Beijing, China (BBN)-China’s foreign direct investment fell in August to its lowest level in more than four years, in the latest sign of slowing growth in China and an increasingly cautious outlook from foreign business.
While foreign-investment figures tend to fluctuate, the data released on Tuesday by China’s Ministry of Commerce is the third consecutive monthly decline and dovetails with growing weakness in industrial production, fixed-asset investment, manufacturing and the country’s real-estate sector.
Foreign-investment levels declined last month from the U.S., Europe, Japan and Southeast Asia, the ministry said, and increased from South Korea and the U.K.
“Overall with the Chinese data recently, we’ve seen a slowdown in industrial China, the older economy,” said Oliver Barron, Beijing-based senior analyst with North Square Blue Oak, an investment bank.
“This suggests FDI is reflecting the overall trend of restructuring, as companies involved in those sectors see a slowdown.”
China attracted $7.2 billion of foreign direct investment in August, the commerce ministry said, down 14% from a year earlier and its lowest level since July 2010.
That compares with $7.81 billion in July, which was down nearly 17% from a year earlier. FDI in the January-August period, meanwhile, fell 1.8% compared with the year-ago period to $78.34 billion.
On Saturday, the National Bureau of Statistics reported that industrial production in August grew at its slowest pace since the global financial crisis in 2008, sending jitters through regional markets early this week.
The slowdown in foreign investment comes as over 30 foreign companies including chip maker Qualcomm Inc. QCOM -0.33% and Microsoft Corp. MSFT -0.97% come under scrutiny from China’s antitrust regulators.
Qualcomm has said it is cooperating with authorities; Microsoft has said that it abides by laws in China and is cooperating with investigators. International business lobbies have complained about the Chinese investigations, while U.S. Treasury Secretary Jacob Lew warned in a letter that the probes could have serious implications for relations between the two countries.
A recent survey by the American Chamber of Commerce in China found that 60% of companies feel less welcome in China than before, a sharp increase from 41% in the previous poll a year ago. In a new question for its members, 49% of respondents believe that foreign firms are being singled out for attack.
“I think it must have an effect on FDI. The regulatory environment has turned less friendly,” said ING economist Tim Condon. “There may be a transition while people wait for the regulatory dust to settle.”
Still, he and others were skeptical that antitrust concerns would have longer-term effects because China is still growing faster than other major economies.
Shen Danyang, a spokesman for China’s Commerce Ministry, said in a briefing Tuesday that China doesn’t discriminate against foreign companies. “Complaints about China’s targeting foreign firms to help domestic firms are not true,” he said. “China’s antitrust probes are all for the purpose of creating a better business environment and absolutely not targeting certain types of firms.”
There is no evidence of capital flight from the world’s second-largest economy, Shen said, adding that the ministry is watching cross-border capital flows closely.
China’s central bank and financial institutions sold a net 31.15 billion yuan ($5.07 billion) of foreign currency in August, compared with a net purchase of 37.84 billion yuan in July, the central bank said Monday.
Most analysts view the figures as a proxy for inflows and outflows of foreign capital since most foreign currency entering the country is generally sold to the central bank.
China’s outbound investment is increasing this year, but at a slower pace. Nonfinancial overseas direct investment rose 15.3% year-to-year in the first eight months of the year to $65.17 billion, the commerce ministry said.
Shen attributed the slow growth in ODI in part to difficulties Chinese companies faced getting bank loans and handling fluctuations in the yuan.
BBN/ANS-16Sept14-5:30pm (BST)