FDI decline "not cause for concern"

China's foreign direct investment (FDI) growth in the
past one year. (Source: China Daily)
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BEIJING, May 15 -- The nation will remain one of the main recipients of
foreign direct investment (FDI) this year despite a sharp year-on-year decline
in April, analysts have said.

Last month's FDI was $5.89 billion, down 22.51 percent from a year earlier,
Dow Jones reported Thursday. The Ministry of Commerce refused to confirm the
report but experts said the figure would not be far off the mark.

Due largely to the global financial crisis, FDI has contracted for seventh
months in a row, and the decline in April is markedly sharper than March, when
it fell 9.5 percent.

Analysts said the April figure is not as bad as it appears if the high
reference point a year ago is taken into consideration.

Most analysts remain optimistic about the outlook for inward capital flows,
saying momentum will start to pick up later this year as the global economy
recovers.

"We were worried about overheating earlier last year," said Lu Jinyong, a
professor at University of International Business and Economics in Beijing. "But
the business environment has changed quite dramatically since. Year-on-year
comparisons do not make as much sense now."

In April 2008, actual FDI surged 70 percent from the same period the
previous year to total $7.6 billion. Much of it, some experts argue, was
so-called hot money trying to profit from the expected appreciation of the yuan
against the US dollar.

"Given the high base last year, China should neither feel too surprised nor
dejected by the recent FDI figures," said Dong Xian'an, macro-economic analyst
with Southwest Securities, a major domestic securities brokerage. "There is
other data showing that the economy is bottoming out. And that's the big
picture.

"The economy's contraction is likely to relax in the second half of the
year, and it is very likely that FDI inflows will recover and start to increase
at the turn of the year," Dong said.

Su Chang, a macroeconomic analyst with China Economic Business Monitor,
forecast that as the global situation becomes more stable, China's FDI
performance will improve in the next few months.

Lu estimated that China's FDI will be around $80 billion, not too drastic a
drop from last year's $92.4 billion.

Even with an expected FDI decrease, "China will be one of the few bright
spots in the world," Lu said.

According to a white paper on American business in China released last
month by the American Chamber of Commerce, 22 percent of American companies said
China was their No 1 global investment destination. Between 75 and 78 percent
ranked the country as one of their top three investment destinations every year
since 2004.

(Source: China Daily)

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