April 16, 2015 / 2:28 AM / in 2 years

China March FDI robust at $12.4 billion, outbound flows up 29.6 percent in first-quarter

Customers select goods at a supermarket in Lianyungang, Jiangsu province February 9, 2015. REUTERS/Stringer

SHANGHAI (Reuters) - Foreign direct investment (FDI) into China rose 2.2 percent on the year in March, while outbound flows posted a milder rise, as foreign corporate investors remain undeterred by China’s weakening domestic economic performance.

Thursday’s data showed inbound FDI up 11.3 percent to $34.88 billion for the first quarter.

The FDI news follows a series of disappointing data releases, highlighting flagging domestic fixed asset investment, including in property, and slowing industrial activity.

Foreign investment projects take time to conceive and implement, making FDI a lagging indicator of general confidence, but they have remained strong in recent months nevertheless.

In contrast, March trade data released on Monday was extremely weak, with exports falling 15 percent on the year, the worst performance for March since 2009, in the depths of the financial crisis.

Some analysts have posited a continued seasonal effect from this year’s very late Lunar New Year holiday, which fell on February 19th, making it the first in late February since 2007. Chinese economic activity usually recedes during the holiday as factories shut down and workers travel back to their home towns and villages.

Sectorally, Q1 FDI in services rose 24.1 percent year on year to $21.59 billion, while FDI in manufacturing fell 3.6 percent to $11.22 billion.

Investment from European nations posted large year-on-year gains in the first quarter of the year, with French and British investment up 40 percent and 259 percent respectively. In aggregate, European Union countries invested $2.02 billion, up 30.5 percent year on year.

Exceptionally strong growth in FDI inflows in the first two months of the year, including a nearly 874-percent jump for Saudi Arabia and a 367-percent gain for France, were due to one-off deals, commerce ministry spokesman Shen Danyang said in March.

Investment from the U.S. fell 40 percent on the year to $620 million, while ASEAN countries invested $1.35 billion, down 31.2 percent on the year.

While the strengthening dollar may have played a role by distorting year-on-year comparisons in dollar terms, the large declines in investment from two of China’s major regional trading partners could be seen as a warning sign - particularly in the context of other poor data.

Inbound FDI in China rose just 1.7 percent in 2014, the slackest pace since 2012. That weak performance accentuated a cooling economy which is spurring more Chinese firms to plow money into overseas assets - a trend that could soon overtake inbound investment.

Last year, China drew a record $119.6 billion of FDI, while outbound investment rose 14.1 percent to a new high of $102.9 billion.

The government has been encouraging Chinese firms to invest abroad to make them more competitive internationally, utilize surplus capacity, and help slow the rapid build-up of foreign exchange reserves.

Outbound investment for the first three months of the year combined rose 29.6 percent from the same period in 2014 to $25.79 billion.

The government has been encouraging Chinese firms to invest abroad to make them more competitive internationally, utilize surplus capacity, and help slow the rapid build-up of foreign exchange reserves.

Reporting by Judy Hua, Nathaniel Taplin and the Shanghai newsroom; Editing by Eric Meijer

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