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China's FDI tails off for 4th month

FOREIGN direct investment in China tumbled 32.7 percent to US$7.54 billion in January year on year, the fourth straight monthly decline, as companies scaled back spending in the face of the international financial turmoil, the Ministry of Commerce said yesterday.

The downbeat figure came after Intel Corp, the world's top chip maker, said earlier this month that it would close a plant in Shanghai and move the operations to Sichuan Province, where costs are lower. Cell phone giant Motorola Inc said last week it had cut jobs in China.

"China's annual FDI inflow will almost certainly be lower than last year, as advanced economies - the key sources of funding - are battered by recession and multinational firms remain cautious with their investments," said Sherman Chan, an economist at Moody's

At a media briefing in Beijing, commerce ministry spokesman Yao Jian attributed January's fall to the week-long Spring Festival holiday, a high figure from the year before and the global financial crisis. The holiday occurred in February last year.

Bright spots

"Actually, January FDI is basically equal to the monthly average of US$7.7 billion in 2008 and higher than the monthly average of US$6.17 billion since September when the financial crisis deepened," he said.

FDI rose 23.6 percent to US$92.4 billion in 2008.

China's 4-trillion-yuan (US$586 billion) fiscal stimulus plan, improvements in services and the legal environment and progress in urbanization are expected to help keep investment steady, Yao said.

Among the bright signs, foreign firms such as H.B. Fuller Co said they would continue to advance in China by breaking ground on their planned projects.

"China is growing, China has a solid economic policy, and we believe this is a country where we can and must invest," said Michele Volpi, president and chief executive officer of US-based H.B. Fuller, a leading adhesives and specialty chemicals maker. The company yesterday announced the opening of its Asia-Pacific technology center in Shanghai.

Partner averse

Still, Moody's Chan said China's stimulus package may not boost FDI this year, although it may enhance market confidence.

Unlike other countries that are constrained by public debt, the Chinese government is in a solid financial position and has not sought partnerships with foreign investors even on large-scale projects.

"Although China still has strong growth potential over the longer term, investment prospects are not as attractive at the current juncture, as the yuan has stopped its appreciation and GDP growth this year is widely expected to be much milder than in previous years," she said, adding that a rebound in FDI is not expected until 2010.

The world's third-biggest economy may expand 6.3 percent this quarter, the weakest pace since 1999, according to the median estimate of 14 economists surveyed by Bloomberg News.


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