Economy

China has 'slim chance' to be top FDI site

By Ding Qingfen and Matt Hodges (China Daily)
Updated: 2010-07-23 06:35

BEIJING - The chances of China overtaking the United States as the top foreign direct investment (FDI) destination remain slim in the short term, despite robust momentum in Chinese FDI and the narrowing gap with the US in FDI volume, the United Nations Conference on Trade and Development (UNCTAD) said on Thursday.

But China is likely to continue as the second most attractive country for absorbing FDI this year, said Zhan Xiaoning, director of the Investment and Enterprise Division under the UNCTAD, at a press briefing on the release of the 2010 World Investment Report.

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China's economic growth remains high and the US continues to be troubled by a high unemployment rate and slowdown in growth.

China in 2009 saw an inflow of FDI worth $95 billion, $34.9 billion less than that of what the US received, according to the UNCTAD.

Still, China's FDI during the first quarter was $43.8 billion, while FDI into the US fell by 60 percent from a year earlier to $46.1 billion during the same period, leaving a gap of $2.3 billion.

"Despite the narrowing gap, we cannot find strong enough proof to show that China could surpass the US as the most attractive destination for FDI in the short and medium term, as there is little possibility that China's FDI will grow by large margins," Zhan said.

According to Wang Zhile, director of the research center on transnational corporations under the Ministry of Commerce, the US enjoys more advantages than China in absorbing foreign investors.

"It has standardized rules and regulations, powerful consumption market and research and development capability and highly talented laborers, all of which are more attractive for investors compared with cheap laborers and high-speed economic growth," Wang said.

China's GDP decelerated during the second quarter of this year to 10.3 percent and the nation is heralding a new wave of wage increases.

But the country remains an attractive FDI destination, barring large fluctuations in the global economy, analysts said.

"China will probably remain as the second largest in terms of FDI volume this year," Zhan said.

Zhan also refuted recent criticism by a few foreign businesses against the Chinese investment environment, emphasizing that "China's commitment to economic transformation and industrial upgrade is having a positive impact on the nation's FDI inflow, rather than driving foreign investment away".

Since 1993, China has turned into the second-largest recipient of FDI after the US. According to the ministry, China's FDI for June increased by 40 percent to $13 billion, the highest single increase since December 2007. Ministry officials said the strong growth will be maintained in the second half if the global economy remains stable.

"Holding onto second place should not be a problem for China, due to China's GDP growth," said Xian Guoming, director of the Center for Transnationals' Studies of Tianjin-based Nankai University.

European Union Commissioner for Trade Karel De Gucht said in Shanghai on Thursday that European companies are increasingly concerned about their business prospects in China due to the effects of the sovereign debt crisis and trade restrictions imposed by Beijing.

Ioana Kraft, general manager of the European Chamber of Commerce in China, said "the problem is that China is slowly trying to close the door (to protect the interests of Chinese companies)".

But Vice-Minister of Commerce Gao Hucheng suggested that "this was not the case" and China is "strongly opposed to protectionism".

According to the UNCTAD, FDI inflow and outflow worldwide this year is forecast to exceed $1.2 trillion, rising from the bottom during the second half of 2009. The figure is set to climb to a "level before the financial crisis" in 2012, reaching $1.6-2 trillion.

China's outbound direct investment will also see rapid growth in the years ahead as it is "high time" that China invested overseas, the UNCTAD forecast.