China’s Foreign Investment Drops 6.9% in June

China’s Foreign Investment Drops 6.9% in June as Growth Cools
The Chinese Ministry of Commerce stands in Beijing. Inbound investment in the first six months declined 3 percent from a year earlier to $59.1 billion, the ministry said, after a 1.9 percent drop in the first five months. Photographer: Nelson Ching/Bloomberg

Foreign direct investment in China dropped 6.9 percent in June from a year earlier, the government said today as it signaled extra efforts to draw capital from abroad in the world’s second-biggest economy.

Inbound investment declined to $12 billion, the Ministry of Commerce said today in Beijing. That’s the largest fall since December and compares with a less than 0.1 percent gain in May following a six-month slide.

The country may make it easier for overseas investors to pay a lower withholding tax on dividends they repatriate. The head of China’s top economic-planning agency said the nation will encourage foreign investment in industries including high-end manufacturing and technology.

“Foreign companies and investors will be more encouraged to pick up investments in China when there is greater clarity on the track of the domestic economy,” said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. He sees a “modest contraction in foreign investment growth” in the second half.

Inbound investment in the first six months declined 3 percent from a year earlier to $59.1 billion, the ministry said, after a 1.9 percent drop in the first five months. The official Xinhua News Agency reported the first-half figures yesterday, citing Vice Commerce Minister Wang Chao.

Yuan Weakening

The yuan has fallen about 1.3 percent against the dollar this year through yesterday after a 4.7 percent gain in 2011. The currency strengthened less than 0.1 percent today to 6.3741 at 12:01 p.m. in Shanghai.

European Union investment picked up in June, today’s data indicated. EU members invested $3.52 billion in China during the first half, an increase of 1.6 percent from a year earlier, the Ministry of Commerce said. That compares with a 5.1 percent decline in the first five months.

Under the new dividend rules, any foreign investor publicly traded in a country that has a tax treaty with China, such as Hong Kong or the U.K., automatically qualifies for a 5 percent rate, rather than 10 percent, and no longer has to go through an assessment process, Abe Zhao, a Beijing-based international tax partner at KPMG, said yesterday.

“In the past couple of years the uncertainty discouraged investment from overseas into China,” Zhao said. “But now when the uncertainty is reduced, then there is incentive for foreign investors coming to China.”

U.S. Cooperation

Zhang Ping, chairman of the National Development and Reform Commission, also said today that the U.S. and China will start cooperating on infrastructure construction. He spoke at the U.S.-China Investment Cooperation Forum today in Beijing.

China’s expansion cooled to the slowest pace in three years in the second quarter, expanding 7.6 percent from a year earlier, the National Bureau of Statistics reported July 13. It was the sixth quarterly deceleration and followed an 8.1 percent gain in the previous three months.

Premier Wen Jiabao warned the momentum for a recovery isn’t yet in place and pledged to intensify fine-tuning of policies, the official Xinhua News Agency reported July 15.

Growth is likely to pick up in the second half and China is “confident” it will achieve a 10 percent target for increasing trade in 2012, Shen Danyang, a spokesman for the Commerce Ministry, said at a briefing today. First-half exports rose 9.2 percent from a year earlier, while imports gained 6.7 percent, the government said last week.

Surplus Increase

The country’s trade surplus is likely to increase this year while remaining steady as a share of gross domestic product, Shen said. That would mark the first increase since 2008; the first-half surplus was $68.9 billion, compared with $44.9 billion in the first six months of 2011.

Non-financial outbound investment rose 48 percent to $35.4 billion in the first half of the year, the ministry said today.

Automakers such as Nissan Motor Co. and Fiat SpA are among companies still looking to China, the world’s biggest auto market, to boost sales.

Nissan, the biggest Japanese carmaker in China, said June 25 it will invest 5 billion yuan ($784 million) to build a new plant in the northeastern city of Dalian.

Fiat, with two failed partnerships in China, returned to manufacturing cars in the Asian nation last month. The Italian carmaker on June 28 began producing the Viaggio car with joint venture partner Guangzhou Automobile Group Co. at their new factory in Changsha.

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