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Massive drop in FDI

FOREIGN direct investment in China was down 35.7 percent from a year earlier at US$5.36 billion in July, the tenth straight month of year-on-year drops and a sharp decline from the 6.8 percent in June, the Ministry of Commerce said today.

However, the volatility did not necessarily indicate a worsening investment environment in China but could be a one-time phenomenon out of prudent foreign investors puzzled by the uncertainties in the global economy.

"It is quite unexpected that July's FDI posted such a deep drop. It seems the improvement presented in the past few months has not formed a solid trend," said Li Maoyu, an analyst at Changjiang Securities Co. "Also, the high base last year partly contributed to the deep reduction."

Chinese FDI in June was 6.8 percent lower than a year ago at US$8.96 billion. It was 17.8 percent down in May at US$6.37 billion and 22.5 percent down in April at US$5.89 billion.

"The sharp drop in FDI may reflect that foreign investors are still prudent about their spending when the global economy has not showed a stable recovery. Also, hot money, or speculative investment, is almost paralyzed at the moment because of the financial crisis. The absence of hot money makes the investment figure look rather dismal," said Tang Yonggang, an analyst at Hongyuan Securities Co.

Both analysts said the data might remain in the negative for some time but such a sharp decline is unlikely to happen again in the coming months. Also, China was still one of the world's most attractive places for investment because of its friendly environment for business, they said.


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