.jpg)
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 the external headwinds facing the economy.
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.
"It is worrying that despite very favorable base effects, foreign direct investment is continuing to shrink," he said.
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.
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.
China's central bank said on Saturday it would cut the proportion of cash that banks must hold as reserves by 50 basis points, effective from May 18. It should free an estimated 400 billion yuan for lending to head-off the risk of a sudden slowdown in the world's second-largest economy.
Economists in the latest Reuters poll see the annual rate of economic growth dipping to 7.9 percent between April and June, the first time it will have fallen below 8 percent since 2009, a level regarded by many investors as the minimum growth needed to ensure sufficient job creation.
China has been fine-tuning economic policy setting since the autumn of last year as the outlook for the global economy darkened, export growth sank and capital inflows - a core component of money supply - stalled.
Beijing has an official target for M2 money supply growth of 14 percent. Data last week showed that the annual rate of growth had slowed to 12.8 percent in April, implying that either capital inflows have to rise or local banks have to ramp up credit creation to meet the target.
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.
