China FDI Faces Unprecedented Difficulties on Crisis

 Foreign direct investment in China faces ¡°unprecedented difficulties¡± after falling for eight months, the longest stretch of declines this decade, Vice Commerce Minister Chen Jian said.

The government will announce policies to stabilize investment ¡°soon,¡± Chen pledged at a briefing in Beijing today.

Multinationals have reduced spending as they grapple with the global crisis, adding to drags on growth in the world¡¯s third-biggest economy after exports collapsed. Rising consumer wealth and China¡¯s continued expansion as economies around the world contract may encourage larger inflows of money.

¡°Nobody doubts the long-term attractiveness of the growing Chinese domestic market,¡± said David Cohen, an economist with Action Economics in Singapore. ¡°Their policy remains to attract investment and if they just pursue it intelligently they will be successful.¡±

Direct investment in China slid 17.8 percent to $6.38 billion in May from a year earlier.

Premier Wen Jiabao is relying on stimulus spending and record bank lending to revive the economy after the weakest growth in almost a decade in the first quarter. Government efforts to boost consumption include home-appliance and vehicle subsidies and trade-ins.

¡®Difficulties, Challenges¡¯

The average urban disposable income was 15,781 yuan ($2,300) last year after climbing 8.4 percent in real terms.

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

While China ¡°faces unprecedented difficulties and challenges in attracting foreign direct investment,¡± lures for investors include political stability, the nation¡¯s continued economic development and the growing domestic market, Chen said.

Foreign direct investment in China totaled $876 billion at the end of 2008, while China had spent $170 billion overseas, according to a report last week by the Peterson Institute for International Economics. Last year, the nation attracted a record $92.4 billion, excluding the financial sector.

China¡¯s direct investment abroad also fell in the first half of this year, the official said, adding that the government would use fiscal, financial, foreign-exchange and insurance polices to encourage larger outbound flows.

Non-financial overseas direct investment was $3.7 billion in the first quarter, Chen said.

While miner Rio Tinto Group has rejected Aluminum Corp. of China¡¯s proposed $19.5 billion investment, China is still hunting for access to natural resources. State-owned China Minmetals Group received approval on June 11 from shareholders of OZ Minerals Ltd. to buy $1.39 billion of mining assets from the Australian company.

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