Foreign direct investment in China rose to the second-highest on record in June, indicating overseas investors’ confidence in the country’s long-term growth even as the global economic recovery shows signs of weakening.
Investment climbed 39.6 percent to $12.5 billion, the Ministry of Commerce said in Beijing today. That’s the most since December 2007 and the fastest pace of growth since December 2009, according to previously released data from the ministry. Estimates among four economists surveyed by Bloomberg News ranged from an increase of 7 percent to 27 percent.
The International Monetary Fund last week raised China’s growth forecast to 10.5 percent this year, three times the pace of the U.S., as government policies support consumption and investment. Companies including Volkswagen AG and Tesco Plc. are seeking to increase investment to tap rising incomes in the world’s fastest-growing major economy.
“More than ever, the expanding Chinese market is attractive to companies around the world,” David Cohen, a Singapore-based economist at Action Economics, said before the data was released. “Even with increased wages and the appreciation of the Chinese currency, it’s still a competitive location for production and close to growing markets.”
Foreign investment in the first six months of the year rose 19.6 percent to $51.4 billion, after a 14.3 percent increase in the first five months, the ministry said.
Investor Confidence
The rapid growth in June FDI “reflects a recovery in investor confidence” and investment should be “relatively good” in the second half, Liu Yajun, director of the commerce ministry’s foreign investment department, told a briefing in Beijing today. Still, uncertainties including the pace of the global recovery and Europe’s debt crisis may cloud the outlook, he said.
China’s economic expansion eased to 10.3 percent in the second quarter and industrial production moderated more than forecast in June, the government said today. HSBC Holdings Plc predicts growth will slip to 9 percent in the second half of the year while UBS AG estimates fourth-quarter growth of 8.5 percent.
“The Chinese economy is slowing, but we’re talking about a slowdown to a more sustainable level not a hard landing,” Song Seng-Wun, a Singapore-based economist at CIMB Research Pte, said before the data was released.
The prospect of rising incomes and hundreds of millions of people moving into cities is prompting foreign companies to boost investment in the world’s most populous nation.
Rising Wages
Average earnings rose 82 percent in the five years to end- 2008, the latest figures available from the statistics bureau, and 21 provinces and cities are raising minimum wages by as much as a third. The government is also easing the movement of the population from rural areas to towns and cities to speed up the pace of urbanization which currently stands at about 40 percent, according to official data.
VW, Europe’s largest carmaker, said today it signed an agreement to build a new assembly plant in eastern Jiangsu province as part of a plan to double capacity in China, now the world’s largest auto market.
Tesco, the U.K’s biggest retailer, said in April it will spend 2.5 billion pounds ($3.7 billion) over five years to open shopping malls and hypermarkets in China as sales in its domestic market plateau.
New Industries
China could see higher foreign investment if it opened more industries including telecommunications, transport and resources to overseas companies, the World Bank said in a July 7 report. Nearly 52 percent of foreign investment last year went to manufacturing, with another 19 percent spent on real estate, according to the National Bureau of Statistics.
The State Council, the nation’s Cabinet, in April announced measures including preferential policies for land use and tax breaks, to attract foreign investment into “encouraged categories” such as renewable energy, high-technology and service industries in central and western China.
“We’re seeing a lot of interest from foreign companies who want to invest in industries that are just opening to overseas investment,” Jack Perkowski, founder of Chinese vehicle components maker ASIMCO Technologies, whose new venture JFP Holdings advises foreign investors wanting to enter or expand in the Chinese market. “We have clients in smart grid, education, health care, distribution all looking at expanding in China.”
