Falling property investment drives China H1 FDI drop

China’s foreign direct investment inflows fell 3 per cent in the first half of 2012 versus last year, the Commerce Ministry said on Tuesday, the latest sign of intensifying headwinds facing the world’s second-largest economy as global growth slows.

The Commerce Ministry said on Tuesday that the country drew US$59.1 billion (S$74.6 billion) in foreign direct investment (FDI) between January and June, with June’s inflow alone down 6.9 per cent on year-ago levels at US$12 billion.

That confirmed figures given by a vice commerce minister on Monday.

“A drop of 3 percent in FDI in the first six months is mainly due to falling investment in the property sector which is the result of macro policies and we cannot say it is a bad thing,” Commerce Ministry spokesman Shen Danyang said.

Beijing is using strict curbs to cut speculative activity in real estate and Premier Wen Jiabao has made repeated personal pledges to keep them until prices come back to more reasonable levels.

FDI in the property sector fell 12.4 per cent in the first half versus a year earlier. Strip that out of the aggregate data and first-half FDI was down just 0.1 per cent versus last year at US$46.8 billion.

FDI is an important gauge of the health of the external economy, to which China’s vast factory sector is oriented, but it is small contributor to overall capital flows compared to exports, which were worth about US$1.9 trillion in 2011.

A surprising bright spot in the FDI data came from the European Union, where struggles with a festering sovereign debt crisis have seen China’s biggest overseas market cut back on orders for goods from Chinese factories.

The Commerce Ministry said FDI from the EU rose 1.6 per cent on-year in the first half to US$3.5 billion, reversing the 5.1 per cent on-year drop in the first five months.

China drew a record US$116 billion in foreign direct investment last year. The Commerce Ministry aims to attract an average of US$120 billion in each of the next four years.

Source Today – 2012 Jul 17

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