Foreign firms still find domestic market attractive, expert says

US investment in China may continue to drop, but not by large amounts, a commerce official predicted.

"China is not worried about the massive transfer of factories by multinational companies to neighboring countries as the quality of foreign investment will improve," Zhang Xiangchen, director of the Department of Policy Research at the Ministry of Commerce, told China Daily.

In a newly released guideline for the 12th Five-Year Plan (2011-15), the National Development and Reform Commission said China will prioritize the quality of foreign investment rather than the quantity.

Direct investment from the US to China dropped by 3.2 percent year-on-year to $1.63 billion in the first half of 2012, according to the ministry.

Foreign direct investment in China decreased by 3 percent, in the same period, from a year earlier to $59.1 billion.

And Washington's attempts to lure back investment will have a limited effect, he said.

"The momentum will probably continue in the following months with the 'Select USA' program that aims to draw back foreign investment," Zhang said.

The Obama administration announced last year that it would set up a national promotion agency to attract more foreign investment, especially from China.

The US is a major investor in China, and during the past six months China's FDI has been declining.

But Zhang said the impact would be "limited" in the short term and fears were unfounded. "Sharp declines of US investment into China will not happen in the next year or two."

Hu Yifan, chief economist with Haitong International Securities, wrote in a Wall Street Journal column that "the reshoring of manufacturing operations to the US would exert an impact on China, but the impact should be very small," Hu wrote, citing "China's strong competitiveness".

As Chinese labor costs rise, production will gradually swing back. Big names planning to move some of their production back to the US include General Electric and Caterpillar.

A report by the Boston Consulting Group said the return of major US companies will help create 3 million jobs in the US by 2020.

But the motives of US President Barack Obama have come under scrutiny.

Columnist Edward Luce said in a commentary for the Financial Times that "it (reshoring to the US) smacked of electioneering. Most of his (Obama's) proposals, including a slightly lower tax rate for domestic manufacturers, looked gimmicky and stood no chance of enactment before 2013".

Some multinationals are moving their production from China to low-cost countries in Southeast Asia.

Adidas said last month it will shut down the company's only fully-owned apparel factory in Suzhou, Jiangsu province, which employs 160 workers, at the end of October. This comes after Nike closed its only shoe factory in China, also in Suzhou, in 2009.

But Zhang defended China as a top global investment destination.

"China's attractiveness to foreign companies remains strong", despite the slowdown and rising costs, Zhang said.

Hu, from Haitong International Securities, agreed.

"China's competitiveness is, and will continue to be, strong as labor costs are still comparatively low, productivity is improving and consumption is growing."

China's FDI in June declined by 6.9 percent year-on-year to $12 billion, according to the ministry, the largest drop since December and compares with a 0.05 percent gain in May after a six-month slide.

Shen Danyang, Ministry of Commerce spokesman, blamed the sluggish global economy and rising domestic costs for the decline.

But he insisted the full year's FDI would "stabilize", as economic growth picks up in the second half.

Shen also said China's attractiveness will be strong in the long term, citing huge domestic consumption, China's efforts to crack down on the infringement of intellectual property rights and the accelerating process of industrialization.

dingqingfen@chinadaily.com.cn