Investment in China falls amid world doldrums

SHANGHAI (AP) – Foreign investment in China fell nearly 10 percent in November in the latest evidence of the rising toll that weakness in the West is taking on the world’s No. 2 economy.

The $8.8 billion in foreign direct investment in November – down 9.8 percent from a year earlier – was a sudden deterioration compared with an increase of 8.8 percent in October, the Commerce Ministry said. Foreign direct investment covers spending on physical assets such as factories and doesn’t include financial assets such as stocks.

Exports, industrial production and property dealings are slowing, and China’s leaders wrapped up their annual economic planning conference on Wednesday with statements suggesting they will be more pro-active in moving to fend off the chill from the European debt crisis.

With the European Union – China’s largest export market – in the doldrums, Commerce Ministry spokesman Shen Danyang described trade prospects as “grim.”

“The impact of the global economic climate means the foreign trade environment is very severe,” Shen said. He said China would step up efforts to encourage imports and boost exports by focusing on faster growing regions such as Russia and other emerging economies.

Export growth has fallen steadily since hitting a peak of nearly 36 percent in March, and economists are forecasting foreign trade will be a drag on growth next year.

Foreign direct investment in January-November rose 13.2 percent to $103.8 billion – a slowing from the 15.9 percent increase seen in January-October, when total foreign direct investment was $95 billion.

An 18 percent increase in investment from other Asian economies to $89.6 billion, helped to offset a 23 percent decline in US spending this year, as of the end of November, to $2.74 billion. Investment from the EU held steady, edging up 0.3 percent from a year earlier to $5.98 billion.

At their yearly economic work conference, Chinese leaders pledged fine-tuning to ensure stable and more balanced growth while fighting inflation, but offered no major shifts in policy.

The gathering endorsed the ruling communist party’s agenda for keeping a “prudent” monetary policy to counter inflation and a “pro-active” fiscal policy to support growth.

It also pledged to keep curbs on the property sector in place to guard against a rebound in prices, and called for keeping the value of China’s currency, the yuan, “basically stable,” according to a statement issued by the official Xinhua News Agency.

China plans to prop up falling exports by setting up special trade “bases” and aiding exporters in inland areas, which have lagged behind the richer coastal regions, state media cited Commerce Ministry officials as saying.

Tax cuts and increased government spending in key areas such as high-tech and energy are also likely, though analysts say they do not expect stimulus comparable to the 4 trillion yuan ($586 billion) package deployed in response to the 2008 global crisis.

By targeting specific sectors, authorities aim to prevent the sort of runaway investment, driven by bank lending, that drove inflation to 6.5 percent in July and has left housing prices prone to inflate into financially risky bubbles.

With labor unrest flaring and financial conditions deteriorating across many sectors, from small companies to government-backed building projects, Beijing’s mantra is “stability.”

That word was repeated five times in just one sentence of the official dispatch that vowed continuity in policies for the sake of keeping social stability.

An expected transition next year to a new generation of communist leaders has accentuated Beijing’s obsession with keeping control.

China’s economy grew 9.1 percent in July-September but is expected to slow to below 9 percent growth in the coming year, as weaker demand at home compounds the impact from fragile conditions in Europe and the United States.

Given the weakness in demand for Chinese exports overseas, the leaders reiterated their intention to boost domestic demand to build an economy less dependent on foreign trade and investment.