Foreign investment in China plunges

Foreign investment in China has fallen sharply in the first five months of the year, the government has said amid warnings that the economy was still some way off from recovery. 

• The Chinese commerce ministry said on Monday that the $34.05bn in foreign direct investment (FDI) China had drawn was 20.4 per cent less than in the same period last year.
• In May, China attracted $6.38bn in FDI, down 17.8 per cent from a year earlier and the eighth straight month that FDI inflows had fallen year-on-year.
• But the drop was less steep than in April, when it fell 22.5 per cent from a year earlier.
• China attracted a record $92.4bn in non-financial FDI in 2008, an increase of 23.6 per cent from 2007.
• Inflows surged in the years after the country joined the World Trade Organisation in 2001, but have weakened in recent months as the global economic slowdown has hit.
• The latest data comes as an influential Chinese economist predicted that the economy will not experience a rapid recovery because it will take time to find a new growth engine to replace sagging exports.
• “China should not count on a turnaround of external demand to bring about its recovery,” Li Yang, a former adviser to the People’s Bank of China, China’s central bank, was quoted by the Shanghai Securities News as saying on Monday.
• Li, the director of the finance institute at the Chinese Academy of Social Sciences, said that he expected the world economy to take five years to get over the recession completely.
• He also said he expected China’s recovery to be W-shaped, meaning that growth would falter once current fiscal and monetary stimulus wears off, before regaining momentum.
• Wen Jiabao, the Chinese premier, also struck a note of caution over the weekend, restating his government’s view that the foundation for economic recovery was not solid.
• Speaking in Hunan province, Wen said Beijing would stick to its relaxed monetary stance and fully implement its 4 trillion yuan ($585bn) fiscal stimulus.
• He said that the government would beef up the stimulus package if needed, the official Xinhua news agency reported.