China's FDI Dropped for Third Straight Month in January

Foreign direct investment into China dropped for the third straight month in January as inflows from European countries plunged by 42 percent from a year earlier.

The slump in European investment was instrumental in causing a drop of 0.3 percent in FDI, which prompted a warning from the Ministry of Commerce over the "grim" outlook for FDI.

Direct investment from the 27 European Union nations shrank 42.5 percent year-on-year to $452 million last month, the ministry said on Thursday.

Ministry spokesman Shen Danyang attributed the sharp drop in investment from the EU to "the spreading debt crisis" and the weakening economy resulting in reluctance to invest overseas.

In 2011, FDI from the EU dropped by 3.7 percent to $6.35 billion.

January saw FDI worth $10 billion, down by 0.3 percent from a year earlier, which followed a 12.7 percent drop in December and a 9.76 percent decline in November, the first year-on-year drop since 2009.

The ministry expressed its concern about FDI prospects in the coming months. "The outlook for China in attracting foreign direct investment this year is fairly grim," Shen said at the monthly news briefing.

He attributed this to unstable and sluggish global economic growth, weak demand, difficulties in financing and rising operating costs.

Despite the gloomy overall picture, there were some bright spots as investment from the US increased, and the city of Shanghai saw a rise in FDI as well.

Investment from the US in January jumped by 29.05 percent to $342 million, the ministry said. "Many American companies say they have full confidence in investing in China," Shen noted.

Investment from 10 Asian economies, including Japan, also gained slightly climbing 0.8 percent to $8.59 billion.

A total of US$1.5 billion in contracted foreign investment landed in Shanghai during January, an annual jump of 12.5 percent, according to the Shanghai Statistics Bureau. However, this rate was slower than last year's average of 31.3 percent while China posted a negative 0.3 percent rate in January.

Over 86 percent of the total FDI in January, or US$1.3 billion, were invested in the city's service sector, the bureau said.

However, the FDI pumped into Shanghai's manufacturing sector fell 19.5 percent annually to US$171 million, or 11 percent of the total value.