Foreign Investment into China: Where's the Money Flowing?

Local farmers working in Yangshuo, China. Photograph by Gonzales Photo/Corbis

Where’s the money going? The Ministry of Commerce gave a clearer picture with a press conference introducing foreign direct investment into China on Nov. 18.

First of all, China is on track for a big shift. Very soon, Chinese companies will be investing more money overseas than foreign companies bring to the mainland. In the first 10 months of the year, China nabbed $97 billion, up 5.8 percent. Meanwhile, outbound investment reached $69.5 billion, growing at a much more rapid 20 percent. “The trend for Chinese companies going abroad has just started,” said Zhang Yuliang, chairman of Greenland, a real estate developer, in a recent interview with Bloomberg News.

Who’s investing in China? The biggest surge is from the European Union, totaling $6.4 billion January through October, a 22.3 percent increase. U.S. companies, too, upped investment by 12.4 percent to reach $3 billion. And Japanese enterprises put in $6.5 billion, slightly more than the EU sum, a 6.3 percent rise. The largest amount came from Hong Kong due to its historical entrepot role; that totaled $63.5 billion, an increase of 10.5 percent.

“We can see that foreign investment from Asian countries, the European Union, and the U.S. all kept relatively fast growth in the first 10 months,” Commerce Ministry spokesman Shen Danyang told reporters in a press briefing.

China’s service industries were the biggest draw for foreign investment, pulling in $50 billion, up about 14 percent in the first 10 months. That’s good news, with Beijing aiming to lift the proportion of its economy made up of the tertiary sector from today’s 45 percent to 47 percent by 2015.

Not surprising, given rapidly rising labor and other costs, investment in manufacturing fell by 5.2 percent, to $38 billion, making up just over two-fifths of the total. Investment in agriculture, animal husbandry, and fishery businesses dropped by 2.6 percent, to $1.4 billion.

Eastern China continues to bring in the most investment, $81.4 billion in the first 10 months, up 6.0 percent, or about 84 percent of the total. That compares to $8.6 billion in the central part of the country, up 9.9 percent, making up 8.8 percent of total investment.

Meanwhile, western China, home to the restive Muslim region of Xinjiang, didn’t fare well—bad news for Chinese authorities who count on economic development to lessen ethnic tensions. Foreign investment of $7.1 billion was down 1.1 percent and amounted to only 7.3 percent of the total. Nine assailants and two auxiliary police officers were killed in an attack on a police station in Kashgar prefecture, Xinjiang, on Nov. 16, according to Xinhua News Agency.

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