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China's FDI declines by the most in months

FOREIGN direct investment in China fell for the seventh straight month in April - at a faster pace than in previous months - as investors beset by the global recession continued to trim spending.

The sharp decline followed a drop in exports, putting even more pressure on the country's ambitions to switch gears and focus on domestic consumption to revive an economy dependent on foreign sales.

Investment slumped 22.5 percent to US$5.89 billion last month from a year earlier, compared with a 9.5 percent decline in March and a 15.8 percent drop in February, the Ministry of Commerce said yesterday in Beijing.

"Foreign investors still suffer from tightened cash flow under the tough situation, and investment won't increase in the short term," said Chen Yong, an analyst at Haitong Securities Co.

The steeper decline was also attributed to the high base in the same month last year when a significant amount of money reportedly flowed into the market, seeking to profit from the appreciation of the yuan. For the first four months of the year, foreign spending fell 21 percent to US$27.67 billion.

"The decline was in line with the global economic crisis, showing the effects of the world recession on investment," said ministry spokesman Yao Jian.

The ministry said it is simplifying approval of foreign investments and improving investment mechanisms to help curb the decline. China in March eased rules for investment from overseas by allowing local governments to approve the establishment of foreign-funded ventures.

From January to April, 6,241 foreign companies registered in China, declining 34.2 percent from a year earlier. In April, the country recorded a 33.6 percent drop in new registrations by foreign firms to 1,687.

"China began losing its competitive edge to attract foreign investors with its climbing labor costs, the appreciation of the yuan and higher corporate income tax," Nomura International (HK) Ltd said in a report.

Southern China's solid foundation will help manufacturers there weather the downturn in the short term, but foreign investors will gradually turn to lower-cost nations in Southeast Asia as the global economy worsens, the report said.

Though China is a rare major economy that is still growing, it has experienced a recent fall in exports and imports, weaker industrial output and shrinking manufacturing profits.

"Chinese exports will remain subdued in the coming months, though there are some positive signs, such as rising export orders," Yao said.

He said the priority is to slow the decline in exports. To that end, the country will grant more insurance to exporters, enhance services and solve trade frictions to stabilize the market.


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