International Finance
Economy

China’s January FDI inflow notches 16% y-o-y jump

Riding on the back of service sector, the world’s second largest economy says all is well with near $11-bn foreign fund inflow, reports Team IFM Beijing, February 20: Sweeping aside signs of a slowing economy and within days of announcing a bumper trade surplus, China sprung another surprise on Tuesday saying it had attracted nearly $11 billion in foreign investment in January, reflecting a little...

Riding on the back of service sector, the world’s second largest economy says all is well with near $11-bn foreign fund inflow, reports Team IFM

Beijing, February 20: Sweeping aside signs of a slowing economy and within days of announcing a bumper trade surplus, China sprung another surprise on Tuesday saying it had attracted nearly $11 billion in foreign investment in January, reflecting a little over a 16 per cent year-on-year jump.

China’s Commerce Ministry said at $6.33 billion, the services industry accounted for the lion’s share of the $10.76-billion fresh foreign direct investment (FDI) last month.

Investment in the manufacturing sector, however, plummeted 21.7 percent, an official said at a press briefing.

The latest tranche of FDI inflow also mirrored the fact that confidence of foreign investors had not waned, said ministry spokesman Shen Danyang. “The double-digit growth in FDI in January answered the question of whether China’s investment environment remains favourable,” Shen said.

“We expect foreign direct investment to maintain sound momentum this year,” wire service Reuters quoted him as saying.

On February 12, China announced a stunning 14 per cent jump in trade surplus compared to the year-ago period, marking a remarkable turnaround from a sharp year-on-year decline the month before and prompting a leading financial services and news provider to question the veracity of the official shipment data.

The country’s National Bureau of Statistics said that Chinese trade surplus rose to $31.86 billion in the first month of the New Year from $25.6 billion in December 2013. Analysts had expected it to fall to $23.65 billion last month.

The 14 per cent jump in surplus was quite remarkable considering it had plummeted 17.4 per cent in December.  The surplus posted by the world’s second largest economy was the widest for January since 2009.

Incidentally, China – which joined the World Trade Organization in 2001 to make the world’s biggest market population-wise even more attractive to foreign investors – saw its FDI inflow peaking at $117.6 billion in 2013.

Services Up

Shen said the services sector saw FDI inflow increase 7.4 per cent in January compared to a year-ago period.

Earlier this month, economy tracker Markit had said though total new business placed at Chinese goods producers in January was little changed from the previous month, Chinese service providers reported a further expansion of new order books over the month.

“That said,” Markit observed, “it was the weakest rise in new business since last June; as a result, total new orders rose marginally at the composite level.”

It said regarding employment too, data continued to signal divergent trends across China’s manufacturing and service sectors in January. According to it, “manufacturers reported further job shedding over the month, while service providers noted a slight increase in staff numbers.”

Furthermore, it was the strongest reduction of payroll numbers in the manufacturing sector since March 2009. In contrast, Markit said, service providers reported a further reduction of outstanding work in January. “Though slight, it was the fastest rate of backlog depletion since April 2013.”

Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, which brought out the January report on China’s service with data compiled by Markit, said the slower expansion of services activities in January “reflected soft manufacturing growth”.

“As business sentiment remains stable, we expect services growth to bounce back a little in the coming months,” Hongbin said in a statement. “Yet a meaningful improvement relies on stronger growth of manufacturing sectors and the implementation of reforms to boost service sectors.”

New Pillars

As if in step with HSBC’s recommendations, Shen said thrust was now being accorded to attracting FDI inflows to China’s high-end manufacturing, the services sector and energy saving and environmental industries.

In fact, the latest data showed, China seems to found new pillars – both in terms of areas of FDI preference as well as source of foreign funds.

First, reforms seem to have driven the economy propelled by the service sector and consumers, instead of new investments and exports on which China has traditionally depended upon for growth.

As a result, overseas investments in the services sector rose 7.4 per cent in the month under review from January 2012. Similarly, Shen said, FDI inflow into telecom equipment and the computer sector jumped 9.2 per cent.

Second, a big leg-up came from investments from 10 regional countries and partners including Hong Kong, Taiwan, Japan and South Korea; FDI inflows from Asian investors spiralled 22.2 per cent to almost $10 billion.

US FDI inflows too skyrocketed, by about 40 per cent, to $369 million though the share of investors in the EU fell 41.3 percent to $482 million.

Fake Trade

Government spokesman Shen also waved away suggestions that widespread fake export deals had played a strong role in China’s strong trade performance in January, and said the stunning 14 per cent year-on-year jump in trade surplus was due to the “recovery in developed economies” and favourable policies.

“Some individual analysts believe that the rapid export growth was driven by falsified deals. We think that’s just a guess, which is unfounded,” he said.

The 14 per cent jump in surplus was quite remarkable considering it had plummeted 17.4 per cent in December.  The surplus posted by the world’s second largest economy was the widest for January since 2009.

Contributing to the final balance result was a year-on-year increase of 10.6 per cent in exports compared to a 2-per cent decline predicted. This also outpaced increase in imports that rose 10 per cent over January 2012, as against a 3 per cent import growth that was expected.

Compared to this, a median forecast of the The Wall Street Journal, reached following a survey of 11 economists, had predicted only a 0.1 percent increase in exports, which had risen 4.3 percent in December.

But financial service and news provider Bloomberg was sceptical, saying rosier than expected figures fuelled speculation that “fake shipments are resurfacing”.

Referring to the overseas shipments rising 10.6 per cent from a year earlier, Bloomberg said it was “a pace that may be distorted by false invoices and holidays” and compares with the median projection of economists for a 0.1 per cent gain.

The “holiday” Bloomberg talked of refers to the general closure surrounding the Chinese New Year and consequent re-scheduling of orders that would likely have had effected the unexpected upswing in year-on-year export figures.

This year’s new year holiday began on January 31, while last year’s started on February 9. Wednesday’s data may reflect shipment arrangements that were advanced by exporters ahead of the festival and February’s figures “may slow down a bit,” Bloomberg quoted Liu Xuezhi, an analyst at Bank of Communications Co. in Shanghai, as saying.

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