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 The Ministry of Commerce said on Tuesday that China attracted $8.6
billion in foreign direct investment (FDI) in May, down 6.7 percent
from a year ago and the weakest performance since January 2013.
Cumulatively, China drew $49 billion of FDI in the first five months
of 2014, up 2.8 percent from a year earlier, also the worst showing
in a year.
Slowing momentum in the world's second-largest economy, with growth
forecast to slide to a 24-year low this year, may have deterred
companies from plowing more cash into China, economists say.
Widespread expectations that the yuan will edge lower this year and
political tensions affecting trade could also have encouraged firms
to delay new investments.
"On a macro level, there is indeed a trend of foreign companies
investing less in China," said Zhou Hao, an economist at ANZ Bank in
Shanghai.
"Slowing economic growth is the main reason, but the high barrier of
entry into China for new companies is also a factor," said Zhou,
referring to the dominance of Chinese firms in most sectors.
Ever since China's entry into the World Trade Organisation in 2001,
its FDI has ballooned to record levels -- inflows hit a record $118
billion last year.
But even as the amount of FDI scaled an all-time high, the growth
momentum has steadily moderated, with authorities predicting that
China's outbound investment will soon exceed its investment inflows.
That trend was not apparent in May, however. Non-financial direct
outbound investment fell 10.2 percent to $30.8 billion in the first
five months. China does not publish its financial outbound
investment on a monthly basis.
Shares in Hong Kong and China extended initial losses after the weak
investment data.
STABILIZING TRADE
Economists polled by Reuters in April predicted that China's annual
economic growth will fall to a 24-year low of 7.3 percent this year,
but still in line with the government goal to expand activity by
"around 7.5 percent".
To bolster flagging growth, Beijing has announced a series of modest
stimulus measures since April, including lowering reserve
requirements for some banks to release more money for loans.
Business surveys in the last week signal activity may be starting to
stabilize, but a slight pick-up in parts of the economy does not
mean a solid, broader recovery is under way.
But the Commerce Ministry sounded hopeful on Tuesday.
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"Trade growth is expected to stabilize in the coming months," Shen
Danyang, the ministry's spokesman, told a regular monthly briefing.
"Beijing has launched a slew of measures to underpin the trade
sector and we can see exporters' sentiment is also being boosted."
In the first five months of the year, China's services sector
attracted $27.5 billion of FDI, up a fifth from a year ago and
faring much better than the manufacturing industry, where FDI
dropped 16.5 percent from a year ago to $17.4 billion.
Among the 10 countries that are the biggest sources of China's FDI,
investment from South Korea surged 88 percent on an annual basis and
that from the United Kingdom leapt 62 percent.
In contrast, investment from Japan, whose ties with China have long
been strained by territorial disputes and residual anger over World
War II, FDI plunged 42 percent from a year ago.
The drop is much sharper than a 9 percent decrease in FDI from the
United States, and a 22 percent fall in FDI from the European Union.
Shen warned that political tensions between Asia's two biggest
economies will harm bilateral trade -- an outcome that he said Japan
has to take responsibility for.
In an attempt to encourage FDI inflows, China last month relaxed
rules in a range of sectors, including in sensitive industries such
as aerospace. It also gave provincial governments more power to
approve projects to quicken the pace of investment.
Plans to launch free trade zones in Shanghai and in other regions,
along with a series of financial and market reforms, are also meant
to attract more FDI in years to come.
(Editing by Jacqueline Wong)
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