China FDI Shows Full-Year Decline as Economic Expansion Slows

China’s foreign direct investment declined for the first full year since 2009 as economic growth slowed and manufacturers relocated to markets with cheaper labor, contrasting with outbound spending that surged to a record.
Inbound FDI dropped 4.5 percent in December from a year earlier to $11.7 billion, the 13th decline in 14 months, according to Ministry of Commerce data released in Beijing today. For the full year, inflows fell 3.7 percent to $111.7 billion, while China’s non-financial investment abroad increased 28.6 percent to $77.2 billion.


China is gradually losing its advantages as a destination for workshops and plants as land and labor costs rise, while deploying some of its $3.3 trillion in foreign-exchange reserves in growth opportunities abroad. The shift in FDI may benefit countries including Indonesia and Vietnam, according to HSBC Holdings Plc.
“It’s an inevitable trend that labor costs will keep rising in China -- not only in coastal areas but also in inland regions,” Shi Lei, a Beijing-based analyst with broker Founder Securities Co., said before the report. “The country will not be an ideal place for low-end manufacturing.”

FDI inflows compare with a 5.4 percent drop in November to $8.3 billion. Outbound investment in the first 11 months of last year rose 25 percent to $62.5 billion.
The role of FDI is diminishing as leaders of the world’s second-biggest economy boost domestic infrastructure spending and lending increases. The share of foreign funds out of total fixed-asset investment has dropped from a peak of 11.8 percent in 1996 to 1.5 percent in 2011, data published by China’s National Bureau of Statistics showed.

Leaving China

Labor-intensive, international manufacturers are leaving China for other Asian countries, Trinh Nguyen, an economist with HSBC Holdings Plc in Hong Kong, said in a Jan. 9 report. Textile investment inflows into China shrank 18.9 percent in the first three quarters of 2012 while manufacturing FDI inflows into Indonesia rose 66 percent, Nguyen wrote.

Panasonic Corp. (6752), the Japanese electronics maker, said Jan. 11 it will end production of plasma televisions in Shanghai and shift flat-panel operations to China’s Shandong province.

China’s outbound FDI may surpass inflows within a year, Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd., said in November. China’s foreign-exchange regulator said Jan. 14 that it has created a new unit to use the nation’s reserves, the world’s largest stockpile, by supporting Chinese companies expanding abroad.

The Chinese government will release data Jan. 18 on fourth- quarter gross domestic product, December industrial production and retail sales and full-year fixed-asset investment. Economic growth probably accelerated to 7.8 percent in the October- December period from a year earlier, up from a three-year low in the previous quarter, according to a Bloomberg News survey.
--Zhou Xin, with assistance from Sunil Jagtiani in New Delhi. Editors: Scott Lanman, John Liu
To contact the reporter on this story: Xin Zhou in Beijing at xzhou68@bloomberg.net

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China Defends Export Data After Economists’ Skepticism

China’s customs administration said every dollar of trade is documented, defending the quality of export data that analysts at UBS AG and Australia & New Zealand Banking Group Ltd. (ANZ) said may fail to capture the true picture.
“Customs import and export statistics are based upon actual customs declarations,” the General Administration of Customs said in an e-mailed statement yesterday, responding to questions submitted by Bloomberg News on Jan. 11. “In our published export and import data, every dollar has a corresponding customs declaration document to back it.”

China’s unexpected 14.1 percent export gain in December from a year earlier spurred skepticism from economists at banks including UBS, which cited discrepancies with other nations’ trade data. The Ministry of Commerce said today that exporters hurried shipments before a waiver of inspection fees expired at the end of the month and it was wrong to speculate that the data was false.

“It’s good that China’s customs bureau is responding to concerns, showing an awareness within the government of the need to communicate with the financial and business community and the public,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank in Beijing. At the same time, “saying that all of the data is backed up by customs declarations does not remove people’s concerns about fabricated declarations.”

December Surprise
The gain in December compared with a 2.9 percent increase in November and the 5 percent median forecast in a Bloomberg News survey of 40 analysts.
The Shanghai Composite Index (SHCOMP) fell 0.4 percent as of the 11:30 a.m. local-time break in trading after the nation reported a decline in foreign direct investment at the Commerce Ministry briefing in Beijing where spokesman Shen Danyang said the December export numbers were accurate. Investment from abroad fell 4.5 percent in December from a year earlier.
“There’s mixed evidence on on whether exports were quite good in the second half of last year -- there’s some support in the data but also some items that are a little bit odd,” Kuijs said. “China’s exports to Hong Kong show very strong growth, but when you look at the data from the Hong Kong side, the Hong Kong imports from China are much less strong.”
Trade Zones
After the release of the December data, Goldman Sachs Group Inc. and ANZ cited a divergence from overseas orders in a manufacturing index, while Mizuho Securities Asia Ltd. said the increase could indicate exporters’ rush to finish year-end orders and government pressure to report exports before the end of the year to get closer to the official 2012 target of 10 percent trade growth.
“It is possible that local governments may have tried to boost exports data by either making round trips in special trade zones” or by exporting “earlier than otherwise in an attempt to improve the annual exports data,” Goldman Sachs’ Beijing- based economists Yu Song and Yin Zhang wrote in a Jan. 10 note. “Having said that, there is no concrete evidence to suggest this is what actually happened.”
Customs collects trade statistics “in accordance with the relevant laws and regulations,” according to the agency’s statement. Companies within special-trade zones, or bonded zones, that have actual transactions with overseas partners are included in the statistics, while transactions with domestic companies aren’t included in data, customs said.
To contact Bloomberg News staff for this story: Xin Zhou in Beijing at xzhou68@bloomberg.net

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