Workers install scaffolding at a construction site in central Beijing.Reuters
Foreign investment in China has all but evaporated in a sign of rising distrust in the Chinese economic miracle.
Economists predicted a 12.5-per-cent increase in foreign direct investment (FDI) in China in August from the same period last year, but were instead greeted by a tiny 0.6-per-cent rise.
On one hand, the data series is choppy and volatile so there's no reason for panic. Further weakness would, however, have negative implications for global commodity prices.
This chart shows year-over-year FDI plotted against the energy-heavy S&P/GSCI Commodity Index. The correlation is significant but not extremely high at 0.63, however it's also clear that commodity prices appear to follow China FDI with a lag of a few months. Importantly, the vast majority of China's economic expansion – and the resource demand that results – is funded within the country. The decline in foreign investment does not necessarily feed through to slower growth overall.
Still, the economic data in China had been improving and the abrupt decline in FDI is a significant negative surprise, particularly after the surprisingly strong 24-per-cent surge in July. For investors in the resource space, another weak FDI number for September should not be taken lightly.
Scott Barlow is a contributor to Globe Unlimited. Click here to read more of his work, and follow Scott on Twitter at @SBarlow_ROB.
Scott Barlow