China FDI signals overseas uptick, policy seen steady

Tue Apr 17, 2012 4:28am EDT
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By Zhou Xin and Nick Edwards

BEIJING (Reuters) - China bagged foreign direct investment at a record-setting pace in the first three months of 2012, but an easing in its monthly momentum and a difficult trade outlook will keep monetary policy poised to compensate for any dip in capital inflows.

The first quarter inflow of $29.8 billion leaves China on course to surpass 2011's $116 billion record, even though inflows compared with a year earlier have fallen for five successive months, Commerce Ministry data showed on Tuesday.

A 53 percent leap in inflows to $11.8 billion in March from February - typical after the Lunar New Year - was a fresh sign that capital flow is firming enough to underpin money supply growth, following a $124 billion first-quarter jump in foreign exchange reserves, providing policy stays on its current pro-growth bias.

"I don't think this changes anything for monetary policy," Alistair Thornton, economist at IHS Global Insight in Beijing, told Reuters.

China's government has been fine-tuning economic policy settings since the autumn of last year as the outlook for the global economy darkened, export growth sank and capital inflows - a core component of money supply - stalled.

The People's Bank of China (PBOC) has cut by 100 basis points the ratio of deposits banks are required to keep as reserves (RRR) to keep credit and money supply growth steady. The two moves added an estimated 800 billion yuan ($127 billion) of lending capacity to the economy.

The PBOC said last week that broad money supply rose 13.4 percent in March from a year earlier, stronger than market expectations for 12.9 percent and ahead of the previous month's 13 percent pace.

Economists forecast another 150 bps, or 1.2 trillion yuan in RRR cuts for the rest of 2012 to help cushion China's worst slowdown since the global financial crisis of 2008-09.   Continued...

Different values of China's yuan banknotes are placed on a window sill as Shanghai's skyscrapers are seen in the background, in this photo illustration taken in Shanghai April 15, 2012. REUTERS/Petar Kujundzic