Thursday, December 11, 2008

China: Exports, FDI plunge amid global slowdown

Source: China Daily - December 11, 2008

Both exports and foreign direct investment (FDI) shrank in November, indicating that the global economic downturn hit China's economy harder than expected, according to data released yesterday.

Exports in November fell by 2.2 percent to $114.9 billion, the first monthly decline in seven years, the Customs said on its website yesterday. Foreign direct investment dropped by 36.52 percent year-on-year in November to $5.3 billion, according to the Ministry of Commerce.

The decline in investment is mainly caused by two factors. Tight global credit has slowed down investment activity worldwide. And the once-guaranteed appreciation of the yuan has also stopped, removing one of the key motivations to tap into the Chinese market.

The decline in exports is consistent with the worsening trade performance of other exporters. China's Taiwan this week reported its exports in November fell 23 percent, while South Korea said its exports last month fell 18 percent. Both declines were the biggest in seven years.

Ma said the bankruptcy of Lehman Brothers in October was the turning point, and since then global credit has been frozen. "Enterprises have no money to make investment, exporters have no money to ship their goods because orders have been cancelled, and that has led to a decline in FDI worldwide, especially in emerging economies," said Ma.

Analysts estimate that the situation is going to last for quite a long time. "China's monthly FDI inflows will continue to book year-on-year declines at least until mid-2009, as the global economy is expected to further deteriorate in the first half of next year," said Sherman Chan, an economist with Moody's.

But China is still attractive. "China's FDI inflows should be one of the first economic indicators to rebound once global recovery begins," Chan said.