FDI rise possible

The slower rate of increase in inbound foreign direct investment into China has led to fears that the country is no longer attractive to global capital and that the deceleration marks the start of an entrenched trend.

If the gloomy prospects for the global economy are taken into consideration, though, it is highly likely that this downturn in FDI only reflects world conditions and does not result from changes in China's economic fundamentals.

Admittedly, China is faced with greater competition in its attempts to attract global capital, that being the result of increasing production costs and the policies that other countries, such as the US and Republic of Korea, have adopted to woo capital.

China's labor, land and financing costs have steadily risen in recent years, helping to explain why some investors are putting their money into countries with lower production costs. Even some domestic manufacturers have decided to move their operations to countries such as Vietnam.

But it is too early to conclude that such a shift will lead to enough industrial emigration to paralyze the Chinese manufacturing industry. China still enjoys a number of advantages that make it attractive to global investors.

Despite its rising costs, China has a large market that can help protect international investors from the shocks of the global economic slowdown. And foreign investors are benefitting from the country's being home to a large number of skilled workers and its expertise in manufacturing.

In two previous rounds of financial troubles - the Asian Financial Crisis in late 1990s and the global financial troubles about four years ago - China saw its inflows of capital decrease.

The situation is different this time. Even so, the fundamentals of the Chinese economy have not changed greatly. Nor it is unreasonable to predict that the amount of foreign direct investment into China will rebound when the Chinese and global economy become stable again.

To be sure, China is no longer eager to bring in as much foreign capital as possible. It is now placing an emphasis on the "quality" of such investment and trying to guide capital into industries that offer higher added values, such as new-technology industries.

For this reason, the effects of a quantitative change in FDI, even if it becomes a trend, should not be overestimated.

(China Daily 09/05/2012 page8)