China Foreign Investment Rebounds as Confidence Returns

China’s foreign direct investment rose for the first time in nine months in February, a sign confidence in the world’s second-biggest economy is improving amid optimism growth will keep rebounding.

Inbound investment gained 6.3 percent from a year earlier to $8.21 billion, the Ministry of Commerce said in a statement today in Beijing. Non-financial outbound investment in the first two months of the year surged 147 percent to $18.4 billion, exceeding inbound spending of $17.5 billion.

Newly appointed Premier Li Keqiang’s pledge to spread the wealth from the nation’s economic expansion and increase the number of middle-income citizens may support government efforts to rely more on domestic demand for expansion. Li vowed to open the economy to more market forces and strip power from the government to achieve 7.5 percent annual growth through 2020.

“China’s attractiveness remain for foreign investors, from its relatively-developed infrastructure to stable macroeconomic growth,” said Sun Junwei, a Beijing-based economist with HSBC Holdings Plc. “As the global economy recovers, China may continue to see a steady inflow of investments this year, helping the overall China recovery story.”

The benchmark Shanghai Composite Index rose 0.1 percent as of 11:04 a.m. local time. China’s money-market rate dropped to the lowest level in more than a week on speculation increased investment from abroad will boost cash in the financial system.

Global Economy

Data today on investor sentiment in Germany, industrial production in Italy and U.S. housing starts will be among the latest readings on the strength of the global economy as European officials seek to contain a financial crisis in Cyprus.

In China, the government said March 5 that non-financial FDI may rise about 1.2 percent this year to $113 billion, according to the annual report of the National Development and Reform Commission to the legislature. Inbound FDI fell 3.7 percent to $111.7 billion in 2012, the first full-year decline since 2009.

Outbound investment will increase 15 percent to $88.7 billion in 2013, the NDRC said in its report.

China’s gross domestic product expanded 7.9 percent in the final three months of last year, the first acceleration in two years after a 7.4 percent gain in the previous quarter. For the full year, expansion was 7.8 percent, the lowest in 13 years. Maintaining sustainable economic growth is one of the government’s major tasks, Li said on March 17.

Growth Forecast

Growth may rebound to 8.3 percent this year, Song Guoqing, an academic adviser to the People’s Bank of China, said today at the Credit Suisse Asian Investment conference in Hong Kong.

Today’s data showed Chinese investment in the U.S. up 145.7 percent in the first two months of 2013; up 281.8 percent in Australia; and up 81.9 percent in the European Union. Spending coming from the EU rose 34 percent in the first two months, while U.S. investment was down 5.4 percent.

Chinese billionaires including Zong Qinghou, chairman of beverage maker Hangzhou Wahaha Group Co., and Pony Ma, chairman of Tencent Holdings Ltd., said this month that they’re looking for acquisition and investment opportunities overseas as more of the nation’s companies seek assets to bolster earnings.

Outbound Cash

“China’s outbound investment is set to grow at a higher speed than investment flowing into China as the country’s development has reached a stage of investing abroad aggressively,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, who formerly worked at the International Monetary Fund.

Inbound spending for the full year will still be higher than outbound investment, Zhang said. “Foreign investment’s role of bringing in know-how and technology should not be over-looked,” he said. At the same time, China’s global competitiveness as a manufacturing destination is weakening at a “faster-than-expected pace” as salaries rise rapidly, Zhang said.

Volkswagen AG, Europe’s largest automaker, plans to increase production capacity 60 percent by 2018 in China, Chief Executive Officer Martin Winterkorn said March 14.

Chinese investment in Japan fell 31 percent in the first two months of the year, the Commerce Ministry said, as a territorial dispute over islands in the East China Sea spills over to economic ties.

— With assistance by Lifei Zheng

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