Foreign Direct Investment in China Falls 5.7 Percent

By Li Yanping

Jan. 15 (Bloomberg) -- Foreign direct investment in China, the world’s fastest-growing major economy, fell 5.7 percent to $5.98 billion in December from a year earlier.

The commerce ministry gave the figures at a briefing in Beijing today.

The nation’s deepening economic slowdown and a global squeeze on company credit and profits may continue to discourage investment in 2009. The CSI 300 stock index has tumbled 66 percent in the past year, house prices in the nation’s 70 major cities fell for the first time on record in December, and exports are waning because of recessions in the U.S. and Europe.

“Multinationals will become even more cautious in expanding,” said Ma Yu, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation in Beijing. “A lot of the foreign investment that rushed to China over the past few years to gain from a stock and property boom is leaving.”

For 2008, investment rose 23.6 percent to a record $92.4 billion, commerce ministry spokesman Yao Jian said. Non- financial outbound investment jumped 63.6 percent to $40.7 billion, with mergers and acquisitions accounting for half of that.

The number of new companies set up by U.S. investors in China fell 32 percent in the first 11 months of last year, according to government data. For European investors, the decline was 23 percent.

General Motors

General Motors Corp., the largest overseas automaker in China, said sales in the nation grew last year at the weakest pace in at least six years on waning demand and a lack of new models.

China’s economy overtook Germany’s in 2007 to become the world’s third largest, according to revised figures released yesterday by China’s statistics bureau.

Now, growth is sliding.

The economy expanded 9 percent in the three months through September last year. The fourth-quarter figure, to be announced next week, may be as low as 5.4 percent, according to Royal Bank of Scotland Plc. Exports fell in December by the most in almost a decade.

The government switched last year from trying to tame inflows of cash to cool inflation to announcing plans to pump 4 trillion yuan ($585 billion) into the economy to prop up growth amid the global recession.

The local government in Guangdong, the nation’s largest export hub, set up a 1 billion yuan fund last year to help Hong Kong and Macau manufacturers in the province through the crisis, Vice Governor Huang Longyun said this month.

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