Monday, June 15, 2009

Foreign investment in China falls for eight straight months

China's Ministry of Commerce (MOC) announced that, as of May 2009, the amount of used foreign direct investment (FDI) fell 20.4 percent year on year in the first five months in China. The figure from January to May stood at US$34.05 billion, said MOC spokesman Yao Jian. In May alone, the investment dropped 17.8 percent to US$6.38 billion, the eighth straight monthly fall, Yao told reporters Monday" (Xinhua, 2009).

According to China's Ministry of Commerce, FDI in China actually fell in May for the eighth straight month as the global economic crisis battered trade and corporate finance (Agencies, 2009).

China ministry spokesman Yao Jian said this is the "first time since the 1998 Asian financial crisis that three top investment indicators - actual foreign direct investment, contractual foreign investment and new approved foreign companies - all declined." Yao Jian is specifically referring to FDI, which in May totaled $6.4 billion, but was down 17.8 percent from the same month last year, while the number of new approved foreign companies reached 1,649, down 32 percent year-on-year.

China is a top destination for investment but companies have canceled or postponed spending on factories and other assets due to weakening trade and the global financial turmoil. Foreign direct investment last year rose 23.6 percent from 2007 to $92.4 billion, though growth began to weaken toward the end of the year (Agencies, 2009).

In terms of attracting both foreign direct investment and aid, the problem is China's historical, pursuit of an export-based growth intended to conquer distant markets. This is because, in the context of China, the political economy forces driving both economic growth and regional economic integration have been resource endowments and differing developmental levels (foreign capital and technology, and domestic land and labor) in pursuit of export-based growth. Francois Gipouloux (1998), when describing the spatial effects of FDI in China during the late 1990s, observes of this phenomenon, "The massive re-locations that took place all through the 1990s, first in ASEAN countries and then in the Chinese coastal areas, resulted in a manufacturing crescent, the vocation of which was to reach out to the world and conquer distant markets."

A problem for China is that a falling rate of FDI, now eight straight months, may challenge China's ability to sustain economic growth, especially high growth rates. The falling rate of FDI in China also presents other issues. Such as whether China's declining FDI is also attributable to the now seeming trend of both developed and developing economics to engage protectionist trade policies.


Used FDI down 20.4% in first five months in China, Xinhua, June 15, 2009.

Foreign investment in China falls 17.8%, Agencies, June 15, 2009.

Francois Gipoulous, Integration or Disintegration? The Spatial Effects of Foreign Direct Investment in China, China Perspective, May-June 1998.

Copyright © Protected - All Rights Reserved M. Ulric Killion.

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