China drew in $29.5 billion in foreign direct investment (FDI) in the first quarter, down 2.8 per cent from a year ago, while inflows in March fell 5.6 per cent to $11.8 billion, data from the Commerce Ministry showed on Tuesday.
This follows a $124 billion first quarter surge in China's foreign exchange reserves, reversing a rare decline of $20.6 billion in the fourth quarter, showing that capital is flowing back into the country on a path firm enough to underpin credit creation and money supply growth.
“For foreign investors, China remains attractive compared to other countries,” Zhao Hao, economist at ANZ Bank in Shanghai, told Reuters.
China's economy grew at its slowest in nearly three years in the first three months of 2012, with a weaker than expected reading raising investor concerns that a five-quarter long slide has not bottomed and that more policy action would be needed to halt it.
The annual rate of GDP growth in the first quarter slowed to 8.1 per cent from 8.9 per cent in the previous three months, the National Bureau of Statistics said on Friday, below the 8.3 per cent consensus forecast of economists polled by Reuters.
China has eased monetary policy twice since the autumn of last year when it began a program of fine-tuning moves to help shield the country from a slowdown in the global economy, cutting 100 basis points from the proportion of deposits banks must hold as reserves.
That has created an estimated 800 billion yuan ($127 billion) of new lending capacity in the financial system and economists forecast another 1.2 trillion yuan is waiting in the wings, earmarked to be released in 150 bps of further cuts to the required reserve ratio (RRR) through the remainder of 2012.
Chinese banks extended 1.01 trillion yuan ($160.1 billion) worth of new loans in March, way above forecasts for 800 billion yuan, a sign of fresh traction in China's efforts to boost credit creation to support a cooling economy.
The People's Bank of China said last week that broad money supply rose 13.4 per cent in March from a year ago, stronger than market expectations for 12.9 per cent growth and ahead of the previous month's 13 per cent pace.
China also returned to an export-led trade surplus of $5.35 billion in March, after a $31.5 billion deficit in February, heralding the prospect that a rebound in the global economy is lifting overseas orders just in time to compensate for a slowdown in domestic demand.
ON COURSE FOR RECORD
The March FDI data leaves China on course to surpass the $116 billion record inflow seen in 2011. The Commerce Ministry targets and average of $120 billion in investment flows in each of the next four years.
To help deliver that goal it has drawn up new rules to encourage foreign investment in strategic emerging industries, particularly those that bring new technology and know-how to China.
Meanwhile, China's efforts to expand its own direct investments in foreign countries were revealed to be surging. Outbound FDI rose 94.5 per cent in the first quarter versus a year ago to stand at $16.55 billion.
“In the future, the trend is that FDI inflows will pick up while outbound FDI will rise even faster, so the net inflows will fall,” Mr. Zhao said.
Investment inflows, which surged in the years after China joined the World Trade Organization in 2011, have recovered strongly after being hit hard by the global economic slowdown.