Tuesday, August 18, 2009

Trends In Foreign Direct Investment

Through the first seven months of 2007, China's Foreign Direct Investment was 5.3 billion per month, in 2008 it was 8.7, and as widely reported - it is has fallen sharply in 2009 - to 6.9 billion. And according to Vice Commerce Minister Chen Jian, it faces "unprecendented difficulties". While many have attributed this to the global recession, and the need of companies to preserve cash and pay debts, it more likely reflects a shift in thinking on the ability to make profit by producing in China.

The Rio Tinto arrests have definitely rattled foreign companies, but even before that, there was consternation about China's new labor laws. The US-China Business Council warned in 2007, "The Draft Law may … reduce employment opportunities for PRC workers and negatively impact PRC's competitiveness and appeal as a destination for foreign investment." Though they are currently less than enforced, the laws reflect the desire to improve long term domestic demand within the country and are unlikely to be scrapped.


Related to this, was a brief note in a piece by Stratfor on Central and Eastern Europe:

"Before the crisis, the region was flying high on foreign direct investment, overtaking East Asia as the main destination for international capital in 2002."

While I have not read this anywhere else, if true or even close to being true, it represents a significant shift in FDI allocation.


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