China April FDI Falls To $8.4 Billion On Europe Concerns

By : Subscribe to Bhaskar's | May 15, 2012 11:58 AM IST

Foreign direct investment (FDI) inflows into China fell in April compared to the same month last year, as investors, who are concerned about the renewed debt crisis in the euro zone, cut down on spending.

According to the data released by the Commerce Ministry Tuesday, the country drew in $8.4 billion in FDI in April, which is 0.74 percent lower than a year ago. In the first four months of the year, China attracted $37.9 billion in FDI, 2.4 percent down from last year.

In 2011, the country saw a record inbound investment of $116 billion. This is likely to be surpassed in 2012 in spite of the recent pullback in FDI inflows.

From January to April, the European investment in China has decreased to $1.9 billion, which is 27.9 percent down from last year, as a result of the growing concern that the euro zone debt crisis is going to worsen. The International Monetary Fund has warned that escalation of the euro zone debt problems could cut China's 2012 gross domestic product growth by half.

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China's growth slowed to 8.1 percent in the first quarter, the lowest rate in three years, due to soft global demand and reduced real estate investments.

China's investment-driven economic model, though successful for decades, is seen as no longer sustainable, and the consensus is that reforms are needed to prevent a sudden downturn. Meanwhile, Beijing has said its goal this year would be to promote a steady and robust economic development.

The government has loosened credit conditions to protect the country from the global economic downturn. Earlier this month, China cut the banks' cash reserves ratio by 50 basis points effective May 18, in a bid to spur lending to small businesses. However, the banks will only lend if there is a demand for credit. The weak lending figures for April suggest this is no longer assured.

Meanwhile, from January to April, U.S. investment in China has increased to $1.05 billion, which is 1.9 percent up from a year ago.

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