China FDI Inflows Decreased In 2012

For the 1st time since 2009, the full year foreign direct investment for China has declined. The economic growth of the country has slowed down and many of the manufacturers have also relocated to markets with cheaper labor available. However, the outbound spending of the country has increased to a record figure.

The inbound FDI has declined by 4.5% in last December to $11.7 billion, if compared to the figures of December, 2011. This marks the 13th decline for inbound FDI in last 14 months. The statistics was released by the Ministry of Commerce. If the entire 2012 is concerned, the inflows plummeted by 3.7% to be at $111.7 billion. Incidentally, the non-financial investment of the country outside increased to $77.2 billion, marking a 28.6% surge. Even in November, the FDI inflows plummeted by 5.4% marking the amount to $8.3 billion. In the first 11 months of 2012, the outbound investments increased by 25% and were at $62.5 billion.

As stated by the officials of HSBC Holdings Plc., China is losing some of its advantages because many manufacturers are no longer choosing China to be its destination for plants and workshops. The labor and land costs have increased in this Asian powerhouse. This is benefitting countries such as Vietnam and Indonesia, but, is definitely not a good sign for China. According to Founder Securities’ Analyst, Shi Lei, China, in future, will not be a suitable place for low-end manufacturing as the trend of high land and labor costs cannot be undone.

Many economists however believe that as China leaders are currently on a roll to boost the domestic infrastructure spending and lending increases, the role of FDI is slowing down. They have statistics released by the country’s National Bureau of Statistics to prove their thoughts as well. The share of foreign funds out of the total fixed asset investment has gone down to 1.5% in 2011. Incidentally, the share was at its peak in 1996, being 11.8%.

According to Mizuho Securities Asia’s Chief Asia Economist, Shen Jianguang, the outbound FDI of China may surpass the inflows within 2014. Incidentally, on 14th January, the foreign exchange regulator of the country announced creating a separate new unit for using the country’s reserves, which is the largest stockpile in the world. This unit will be used to support various Chinese companies looking forward to expand outside.