China August FDI falls to lowest in at least two-and-a-half years

By Reuters

Sep 16 2014, 05:54 AM EDT

China's foreign direct investment inflows in August fell to a low not seen in at least 2-1/2 years, underscoring the challenges to growth facing the world's second-biggest economy.

The weak investment data comes as China's economic growth appears to be hitting a soft patch after a bounce in June, with indicators ranging from imports to industrial output and investment all pointing to sluggish activity.

China attracted $7.2 billion in foreign direct investment in August, the Commerce Ministry said on Tuesday, down 14 percent from a year earlier and at a level not seen since February 2012.

That left China with $78.3 billion of FDI in the first eight months of 2014, down 1.8 percent from a year earlier.

FDI is an important gauge of the health of the external economy, to which China's vast factory sector is oriented, but it is a small contributor to overall capital flows compared with exports, which were worth about $2 trillion in 2013.

But even China's exports are at risk of slowing from uncertainties in global demand. China's trade ministry spokesman Shen Danyang said on Tuesday exports may not be able to sustain high growth in the months to come although the country's trade situation was stabilizing.

FDI inflows in China have maintained steady growth every year since the country joined the World Trade Organization in 2001. Inflows reached a record high of $118 billion in 2013.

In the first eight months of the year, China's services sector attracted $43.3 billion of FDI, up 8.9 percent from a year ago and faring much better than the manufacturing industry, where FDI dropped 15.7 percent from a year ago to $27.5 billion.

Among the 10 countries that are the biggest sources of China's FDI, investment from South Korea surged 31.3 percent on an annual basis and that from Britain leapt 18.9 percent.

In contrast, investment from Japan plunged 43.3 percent from a year earlier while FDI from the United States and European Union dropped between 17-18 percent each.

China's non-financial direct outbound investment rose 15.3 percent in the first eight months from a year earlier to $65.2 billion.