business

China Foreign Investment Climbs as Companies Woo Consumers

Foreign direct investment in China rose 18.4 percent in the first half of the year as companies such as Nestle SA and Ford Motor Co. boosted their presence in the world’s fastest-growing major economy.

Foreign investment climbed to $60.9 billion in the first six months from a year earlier, the Ministry of Commerce said in a statement in Beijing today. Spending in June gained 2.8 percent from a year earlier to $12.86 billion, the ministry said, the slowest pace in 10 months.

China, the largest contributor to global growth for the past three years, is expected to expand three times faster than the U.S. this year, giving its 1.3 billion people more money to spend on snacks, cars and household goods. Asia’s biggest economy will be the No. 1 target for foreign investment until the end of 2012, a United Nations report forecast in September.

“China is still an attractive destination for investors and will remain so for many years to come,” Fang Sihai, Beijing-based chief economist at Hongyuan Securities Co., said before the announcement. “An expanding middle-class and a strong economy will continue to appeal to every investor.”

The slowdown in FDI growth in June comes against a high comparative base in the same month last year when investment jumped to what was then the second-highest on record.

‘Sound’ Growth

Foreign investment exceeded $100 billion last year and “sound” growth is expected again this year, Commerce Ministry spokesman Yao Jian said today.

“The market is large, the investment environment is sound and labor costs are still competitive,” Yao said.

The monthly FDI figures are usually volatile,” Wang Tao, chief China economist at UBS AG, said at a briefing in Beijing today. The data “are affected by factors including global economic trends, yuan appreciation expectations and the intensity of supervision of capital flows by the nation’s currency regulator. “So it’s hard to judge the impact on the economy based on a single month’s change.”

The world’s second-biggest economy expanded a more-than-estimated 9.5 percent in the second quarter from a year earlier, the statistics bureau said this week, easing concerns that Premier Wen Jiabao’s campaign to tame the highest inflation in three years will lead to a so-called “hard landing.”

Faster Expansion

Growth for the year will likely be more than 9 percent, according to forecasts from Barclays Capital and Mizuho Securities Ltd. Yu Bin, director of the macroeconomic research department at the State Council’s Development Research Center, said yesterday the expansion may be as fast as 9.5 percent.

That pace compares with International Monetary Fund projections in June of 2.5 percent growth in the U.S. and a 2 percent expansion in the euro area.

Growth in China is easing as higher interest rates and curbs on lending damp the supply of credit that’s fueled inflation and property speculation. The State Council said yesterday it would expand controls on home purchases in smaller cities where price gains are still excessive.

The official Xinhua News Agency said in an editorial today that while the government will maintain its overall “prudent” monetary stance, policy will be “fine tuned” to make sure the cumulative effects of earlier tightening don’t have a “big impact” on growth.

Fine-Tuning Policy

As part of the fine-tuning, policy makers will support lending to smaller companies, who have been hurt by monetary tightening, and to agriculture to boost output, the editorial said.

Labor shortages and government-mandated increases in minimum wages are helping to boost salaries and consumer spending power. Per capita urban disposable income rose 13.2 percent in the first half of the year and rural cash incomes climbed 20.4 percent, the statistics bureau said this week.

Nestle, the world’s largest food company, and Ford, the U.S.’s second-biggest automaker, are among foreign companies raising their investment in China to tap growth.

Vevey, Switzerland-based Nestle in April agreed to buy 60 percent of Yinlu Foods Group in a transaction that will increase its sales in China by about a quarter. The maker of Nescafe instant coffee and Kit Kat candy bars, which already has 23 factories in China, this week added to its expansion plans with the announcement it intends to buy 60 percent of snack and candy maker Hsu Fu Chi International Ltd. for $1.7 billion.

Ford last month broke ground on a $500 million engine factory in southwestern city of Chongqing, which will more than double engine capacity for joint venture Changan Ford Mazda Automobile Co. to 750,000 units when output starts in 2013. The Dearborn, Michigan-based automaker said its sales in China jumped 40 percent last year.

(Updates with commerce ministry comments in sixth paragraph.)
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