Foreign direct investment in China fell for a sixth month in April, the longest stretch of declines since the global financial crisis, amid renewed turmoil in financial markets.
Today’s data underscore the risk of a deeper slowdown in China after April export and import gains missed estimates and industrial output growth was the slowest since 2009. China cut banks’ reserve requirements on May 12 to spur lending and arrest the deterioration, with UBS AG and Bank of America Corp. lowering their second-quarter and full-year growth estimates.
“Trade data was bad, production data last week was bad, and this time FDI is also pointing to the same direction,” Zhang Zhiwei, chief China economist with Nomura Holdings Inc. in Hong Kong, said in a Bloomberg Television interview today. The reports show a “very weak economy at this moment,” with chances of an interest-rate cut rising though “still below 50 percent,” Zhang said.
The yuan fell against the dollar for the seventh time in eight days, slipping 0.02 percent to 6.3225 as of 12:46 p.m. in Shanghai. The MSCI Asia Pacific Index of stocks dropped 0.9 percent at 1:31 p.m. in Tokyo.
The estimates of five analysts in a Bloomberg News survey on foreign investment ranged from a gain of 8.2 percent to a drop of 3 percent.
Foreign direct investment in the first four months fell 2.4 percent from a year earlier to $37.9 billion after a previously reported 2.8 percent decline in the first quarter and a 26 percent jump a year ago. FDI rose 9.7 percent in 2011 to $116 billion, according to Commerce Ministry data.
Commerce Ministry spokesman Shen Danyang said today that authorities are “prudently optimistic” about the outlook for foreign investment, which has dropped partly because of the lackluster global economy. He said he’s “neither optimistic nor pessimistic” on trade.
A post-election impasse in Greece added to signs of stress in European markets yesterday as the euro fell for the 10th time in 11 days and stocks surrendered a two-day gain.
FDI from the European Union in the first four months of 2012 slumped 27.9 percent to $1.9 billion from a year earlier, the ministry said today, while investment from the U.S. rose 1.9 percent to $1.05 billion.
“The negative trend reflects concerns over China’s lower growth potential” as well as the global economic outlook and weaker access to funding, said Dariusz Kowalczyk, senior economist and strategist with Credit Agricole CIB in Hong Kong. The risk is increasing of China failing to meet its 2012 growth target, while odds of further monetary and fiscal easing are also rising, Kowalczyk said in a note today.
Pacific Investment Management Co., which oversees the world’s largest bond fund, sees Chinese growth this year in the “mid-7 percent range,” according to Ramin Toloui, global co-head of emerging markets portfolio management in Singapore. “The economy is unlikely to bottom until the third quarter,” Toloui said in e-mailed comments on May 13.
Caterpillar Inc., the world’s largest construction- and mining-equipment maker, said last month its first-quarter sales in China fell by a range of $250 million to $300 million. It had 17 facilities in the nation with nine more under construction, according to a March statement.
The economy is “in a bit of a cyclical low right now,” Michael DeWalt, head of investor relations for the Peoria, Illinois-based company, said at a Wells Fargo & Co. conference on May 10, according to a transcript of his comments.
Fifth Straight Slowdown
UBS, Bank of America, Citigroup Inc. and JPMorgan Chase & Co. are among banks that cut expansion estimates after data last week showed industrial output rose the least since May 2009, new loans missed estimates and import growth stalled.
Wang Tao at UBS reduced her second-quarter forecast to 8 percent from 8.4 percent and her full-year estimate to 8.2 percent from 8.5 percent. Citigroup economists led by Ding Shuang and Shen Minggao lowered their projection for the three months ending June to 7.5 percent from 7.9 percent and their 2012 estimate to 8.1 percent from 8.4 percent.
The cut in banks’ reserve-requirement ratio by the People’s Bank of China was the third in six months.
Australia Interest Rate
Elsewhere in the Asia-Pacific region, minutes of the Reserve Bank of Australia’s May 1 meeting showed the central bank made its deepest interest-rate cut in three years to help revive below-average growth, counter rising mortgage costs and shore up consumer confidence.
Singapore’s March retail sales grew 9.1 percent from a year earlier, more than economists estimated, compared with a revised 20.1 percent in February.
First-quarter gross domestic product in the euro area probably contracted 0.2 percent from a year earlier, according to a Bloomberg News survey ahead of a preliminary estimate today. Germany’s economy may have expanded 0.1 percent in the first quarter from the prior period, while Italy’s shrank 0.7 percent, separate surveys showed.
Sales at U.S. retailers probably slowed in April, an economist survey indicated, as weather turned unseasonably mild and consumers took a breather following pre-Easter holiday shopping.
The U.S. consumer-price index was little changed in April compared with March after climbing 0.3 percent the prior month, according to the survey median before a Labor Department report.
Companies still plan to expand in China, the world’s most populous nation, as more people move to cities and higher wages give consumers more spending power.
General Motors Co. has said it will open 600 dealerships in China this year and its local car-making venture last month signed an agreement to build a fourth plant, part of a push to meet demand in inland regions in the world’s largest auto market.
China is the company’s “biggest growth opportunity,” and sales are accelerating in second-, third- and fourth-tier cities, Fabrizio Freda, chief executive officer of Estee Lauder Cos., the maker of Clinique skin-care products, said in an earnings call on May 4.
--Victoria Ruan. With assistance from Ailing Tan in Singapore, Zheng Lifei in Beijing, Rina Chandran in Singapore and John Dawson in Hong Kong. Editors: Nerys Avery, Scott Lanman
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