China Crackdowns Deter Foreign Investment

China is finding it increasingly difficult to attract foreign investors, according to the latest data from the country’s ministry of commerce (MOC).

Foreign direct investment (FDI) into the Chinese mainland showed a 14% drop year-on-year (YoY) to US$7.2bn in August, the MOC reported. The fall followed a 17% YoY decline in July and marked the lowest volume in nearly five years.

The figures mark the first time that FDI has dropped by more than 10% in two consecutive months since 2009, during the global financial crisis.

The ministry also reported that for the first eight months of 2014, FDI, which excludes investment in the financial sector, stood at US$78.34bn, down 1.8% from the same period last year, the ministry said.

Asked whether the data evidenced foreign capital leaving China, MOC spokesman Shen Danyang said there are no current statistics to support that claim. “We are still analysing related investment and trade flows. Currently, there are no abnormal changes,” he added.

Over the eight month period around 55% of FDI was directed to China’s service sector, while the amount attracted to the manufacturing sector fell by 15.7% to US$27.5bn, representing 35% of the total.

FDI from major economies fell back in the January to August period, with a 16.9% drop from the US and a 17.9% decline from the European Union (EU). Investment from Japan showed a sharper drop of 43.3% to US$3.16bn. Going against the trend, over the same period investment from South Korea rose by 31.3% while investment from the UK was up by 18.9%.

In addition, last month saw a sharp rise in China’s outbound direct investment by non-financial firms of 112.1% to US$12.62bn.

The data could reflect concerns that China’s attitude toward foreign firms may be hardening following its anti-corruption probe against GlaxoSmithKline (GSK), and anti-monopoly investigations into top global brands such as Microsoft, Jaguar Land Rover and Qualcomm. Last week,
price-fixing fines against Audi and Chrysler
were announced.

While the probes are not specifically targeting foreign firms, and Chinese leaders periodically offer clarification on the actions,
many foreign companies still complain of unfair treatment


Related reading