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FDI drop due to global factors

By Tan Yingzi (China Daily)

13:31, May 23, 2012

Foreign direct investment in China fell for the sixth straight month in April. There were many reasons for the decline, which analysts said was mainly due to the European debt crisis and the sluggish global economic recovery.

As the United States and European countries are trying to attract more foreign capital, people have started to wonder: will the competition from those countries also affect China's inward investment?

Some experts from the US and Europe do not think that the rise in US and EU FDI inflows has directly led to the decrease in China.

China should not worry too much about the slowing FDI growth rate, but should focus on restructuring its economy and improving the investment environment, they said.

"The attraction for FDI in China differs from that in the US and EU. A large amount of FDI inflow to China is linked to the country's export sector, while much FDI inflow to the US and EU is aimed at serving the domestic market. They are not easily interchangeable," said Ting Xu, senior project manager at Bertelsmann Foundation, a German think tank.

China still ranks higher than the US and Europe in FDI confidence, according to the Kearney FDI index, she noted.

"This is not to say that it is not possible to have FDI diversion among the US, EU and China.

"When the Chinese market's attractiveness to FDI inflows becomes similar to those of the US and EU, then the rise of FDI in the US and EU might lead to a decrease in China. This is not the case right now."

Raymond Cheng, CEO of SoZo Group, an advisory firm focusing on Chinese investment in the US, noted that the US is becoming more attractive for foreign investment due to the cost gap being narrower, attractive incentives, a stable political system and a mature legal environment.

To create more jobs, the Obama administration has initiated several programs to draw investment to the US, such as setting up SelectUSA, a government-wide effort to encourage, facilitate and accelerate business investment in the US.

Local governments have made their own approaches. In addition to overseas trade missions led by state governors, Alabama passed a bill in July to provide Chinese enterprises investing in the state with tax subsidies to offset the costs incurred from anti-dumping duties levied by the US.

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