China drew US$91.7B in foreign direct investment from January-October, down 3.45% from same period a year ago and the 10th month of year-to-date declines, amid continued global trade slowdown

Cindy Allen

BEIJING , November 20, 2012 (Thomson Reuters) – China's foreign direct investment is on track to top $100 billion in 2012 even as the longest run of year-on-year declines in inflows since 2009 extended into October, dragged down by an uncertain outlook for corporate spending as global trade sags. The Commerce Ministry said on Tuesday that China drew $91.7 billion in foreign direct investment between January and October, down 3.45 percent on the same period a year ago, marking the 10th month that aggregate year-to-date flows fell compared with the previous period.

"We can see that there are still many uncertain factors weighing on the global economy and the most severe aspect is the weak world demand," Commerce Ministry spokesman Shen Danyang told a news conference.

China's economy is acutely sensitive to external demand, despite a gradual rebalancing towards domestic consumption.

Total exports were worth about 31 percent of GDP in 2011, according to World Bank data, and an estimated 200 million Chinese jobs are in the export sector or supported directly by foreign investment, making FDI a particularly important gauge of prospects for China's vast factory sector.

Despite the slowing rate of inflow, China remains firmly on course to secure more than $100 billion of FDI for the third successive year, according to data from the United Nations Conference on Trade and Development, which collates FDI statistics globally.

The FDI figure follows a raft of other economic indicators for October, ranging from exports to factory output and investment, that pointed to a recovery in the world's second-largest economy gaining pace.

TRADE BOUNCE

China's October export growth darted to a five-month high above 11 percent, surpassing the forecasts of economists in the benchmark Reuters poll, but analysts and officials alike are wary of over-interpretation of the strength of the trade bounce.

"We must say that it is very difficult to achieve the 10 percent annual target for trade growth this year," Shen said.

Data from China's Customs Administration showed total trade expanded by 6.3 percent in the first 10 months of 2012 from year ago levels.

"One thing is for certain - we will spare no effort to continue to stabilise growth in exports and imports. Apart from that, we will pay particular attention to increasing China's share of global trade," Shen said.

"We expect China's share of total global trade to rise further this year from last year's 10.4 percent," he added.

To shield the economy from external uncertainties, Beijing has unveiled a slew of measures to help reduce the burden on exporters and importers, such as urging faster payment of tax rebate, cutting red tape and providing exporters easier access to bank loans.

Damp demand for exports was evident at the recent Canton Fair, China's largest biannual trade exhibition, where total transactions this autumn season dropped 9.3 percent on 2011.

China's exports were worth about $1.9 trillion in 2011, capital flow from which dwarfs the overall contribution of FDI, though it has been long term investment flows from manufacturers around the world, flocking to take advantage of China's hitherto cheap labour, that have underpinned export growth for years.

CHANGING TRENDS

The trend has been changing in recent years, with FDI into China increasingly being committed by firms aiming to tap into a fast-growing consumer market.

Analysts at McKinsey reckon China's mainstream consumer class will comprise 400 million people with household incomes between $16,000 and $34,000 by 2020.

They reckon China's urbanisation could cure its economic imbalances and put it on a path to domestic consumption-led growth within five years to replace three decades of investment and export-driven development.

Services sector inflows in the first 10 months of the year were $43.7 billion, down 1.8 percent on a year ago. Within that sector, real estate inflows were down 6.1 percent. Excluding real estate, services inflows were up 2.1 percent year-on-year.

Manufacturing sector inflows meanwhile stood at $40.4 billion between January and October, down 7.3 percent versus the same period in 2011.

Despite that shift in investment patterns though, in the short-term data suggests it is the relative economic prospects in China's export markets that still dominate.

Investment from China's biggest export market - the debt-ridden, recessionary European Union - dropped 5.0 percent year-on-year in the January-to-October period.

FDI from the top 10 Asian economies, including Hong Kong, Japan and Singapore and which are levered to China's own growth, fell 4.7 percent to $78.0 billion in the first 10 months.

Inflows from the United States rose 5.3 percent during the same period.

China drew $116 billion in foreign direct investment last year, a record according to the Commerce Ministry which aims to attract an average of $120 billion in each of the four years from 2012 to 2015.

China's outbound direct investment from non-financial firms in the first 10 months totalled $58.2 billion, up 25.8 percent year-on-year, the Ministry said. (Editing by Alex Richardson)

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