China’s FDI dips 17.8 per cent YoY to $6.38 billion in May

Foreign Direct Investment (FDI) in China continues to decline as a result of the unprecedented global financial crisis since World War II.

The FDI inflows in May fell by 17.8 per cent to $6.38 billion, compared to the previous year, according to a report released by the Chinese ministry of commerce yesterday.

Although the pace of the fall has reduced compared to the 22.5 per cent dive in April, it is almost double the drop in March which was 9.5 per cent.

FDI in China has been dropping continuously since last October as investors stayed away from apprehended risks in an uncertain situation.

The first five months of the year recorded a slump of 20.4 per cent in FDI to $34 billion with the country's central and western regions registering a higher drop of 35.7 per cent.
 
The number of foreign investments approved in May, declined by 32 per cent to 1,649.

The Chinese government has inducted a $586 billion (4 trillion yuan) stimulus package to tide over the worst crisis and to revitalise the struggling economy, which has started showing some signs of improvement in industrial sector, although exports continue to languish.

It is expected that the FDI will grow when the world economy recovers from the financial turmoil, which at present is in a nascent state of revival.

Chinese prime minister Wen Jiabao was cautious about the world economic outlook and told that China is still some way off from recovery and has yet to establish solid foundations for the revival of its economy.

Wen added that China mustn't underestimate the difficulties and needs to prepare to tackle them over long-term.

The premier said that the country's major problems are plunging exports, overcapacity and growing unemployment. However, there are some positive aspects which include bumper crops, increased retail sales and signs of revival in industrial production and improving market sentiment. He further added that the government would further boost the spending, if required.

Commerce ministry spokesman Yao Jian said the government will further ease the regulations to streamline the procedures for FDI to attract more investment in high-technology industries, energy and environment sectors in order to develop backward regions and create more jobs.

The ministry estimates indicate foreign investments account for 55 per cent of trade, 30 per cent of industrial output and 11 per cent of jobs in cities.

FDI in China was growing at a rapid pace since 2001 when the country joined the World Trade Organisation and according to ministry of commerce, reached a record level of $111 billion in 2008, a rise of 27.6 per cent over 2007.

Some economists believe that the country's economy will not see a rapid recovery as it will take time to find an alternative growth engine to replace the waning exports and cautions that growth could falter once the monetary stimulus wears off.

However the commerce ministry is optimistic that China is still poised to be among the first choices for global investors in the next five years

Chinese economy grew 6.1 per cent in the first quarter, after registering a growth of 9 per cent in 2008.

IMF forecasted a GDP growth of 6.7 per cent for 2009, 1.3 per cent lower than the government's target but higher than the 5.25 per cent for India and 5 per cent for Vietnam.

For comparison, India registered FDI of $27.4 billion in 2008-09, an 11 per cent increase over the previous year.

However, for the first three months of 2009 India's FDI saw a huge slump of 48 per cent to $6.3 billion compared to last year.