Eurozone debt crisis cited as officials deny investor confidence shaken

BEIJING - EU investment in China up to October dropped, due mainly to a massive cut in September caused by the eurozone debt crisis, the Ministry of Commerce said on Wednesday.

But officials and experts dismissed any suggestion that global confidence in the world's second-largest economy has been shaken.

Investment from the 27-nation bloc dropped 1.8 percent year-on-year to $4.18 billion for the January-September period. However, for the eight months to September it had actually surged 3.28 percent to $4.56 billion.

The key month was September, when the EU cut investment in China by $378 million, the first time it had taken such a step this year. "This (the investment cut) is connected to the ongoing debt crisis," Shen Danyang, ministry spokesman, said.

"But we needn't worry too much about it, given that the European Union's investment, both overseas and domestic, has been declining," he added.

"China's prospects for absorbing foreign direct investment (FDI) is fairly good" despite the drop in the EU investment, Shen said.

Amid the European debt crisis, international ratings agency Moody's cut Spain's credit rating by two notches on Wednesday, after it warned France that its triple-A rating was at risk.

"As the debt crisis is expected to continue in Europe, some European companies are probably reducing investment in China," said Xu Sitao, China director of global forecasting with the Economist Intelligence Unit.

But "it's hard to define a trend from just one month".

Wang Zhile, director of the research center on transnational corporations under the ministry, also said that the appeal of the Chinese market remains strong to foreign investors.

An indication of this is the announcement last week by US fashion retailer Gap that it will expand its stores in China to 45 in 2012 from 15.

"China is one of the places that US retailers are looking for growth," said David French, senior vice-president of government relations at the National Retail Federation, which represents 2,500 US retailers.

From January to September, FDI in China surged 16.6 percent to $86.68 billion, though the pace of growth slowed.

September saw a jump of 7.9 percent but this was down markedly from July's 19.8 percent.

US investment in China continued to decline, down 9.88 percent year-on-year to $1.88 billion from January to September.

US Ambassador to China Gary Locke said last month that China's business environment was leading to "growing frustration" among foreign businesses.

Bu Xu, from the intelligence unit, disagreed.

"Because of the sluggish US economy, labor costs in the US have dropped, attracting some American companies to return from China," Xu said.

In contrast, investment from 10 Asian nations and regions that include Hong Kong, Japan, South Korea and Singapore, rose 23.66 percent to $65.32 billion in the first nine months. Japan's investment in China surged more than 60 percent from January to September, Shen said.

FDI in China has been on the rise for three decades and hit record highs last year with investment worth $105.74 billion.

China will continue to be committed to the opening-up policy, and welcomes investment, especially into central and western regions, Premier Wen Jiabao said at the opening of the Canton Fair in Guangzhou last week.

China has been the most attractive FDI destination among the developing nations for 19 consecutive years up to and including 2010.

Meanwhile, China's outbound direct investment (ODI) soared 12.5 percent year-on-year to $40.75 billion in the first nine months of this year.

Investment into Hong Kong grew by 29.9 percent to $22.98 billion, or 56.4 percent of the total, during the past nine months.

"China's ODI is still at an early stage. Developed markets such as the US will be hot spots for Chinese investors," Xu said.

Central bank adviser Xia Bin said at a conference in Beijing on Wednesday that China's investment potential remains high, and the nation should try to make use of "adequate" foreign exchange reserves to encourage Chinese companies to make overseas acquisitions.