Event

Data released by the Ministry of Commerce  on June 15th indicate that actually utilised inward FDI grew by 0.05% year-on-year in May, to US$9.2bn. In January-May utilised FDI amounted to US$47.1bn, representing a fall of 1.9% year on year.

Analysis

The slight growth in FDI in May ended six consecutive months of year-on-year falls. However, the increase was too marginal to be interpreted as a clear indication that investor appetite is growing. The decline in FDI in January-May as a whole corresponds with the intensification of the euro zone sovereign-debt crisis, which shows few signs of abating. EU firms have been significant investors in China, contributing around of 5.5% total investment inflows in 2011 (the actual proportion of "foreign" investment accounted for by EU sources is underestimated in official figures, as the data include mainland-Chinese investment that is "round-tripped" back to China through low-tax jurisdictions). However, in January-April EU investment inflows in China  fell by 27.9% year on year. It is not just European firms that have been made more risk-averse by the euro zone's problems. FDI inflows to China from the US in the first four months of the year were lacklustre, rising by only 1.9%.
Concerns about the outlook for the Chinese economy have also depressed sentiment, following a string of disappointing data releases. The impact of China's recent economic slowdown is more evident in some sectors than in others. Demand for consumer goods, for example, remains robust owing to rapid income growth, which has helped to underpin retail-related investment. However, some companies that are exposed to trends in struggling sectors, such as the property market, have scaled back their investment plans. For example, a US-based manufacturer of construction equipment, Caterpillar, indicated in April that it was likely to slow its planned build-out of production facilities in China, owing to weak sales.