China foreign direct investment at record $116 B

BEIJING—Foreign direct investment in China rose 9.7 percent last year to a record $116 billion, as Asian countries boosted spending despite the global economic turmoil, the government said Wednesday.

But investment by overseas companies fell for a second straight month in December, down 12.7 percent year on year to $12.2 billion, as the worldwide slowdown began to take hold, the commerce ministry said in a statement.

Ministry spokesman Shen Danyang blamed the drop on weakness in the US and European economies, but predicted foreign investment would hold up in 2012.

“Some major developed economies such as the United States and Europe are weak. Companies are being more cautious in their investment decisions and global multi-national investments have dropped,” he said.

“Nonetheless, we believe both China’s overseas investment and foreign direct investment will maintain relatively rapid growth this year.”

The latest figures came a day after China said its economy expanded by 9.2 percent last year, slowing from 2010, as global turbulence and efforts to tame high inflation put the brakes on growth.

Inward investment from US companies suffered the most in 2011, plunging 26.1 percent to $3 billion, while European investment registered a slight fall, down 3.65 percent at $6.4 billion.

The strongest growth came from Asian countries, with investment from Hong Kong, Macau, Taiwan, Japan, the Philippines, Thailand, Malaysia, Singapore, Indonesia and South Korea combined rising 14 percent to $100.5 billion.

Nonetheless, last year saw dramatically slower growth in foreign investment than 2010, when blistering economic growth and expectations for a stronger currency led to a 17.4 percent surge in the flow of foreign money into China.

The commerce ministry also said the service sector overtook the manufacturing industry in attracting the most inward investment for the first time in 2011 with $55.24 billion, up 20.5 percent on 2010.

Foreign investment in the manufacturing sector rose by just 5.1 percent year-on-year to $52.1 billion.

“The whole world has reduced its interest in investment due to the flagging economic environment,” said Zhou Hao, economist for Australia and New Zealand Bank (China) Co in Shanghai.

“China’s domestic credit policy is relatively tight, which also reduced the inflow of foreign direct investment.”

China said in December it would ease restrictions on foreign investment in some sectors while lifting caps on the proportion of foreign capital in others.

The announcement came after foreign direct investment in November registered the first year-on-year decline for a single month since July 2009.

At the same time, however, the government said it would “withdraw support” for foreign investment in auto manufacturing to encourage the domestic industry in the world’s largest car market.

Analysts said the move was unlikely to force global auto firms to leave the country, but it would make it harder for new foreign carmakers to enter.