July and last month slashed interest rates by the most in 11 years.

“Foreign direct investment will continue to shrink slowly as lower interest rates and a weakening yuan squeeze yields for speculators and the outlook for China’s economy dims,” said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai. “Many factories that have closed along China’s coastal regions are foreign-invested.”

In the first 11 months, investment rose 26.3 percent to $86.4 billion, the commerce ministry said in the statement. The amount is already higher than last year’s record of $74.8 billion.

“We expect much slower foreign direct investment growth in 2009,” Standard Chartered Bank Plc said in a report last month. “Companies were likely front-loading or exaggerating their investments in order to bring in funds and gain exposure to the yuan” in the first half of this year, the bank said.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net