FDI fall not caused by antitrust probes

It is predictable that many analysts have intuitionally connected the falling foreign direct investment into China in July to the country’s recent antitrust probes, in which a number of foreign companies have been investigated.

Although it is the easiest way to explain for the unexpected drop in international capital flows into the world’s second-largest economy, such a willful connection is hardly tenable.

Foreign direct investment into China dropped by nearly 17 percent year-on-year to $7.8 billion in July, the lowest level in two years. It fell by a slight 0.35 percent year-on-year in the first seven months combined.

China’s antitrust investigations, however, only intensified and involved more foreign enterprises in the past two or three months. Previously, only a very small number of foreign companies were investigated and still fewer fined for market monopoly or bribery behavior, which should not have shaken the confidence of international investors.

Generally, it takes a long time — usually several months — for foreign investors to make and implement investment plans. They must first have a thorough investigation of the destination market, map out their survival and expansion strategy, hire personnel, and establish marketing and logistics channels, among other things, before they step into the new market.

In other words, the changes in China’s July FDI data could have been destined long before China’s intensified anti-monopoly investigations in recent months. The effect of antitrust probes should not become apparent until later this year or next year even if it works in thwarting foreign investors.

In reality, China’s FDI data have been highly volatile in recent months. It is more advisable for China watchers to wait longer to come to any conclusion as to how the antitrust probes will have a bearing on foreign investors’ China strategy.

Since early this year, China’s FDI growth rates have been on the decline. In January, it increased by an exceptional 16.1 percent year-on-year. It started to fall sharply from February, with the May reading at a negative 6.7 percent. Although it moved into the positive territory in June, the slump in July shows investor mood remains unstable.