March FDI in China falls 1.47% year-on-year

Foreign direct investment in China fell in March, the first year-on-year contraction since January 2013, but officials and experts said monthly fluctuations do not reflect long-term trends.

According to the Ministry of Commerce's data on Thursday, FDI in China dipped 1.47 percent in March from a year earlier to $12.24 billion. The drop dragged FDI growth in the first quarter to 5.5 percent, amounting to $31.55 billion. By comparison, FDI grew 10.44 percent in the first two months.

"It is normal for investments to have some monthly fluctuations," said Shen Danyang, a ministry spokesman. "Many factors, such as a single big-ticket investment deal, a changing macroeconomic environment and the fluctuation of the renminbi exchange rate could all affect the figures. We are confident about the steady growth in FDI for the whole year. We, along with many other research institutes and foreign chambers of commerce, think China remains an important destination for foreign investment. Multinationals remain upbeat about our investment environment."

A close look at the first-quarter FDI figures showed investment from major developed economies fell, while that from emerging economies held steady.

Investment from Japan plunged 47.2 percent to $1.21 billion in the quarter, while investment from the European Union slid 24.5 percent to $1.55 billion. Investment from the US was down 1.9 percent at $1.04 billion while that from members of the Association of Southeast Asian Nations rose 7.84 percent to $1.97 billion.

Commenting on the major contraction in EU FDI, Mei Xinyu, an expert at the Chinese Academy of International Trade and Economic Cooperation, a think tank under the Commerce Ministry, said European companies' confidence was undermined by a long-period of low growth. China's reduced appetite for luxury items may be another major reason for European companies to scale back their deployment in the market.

Rising uncertainty caused by tension between Japan and China, along with Japanese firms' weakening competitiveness in the global context, explained Japan's tumbling investment in China, said Mei.

Despite slowing growth in the first quarter, the service sector was a rare bright spot. The sector attracted $17.39 billion of foreign investment, up 20.55 percent over the same period a year earlier.

Investment in the sector contributed 55.13 percent of the total FDI in the period. Investment in the manufacturing sector slipped 11.7 percent.

Analysts said the better position of the service sector dovetailed with its growing role in the economy, while China's plan to further open up domestic service industries to foreign investment could boost FDI in the sector.

The share of tertiary industry (mainly service industries) in the economy rose to 49 percent, compared with 44.9 percent for the secondary industry, according to the National Bureau of Statistics.

Meanwhile, China's outbound direct investment by non-financial firms dropped 16.5 percent to $19.9 billion in the first quarter, the Ministry of Commerce reported.

The ministry had previously said a $15 billion acquisition by oil and gas producer CNOOC in early 2013 was the reason for the sharp drop.

Analysts expect the recent decision by the National Development and Reform Commission to ease restrictions on overseas investments could spur vitality for ODI. Starting from May 8, deals less than $1 billion can proceed without official approval.

Under current regulations, outbound investment in resources has to be approved by the commission if its value exceeds $300 million while investment in the non-resources sector is subject to approval if its value exceeds $100 million.

zhengyangpeng@chinadaily.com.cn