RPT-UPDATE 2-China Jan-July FDI falls for first time in 17 months

Mon Aug 18, 2014 2:36am EDT

(Repeats to fix formatting)

* China Jan-July FDI falls for first time in 17 months

* July lowest in at least 2 years

* Comes amid further signs of vulnerability in economy

* Officials say trend will reverse

By Aileen Wang and Koh Gui Qing

BEIJING, Aug 18 (Reuters) - China's foreign direct investment inflows in January-July fell for the first time in 17 months compared with the same period a year earlier, as firms from Japan, Europe and the United States cut spending in the manufacturing sector.

The weak investment data came as China's economic growth appeared to be softening again after a hopeful bounce in June, with indicators ranging from lending to output and investment all pointing to more sluggish activity.

But officials described the sudden drop as an anomaly, and stressed the decline was not due to a spate of recent Chinese probes into foreign firms for alleged monopolistic behaviour.

China attracted $71.1 billion in foreign direct investment (FDI) between January and July, down 0.4 percent from a year ago and its first decline since February 2013, the commerce ministry said.

For July alone, the world's second-biggest economy drew $7.8 billion worth of FDI, the least in two years.

"While we are pushing structural reforms in the economy, it is quite normal for FDI flows to fluctuate between months," Shen Danyang, the spokesman at the commerce ministry, told reporters at a monthly media briefing.

"We expect foreign investment to keep a steady growth (pace) in the coming years and total FDI in 2014 to remain at the similar level with last year," he added.

Shen said recent investigations into foreign firms, such as a widening probe into foreign automakers, would not dent the appetite of global investors to tap China's vast market.

"Such thing will never happen that foreign investors are to be scared away by only a few anti-trust investigations," Shen said.

He stressed that China's anti-trust law has been treating all market players equally, as past cases involved both domestic and foreign firms.

In assuring foreign investors, Shen also pledged that China's government will continue to protect legitimate interests of foreign firms and will create transparent and efficient market environment to facilitate foreign investment.

FDI is an important gauge of the health of the external economy, to which China's vast factory sector is oriented, but it is a small contributor to overall capital flows compared with exports - which were worth about $2 trillion in 2013.

Despite recent increases in wages and other operating costs, FDI inflows in China have maintained steady growth every year since the country joined the World Trade Organisation in 2001. Inflows reached a record high of $118 billion in 2013.

And as China's economy matures, more Chinese companies are looking abroad for growth.

Non-financial direct outbound investment by Chinese firms rose 4 percent to $52.6 billion in the first seven months.

CUT-BACKS FROM JAPAN

Data showed that the top 10 foreign investors in the first 7 months were Hong Kong, Taiwan, Singapore, South Korea, Japan, Germany, the UK, France, Netherlands and the United States.

Their combined investment hit $66.8 billion, accounting for 94 pct of total FDI.

Investment from the UK and South Korea grew at the fastest pace in the first seven months, rising 61 percent and 32 percent respectively to $730 million and $2.9 billion.

In contrast, investment from Japan slumped 45 percent to $2.83 billion in the same period, the biggest decline among countries whose FDI into China was reported.

Tensions between China and Japan have increased in the last year due in part to a series of territorial disputes.

FDI from the United States fell 17.4 percent to $1.8 billion, while investment from Europe dropped 17.5 pct to $3.8 billion in the first seven months.

Spending by Southeast Asian countries also declined 12.7 percent to $4.2 billion between January and July compared with the year ago period.

On the whole, the services sector fared better than the manufacturing industry.

FDI into the services industry jumped 11.4 percent to $39.7 billion, while investment in the manufacturing industry fell 14.3 percent to $25.2 billion.

On the trade front, the Commerce Ministry said the export rebound in July signalled a recovery in external demand, though other factors, such as rising input costs for enterprises and intensifying trade disputes could continue to weigh on export growth in the longer term.

"We are still facing relatively great pressure to achieve the annual trade growth target for this year and we definitely need to spend more efforts in the coming months," Shen added. (Reporting by Aileen Wang; Editing by Kim Coghill)

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