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FDI down but not out

(China Daily)
Updated: 2009-02-17 11:31

Amid the worldwide economic crisis, foreign investors' direct commitment to factories and services in China has declined sharply.

Related readings:  FDI sees 4th monthly dive in row  FDI decline to pressure emerging nations  China's FDI up 23.6% in 2008

According to figures released by the Ministry of Commerce yesterday, foreign direct investment (FDI) in the Chinese mainland fell 32.6 percent to $7.54 billion from a year earlier, following a 5.7 percent decline in December.

For the whole year of 2008, China's record was still fine. In 12 months, the mainland absorbed a total of $108.3 billion, based on growth of 29.7 percent in year-on-year terms. It accounted for around 7.7 percent of the world's total FDI.

It was only in October, after the tumble of Wall Street, that the Chinese mainland's FDI began to see no growth. And the trend is likely to continue well into 2009, with the world economy still showing no sign of recovery. As a whole, the country's 2009 record of FDI may be a greater disappointment than 2008.

Of course, FDI's decline is not a good thing. As a driving force in economic growth in China, it may be playing a more limited role at the moment. Even if the decreases can be offset by other forces from domestic sources, most noticeably the government's $586 billion stimulus plan, many jobs have already been lost and more are likely to be.

As often is the case, a cutback in investment leads to a cutback in jobs. Some multinational corporations' downsizing programs have already shrunken their ventures in China, including their local workers.

Smaller investors may have downsized more drastically. Some proprietors of labor-intensive operations, which depend primarily on overseas orders, have simply abandoned their factories, leaving their workers unpaid for weeks or months.

These add to the overall labor woes and to the government's aid budget, especially in the areas concentrated with export-oriented manufacturing, most noticeably some coastal cities.

Having said this, however, one also recognizes a highly mobile characteristic of FDI in the Chinese mainland. This is often associated with small investors, who make up a hefty portion of the country's FDI. In good times, they tend to come in packs. And in times of crisis, they duly go away.

But such mobility of FDI also means that, once China's anti-crisis measures begin to work and the business environment improves, most of them will still come back. After all, it is still here that they can get the things they need, including relatively skillful but not very expensive labor, and lots of modernized services.

As listed in Beijing's stimulus plan, in the next couple of years, the country will build more roads and other public facilities. There is no reason to doubt the Chinese mainland's FDI flows will pick up again.