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backCHINAtalk June, 2012

China: Future foreign investment 'unpredictable'

Commerce official blames sluggish global demand.

A senior commerce official expressed concern over "unpredictable" future foreign investment as a survey this week suggested that 22 percent of European companies, with a presence in the domestic market, are considering transferring their investment.

The European debt crisis and weak global outlook have had consequences for foreign direct investment, Liu Yajun, director of foreign investment administration at the Ministry of Commerce, said.

"The drop in FDI is mainly due to the sluggish global economy," he told China Daily.

"It will be unpredictable in the months ahead."

FDI fell for the sixth consecutive month in April.

Foreign investment from the EU, during the first four months of this year, slumped by 27.9 percent to $1.9 billion, from a year earlier. Investment from the US rose 1.9 percent to $1.05 billion in the same period.

A survey on Tuesday, by the EU Chamber of Commerce in China and Roland Berger Strategy Consultants, suggested that 22 percent of companies polled said that they are considering transferring investment to developing countries in Southeast Asia and South America. The slowing economy and rising labor costs were cited as the reasons.

But a majority of the polled companies, nearly three quarters, said China remains one of their top three investment destinations.

FDI in 2011 surged by 9.72 percent from a year earlier to hit a record high of $116 billion. From January to April, it dropped by 2.38 percent year-on-year to $37.88 billion. Foreign investment decreased in April by 0.74 percent.

Shen Danyang, ministry spokesman, said that there are mixed reasons behind the decline. But this is a temporary situation, he said, and China is confident in the long-term FDI outlook.

Wang Zhile, from the Chinese Academy of International Trade and Economic Cooperation, said that there is room for FDI to grow in the years ahead. "Double-digit growth, say 10 percent, is possible for FDI annually."

BMW AG, a leading maker of luxury cars, recently announced a tripling of output in China with production expected to rise to 400,000 vehicles.

The company, together with Brilliance China Automotive Holdings Ltd, will jointly invest another 500 million euros ($623 million) together to fund the expansion, on top of the 1 billion euros spent since 2009.

A report by Japan Bank for International Cooperation showed China and India are the top two destinations for Japanese companies.

Ministers from China, Japan and the Republic of Korea signed an agreement in May to boost trilateral investment. And a report by the United Overseas Bank of Singapore said China is the priority for Singaporean middle-sized companies aspiring to expand in the Asia-Pacific region. Liu believes that the main reason for FDI falling is the state of the global economy.

Premier Wen Jiabao has said that China "should continue to implement a proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth".

The US economy grew by 2.2 percent in the first quarter, lower than market expectations.

Even though world leaders at the G8 summit agreed to take all necessary steps to combat the debt crisis and keep Greece in the eurozone, the outlook remains bleak. The euro has tumbled to its lowest level in almost two years. EU policy makers are looking at the possibility of a Greek exit from the eurozone.

Source: China Daily - GAI

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