Foreign investment in China soars despite labour woes

Reuters | Tue Aug 17, 2010 | 1:54pm IST

China drew 29 percent more foreign direct investment (FDI) in July than a year earlier, with global firms still flocking to the country to build factories and set up research centres despite a bout of labour unrest. FDI inflows, which surged after the country joined the World Trade Organisation in 2001, have recovered steadily this year after being hit hard by the global economic slowdown. Although China has recently been hit by a series of high-profile labour disputes — notably, at suppliers to Japanese automaker Honda Motor Co — it continues to exercise a magnetic pull on foreign businesses setting up production facilities. In July alone, China attracted $6.9 billion in FDI, up 29.2 percent from July 2009, the commerce ministry said. It drew $58.35 billion in foreign direct investment (FDI) in the first seven months of the year, up 20.7 percent from the same period in 2009.

In the latest example of large-scale investment, German chemicals firm BASF said on Tuesday that it would build a new dispersions plant in the southern province of Guangdong. Chinese wages have been rising, but productivity has been rising even faster in most industries and labour costs remain far lower than in developed economies. Investors are also attracted by the country’s modern infrastructure and the prospect of tapping its fast-growing domestic demand. Much of the investment in the past has been concentrated in China’s export heartland along the coast, but Yao Jian, a commerce ministry spokesman, said that money was starting to flow to the interior where costs are lower. “The western regions are showing greater potential for attracting foreign direct investment,” he told a regular news briefing.

Western China attracted $3.89 billion of FDI in the first seven months, up 19.2 percent from a year earlier, according to the ministry. Yao said that China’s export growth was likely to slow in coming months and that its 2010 trade surplus would likely be smaller than last year’s $196 billion sum. The Chinese trade surplus surged unexpectedly in July to an 18-month high after tighter policies weighed on domestic investment and, by extension, imports. That will not be repeated because export growth will moderate, while persistent demand for raw materials and rising household incomes will support imports, Yao said. “The trend for China’s trade surplus to narrow will definitely not change,” he said.


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