Foreign Direct Investment in China Falls for Fourth Consecutive Month

Foreign direct investment (FDI ) into China has fallen for the fourth consecutive month, suggesting substantially dampened interest in the country as an investment destination.

FDI in China was $4.9 billion in May, down 22 per cent from a year earlier, Reuters and the South China Morning Post (SCMP) reported 12 June, quoting Chinese official data.

This sharp drop followed a similarly big decline in April when FDI was down 27 percent on a year before.

Investments recorded in March was US$ 5.4 billion, down 7% compared to the same period in 2004. The same level of percentage reduction also occurred in February when FDI in China dropped to US$ 3.9 billion,

"This latest wave of foreign investment, which was mainly driven by electronics outsourcing, has peaked," Andy Xie, chief economist at Morgan Stanley, said in Hong Kong before the figures were released. "FDI could fall this year and will need another catalyst to get it going again," the SCMP reported Xie as saying.

The growth of investment from major partners such as South Korea and Taiwan has reversed or slowed. Taiwan approved 15 per cent less investment to the mainland in the first four months, says the SCMP, quoting data from Taiwanese Ministry of Economic Affairs.

China was the world's largest recipient of foreign investment last year, obtaining a record US$61 billion. Foreign investment generally eased off after reaching a record US$8 billion in June 2004.

Foreign direct investment (FDI) reflects business activities such as setting up a factory but does not take into account indirect activities including investment via stock markets.