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FDI inflows begin to slow amid global crisis

By Diao Ying (China Daily)
Updated: 2008-11-13 06:55

Foreign direct investment (FDI) kept rising in October, but at a slower clip, pointing to a decline in capital inflows amid global economic turbulence.

FDI for the first 10 months went up 35 percent to $81.1 billion, compared to 45.6 percent for the first half of the year, the Ministry of Commerce said on its website on Wednesday.

The ministry did not release the figure for October, but previous data show overseas investors pumped in $74.4 billion during the first nine months, suggesting the October inflow was $6.72 billion, down slightly from $6.78 billion for the same month last year.

Analysts say China remains attractive to foreign investors, but estimate the FDI scale will shrink next year as some lag effect becomes apparent and investors turn more cautious.

"This (the latest figures) shows that foreign investors are confident in China's economy, which is quite stable compared with the situation worldwide," said Wang Zhile, an expert on foreign investment at the ministry.

Lu Jinyong, a professor at University of International Business and Economics, said the FDI slowdown also shows measures to control the inflow of hot money have started to work.

Hot money, or speculative capital, flooded into the country at the beginning of the year on expectations of a rapid appreciation of the yuan. But the government started to take countermeasures and the Chinese currency has stopped rising against the greenback since July, forcing a scaleback, said Lu.

However, the FDI slowdown is expected to become more pronounced next year as enterprises shift capital to their home countries amid the financial crisis, and hold back on investment plans.

There is also some lag effect in the October data. Companies usually sign contracts months before they start to invest, so the figures in coming months will tend to drop, said Zhu Baoliang, an economist at the National Information Center. "Because of the high base earlier this year, FDI growth early next year is likely to be negative," said Sherman Chan, an economist with Moody's Economy.com.

China attracted $83.5 billion in FDI last year, the highest among developing countries and sixth in the world.

A UN report released earlier this year said that FDI across the world would drop 10 percent this year because major companies have scaled back investment plans.

Global FDI rose 30 percent to a record high of $1,833 billion last year.