By Wang Ke
China.org.cn staff reporter

The flow of foreign direct investment (FDI) into China has slowed as a result of the global financial crisis and the government is taking steps to stabilize and improve the quality of FDI, a senior researcher has told China.org.cn.

Ma Yu, director of the FDI Department of the Chinese Academy of International Trade and Economic Cooperation (CAITEC), a department of the Ministry of Commerce (MOFCOM), told China.org.cn, at the China Enterprise Developing and Financing Summit, that China remains an attractive destination for foreign investors because of its dynamic economy.

"Precisely during this crisis, China needs high quality FDI more than ever before,” he said.

According to MOFCOM, China received US$111.17 billion in FDI in 2008, up 27.65 percent on 2007. But United Nations statistics showed global FDI dropping by 21 percent year-on-year to $1.45 trillion, largely due to the 32.7 percent slump in FDI from developed nations.

Ma said: “the rapid growth of FDI in the first nine months in 2008 contributed the bulk of the Chinese figure.”

Figures reported by China Daily show the impact of last October's crisis. FDI in China fell by 2.02, 36.52 and 5.73 percent respectively in the last three months of 2008.

From January to April 2009, FDI in China fell by 32.6, 15.8, 9.5 and 22.5 percent respectively year-on-year, according to MOFCOM.

Ma predicated that the financial crisis will continue to exert a negative impact on the inflow of FDI into China this year. He said that after last October, FDI nosedived and China’s share of global FDI was also dropping dramatically.

“In 2000, FDI in China was more than 193.35 billion yuan, amounting to 3.3 percent of total global investment. Although by 2007 it had risen to 327.09 billion yuan, China’s share of world FDI had fallen to 2.2 percent,” Ma told China.org.cn.

The main sources of of China's FDI - the US, Europe and Japan - are languishing in a deep downturn and there is no sign that their economies are bottoming out. This is damaging the prospects for FDI in China. In addition, China's neighbors, such as Vietnam and Thailand, have been actively competing with China by rolling out preferential policies to attract foreign investors.

Ma added that about 60 to 70 percent of FDI in China comes from enterprises supported or sponsored by overseas Chinese.

Although the UN said in a recent report that China will still be the best choice for overseas investment in the long run, MOFCOM predicted that 2009 FDI would fall for several months before picking up speed again.

According to China Daily, UN figures show worldwide FDI contracting by around 30 to 40 percent in 2009.

FDI in China during May totaled $6.4 billion, down 17.8 percent from the same month last year, while the number of new approved foreign companies was 1,649, down 32 percent year-on-year, MOFCOM spokesman Yao Jian said recently.

Ma said: “It is the first time since the 1998 Asian financial crisis that three top investment indicators -- actual foreign direct investment, contractual foreign investment and new approved foreign companies – have all turned negative.”

The slump in exports, falling profits, industrial overcapacity, unemployment and potential budget shortfalls all pose threats to China’s economy.

Foreign-invested businesses account for 30 percent of industrial output, 55 percent of trade and 11 percent of urban jobs, according to MOFCOM.

Ma suggested the Chinese government should try to improve the investment environment in China by launching additional preferential policies and streamlining procedures, as well as optimizing the structure of FDI by encouraging investment from hi-tech, environmental protection, and financial services sectors.

“China should relax and streamline procedures for inward investment,” said Ma.

Although the world’s economy is still in crisis and the inflow of FDI into China may fall this year, China still remains an attractive destination for foreign investors.

A survey of 982 Japanese companies conducted by the Japan Bank for International Cooperation still ranked China as the most promising country for business expansion, according to a Bloomberg report.

Vincent Dai, vice president of BainCapital, said: “multinational companies still think China very attractive, but they have just been trying to survive the crisis and their hands are tied — they don’t have spare money to invest.”

“Once the global economy shows signs of recovery, China will probably see a surge in foreign direct investment again,” said Dai.

(China.org.cn June 28, 2009)