China faces ’difficulty’ in foreign investment

Bloomberg

The government will announce policies to stabilize investment "soon," Chen pledged at a briefing in Beijing Thursday.

Multinationals have reduced spending as they grapple with the global crisis, adding to drags on growth in the world’s third-biggest economy after exports collapsed. Rising consumer wealth and China’s continued expansion as economies around the world contract may encourage larger inflows of money.

"Nobody doubts the long-term attractiveness of the growing Chinese domestic market," said David Cohen, an economist with Action Economics in Singapore. "Their policy remains to attract investment and if they just pursue it intelligently they will be successful."

Direct investment in China slid 17.8 percent to $6.38 billion in May from a year earlier. Premier Wen Jiabao is relying on stimulus spending and record bank lending to revive the economy after the weakest growth in almost a decade in the first quarter. Government efforts to boost consumption include home-appliance and vehicle subsidies and trade-ins.

The average urban disposable income was 15,781 yuan ($2,300) last year after climbing 8.4 percent in real terms.

Foreign-invested businesses account for 30 percent of industrial output, 55 percent of trade and 11 percent of urban jobs, according to the commerce ministry. While China "faces unprecedented difficulties and challenges in attracting foreign direct investment," lures for investors include political stability, the nation’s continued economic development and the growing domestic market, Chen said.

Foreign direct investment in China totaled $876 billion at the end of 2008, while China had spent $170 billion overseas, according to a report last week by the Peterson Institute for International Economics. Last year, the nation attracted a record $92.4 billion, excluding the financial sector.