China's FDI inflows at $37.9 billion

China's foreign direct investment inflows dropped 2.4 percent in the first four months of 2012 versus last year, the longest period of declining inflows since the depths of the global financial crisis and a sign of external economic headwinds. The Commerce Ministry said on Tuesday that the country drew $37.9 billion in foreign direct investment (FDI) between January and April, down from $38.8 billion attracted in the same period in 2011.
April's inflow alone was $8.4 billion, down from $8.5 billion a year ago. "We believe the negative trend reflects concerns over China's lower growth potential, lack of confidence in the global growth outlook, and poorer access to funding from deleveraging banks," Dariusz Kowalczyk, senior economist and strategist at Credit Agricole-CIB in Hong Kong, said in a note to clients.
FDI is an important gauge of the health of external economy, to which China's vast factory sector is oriented, but it is a small contributor to overall capital flows compared to exports, which were worth about $1.9 trillion in 2011. FDI from the European Union dropped 27.9 percent year-on-year in the January-April period, while inflows from the United States rose 1.9 percent. FDI from 10 Asian economies rose 0.6 percent to $33.1 billion in the same period, the ministry said.
A weaker-than-expected reading from economic data released last week raised investor concerns that a five-quarter long slide has not bottomed and more must be done to support growth. Trade data had set the scene, with April's 4.9 percent annual rate of export growth barely half that forecast by economists and import growth at a standstill, expanding by just 0.3 percent versus expectations of 11 percent growth.
A ministry spokesman told a news conference after the FDI data was published that it was impossible to say whether the outlook for trade was either optimistic or pessimistic. "Looking from the trade data last month and the deals signed at the Canton trade fair, China's export situation is still severe," the spokesman said.
China has an official target of 10 percent growth in exports and imports for 2012 and both have been volatile in the opening months of the year, with demand in its two biggest customers - the European Union and the United States - tepid at best. China drew a record $116 billion in foreign direct investment in 2011. The Commerce Ministry aims to attract an average of $120 billion in each of the next four years.