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China’s Foreign Direct Investment Falls With Manufacturing Set to Contract

Foreign direct investment in China fell last month from a year earlier, the first decline since 2009, and a survey indicated that manufacturing may contract for a second month.

Investment slid 9.8 percent to $8.76 billion, after rising 8.8 percent in October, the Ministry of Commerce said in a statement in Beijing today. A preliminary reading of 49 in December for a purchasing managers’ index from HSBC Holdings Plc and Markit Economics compared with a final 47.7 in November. A number below 50 points to a contraction.

Europe’s debt crisis and global financial turmoil may prompt more cuts in banks’ reserve requirements in China by limiting inflows of cash from abroad. Moody’s Investors Service said today that it’s maintaining a negative outlook on Chinese property developers because government curbs will mean slowing sales, tight bank credit and pressure on prices and profits.

“There should be one more cut in reserve ratios in December,” said Liu Li-Gang, a Hong Kong-based economist with Australia & New Zealand Banking Group Ltd., who previously worked at the World Bank. The central bank announced the first reduction in three years on Nov. 30, the day before the HSBC PMI indicated the biggest contraction in manufacturing since March 2009.

The Shanghai Composite Index (SHCOMP) fell 1.5 percent as of 10:57 a.m. local time. Copper and gold producers Jiangxi Copper Co. and Zijin Mining Group Co. slid.

Unrest in Guangdong

“Relatively fast” economic growth and social stability were two of the goals set for 2012 at a government conference in Beijing that ended yesterday.

An economic slowdown may fuel unrest as protests spark concern among leaders. In Guangdong province, police have been in a stand-off with residents of the fishing village of Wukan after disputes over land sales and the death of a villager in police custody, the Daily Telegraph reported.

Diminished prospects for gains in the yuan may be a factor in investment falling from a year earlier.

Twelve-month non-deliverable forward contracts on the yuan fell as much as 0.3 percent to 6.4615 per dollar today and were 1.3 percent weaker than the onshore spot rate, the biggest discount since March 2009. The contracts, settled in dollars, allow investors to bet on the exchange rate in a year.

China’s money supply expanded by the least in a decade in November and Communist Party leaders yesterday described the global outlook as “very grim,” underscoring the case for monetary and fiscal easing to support growth.

Asian Investment

In the first 11 months, investment from 10 Asian economies including Hong Kong, Taiwan, Japan and Singapore rose 18 percent to $89.6 billion, the commerce ministry said today. The amount from the European Union gained 0.3 percent to $6 billion. For the U.S., a 23 percent decline pared investment to $2.7 billion. A lower U.S. figure is mainly due to the country’s “faltering economic growth,” spokesman Shen Danyang told a monthly press briefing in Beijing. The European debt crisis has also dragged on investment from the EU, he said.

China’s trade outlook is “very severe” for the first quarter, Shen said. The ministry will discuss steps to support exports at an upcoming work conference, including cutting taxes, increasing financial support for profitable companies, and helping small- and medium-sized enterprises, he said.

Hard Landing

“The government’s policy easing will help prevent the economy from a hard landing but growth may continue to moderate this quarter and next on cooling exports and property investment,” Zhu Haibin, a Hong Kong-based economist for JPMorgan Chase & Co., said before today’s releases. Policy support next year may include tax incentives to boost services and consumption, reserve-ratio reductions and relaxed quotas for bank lending, according to Zhu.

In November, export growth was the weakest since 2009, excluding seasonal distortions, and industrial-output growth cooled. Inflation cooled to 4.2 percent, a 14-month low, and producer prices rose the least in almost two years.

“We expect the government to continue its attempts to curb property prices,” Moody’s analyst Kaven Tsang said in a statement. Prices “have not materially declined in most second- tier cities,” Tsang said.

To contact Bloomberg News staff for this story: Victoria Ruan in Beijing at vruan1@bloomberg.net; Li Yanping in Beijing at yli16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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