Foreign Direct Investment in China Falls 5.7 Percent

By Li Yanping

Jan. 15 (Bloomberg) -- Foreign direct investment in China declined for a third month, adding to the toll that recessions in the U.S. and Europe are taking on the world’s third-biggest economy.

Investment fell 5.7 percent to $5.98 billion in December from a year earlier, the commerce ministry said at a briefing in Beijing today. November’s decline was 36.5 percent.

China’s deepening economic slowdown and a global squeeze on company credit and profits may continue to discourage investment. 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.”

The yuan fell to 6.8369 against the dollar as of 12:50 p.m. in Shanghai after closing at 6.8352 yesterday.

A halt in the currency’s gains against the dollar since mid-July is also discouraging investors from putting money into China.

Outbound Investment

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

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 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.

Economic Stimulus Plan

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.

China’s retail-sales growth in December may have matched the 21.9 percent pace of the first 11 months, the commerce ministry’s Yao said, adding that expanded subsidies for rural purchases of home appliances have had “very good results.”

The 2008 inflation rate may be about 6 percent, the official said. That compares with 6.3 percent for the first 11 months of last year, suggesting inflation slowed for an eighth month.

The median estimate in a Bloomberg News survey of 20 economists is for a 1.6 percent increase in consumer prices in December.

Talking about the outlook for exports in 2009, Yao said increasing trade frictions may pose a challenge, along with faltering demand.

The U.S. last month complained to the World Trade Organization that China was using prohibited subsidies to boost exports from apparel to high-tech electronics.

China’s shipments fell the most since 1999 in December as the deepening global recession cut demand for the nation’s toys, clothes and electronics. Falling commodity prices played a role by reducing the value of some exports, Yao said.

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