FDI Increase Ends 8-Month Run of Declines

Mar. 20 - Foreign direct investment rebounded in February after dropping for eight consecutive months, signaling improving investor sentiment and confidence in the new leadership, analysts said.

FDI rose 6.32 percent year-on-year in February to $8.21 billion. This was the smallest monthly inflow for seven months, according to the Ministry of Commerce on Tuesday.

January's inflow was $9.27 billion, down 7.3 percent from a year earlier. And FDI in the January-February period fell 1.35 percent year-on-year to $17.48 billion, according to the ministry.

"The FDI rebound in February is good news and, in some way, an acknowledgement of China's economic competitiveness and global investor recognition of the country's investment environment and development prospects," Commerce Ministry spokesman Shen Danyang said.

He added that figures for the first two months cannot tell the whole year's picture and "our general judgment is that FDI will expand stably with no big ups or downs".

FDI is an important gauge of the external economy to which China's vast factory sector is oriented, though it is a small contributor to China's overall capital inflow compared with exports, which were worth about $2 trillion in 2012.

"The rebound indicates global investors are more optimistic about China's economic outlook ... and there is growing confidence that the new leadership will introduce practical reform measures," said Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation, a think tank affiliated to the Ministry of Commerce.

"Measures are likely to be introduced to enhance the environment for foreign enterprises in China," Huo said.

He urged the government to further open up high-end manufacturing and services to foreign investors, including sewage and garbage disposal, healthcare and insurance — sectors able to bring in greater FDI.

In January and February, FDI in the services sector rose 5.49 percent year-on-year to $8.45 billion, about 48.32 percent of China's total FDI inflow.

The manufacturing sector, which accounted for 42.74 percent of China's total FDI inflow, received $7.47 billion, down 10.64 percent year-on-year.

Spending from the European Union surged 34.01 percent year-on-year to $1.21 billion in January and February while investment from the US went down 5.37 percent year-on-year to $497 million. Investment from Japan dropped 6.7 percent year-on-year to $1.27 billion in the first two months amid maritime tension.

Former commerce minister Chen Deming said on March 8 that the inflow volume will not change significantly in 2013 while the quality will improve with increasing focus on research and development centers.

"China's advantage for FDI was cheap labor and land costs 10 years ago, but now it's the huge domestic market which will attract more medium-and high-end R&D as well as advanced technology from multinational companies into China," Fang Xinghai, director of Shanghai's financial services office, said in a paper on Monday.

China's non-financial FDI may rise 1.2 percent year-on-year to $113 billion in 2013, the National Development and Reform Commission said in its annual report to the legislature on March 5.

Inbound FDI fell 3.7 percent year-on-year to $111.7 billion in 2012, the first full-year decline since 2009.

Slow world economic recovery and constraints in global investments were blamed for China's FDI declines, Shen said and added that China was still "the best performer" among major FDI recipient countries compared with the 18-percent drop for global FDI or the 9.5 percent decline in Asia.

Meanwhile, China's non-financial outbound direct investment jumped 147.3 percent year-on-year to $18.39 billion in the first two months, according to the ministry.

Investments in Australia surged 281.8 percent and that in the US rose 145.7 percent while spending in Russia dropped 46 percent and that in Japan declined 31 percent.