Foreign investment freefall eases

In comparison with other economies, China is still poised¹ to be among the first choices for global investors² in the next five years, the Ministry³ of Commerce said.

According to the figures released by the ministry Monday, in May, the FDI dropped 17.8 percent compared to a year earlier - equaling $6.38 billion. The number of newly approved foreign enterprises contracted by 32 percent to 1,649.

The figures exclude those in the financial sector⁴.

But May's performance was better than April's, when the FDI registered a negative growth of 22.5 percent.

Between January and May, the FDI fell by 20.4 percent year-on-year to $34.05 billion and newly approved foreign enterprises dropped by 33.8 percent to 7,890.

In the same period, foreign investment in China's central and western regions fell by 35.7 - more than the national average. Newly approved foreign enterprises fell 30.2 percent. For several years prior to the financial crisis, the regions had seen higher rates than the national average.

Yao Jian, Ministry of Commerce’s spokesman, noted⁵ the central and western regions' sharp decline: "The coastal⁶ areas have the advantage of having gathered a much larger number of foreign investment enterprises in the last three decades."

Encouraged by confidence from global investors in China's 4 trillion yuan stimulus⁷ plan, the "decline in FDI will probably be slowing during the rest of the year," predicted Li Jianfeng, macro-economics and trade analyst⁸ with Shanghai Securities.

"There is a good chance that the FDI will register a positive growth in the last quarter, given the low reference point in 2008," he added.

During the first quarter, the FDI decline showed some signs of bottoming out. But in April, the performance went down again by 22.5 percent, compared with a decline of 9.5 percent in March.

At the same time, the International Monetary⁹ Fund predicted China's GDP would grow by 6.7 percent this year, 1.3 percentage points lower than the Chinese government's target, but higher than the 5.25 percent of India and 5 percent for Vietnam, two countries vying¹⁰ for FDI.

The stimulus plan is having an effect, said Yao, who pointed¹¹ out that retail¹² volume rose to 4.88 trillion yuan in the first five months, up by 15 percent year-on-year.

Yao predicted that in 2009, China's FDI will contract by an annualized 20 percent in contrast to last year's growth of 27.65 percent.

Questions:

1. Name two countries vying for FDI.

2. What kind of effect the stimulus plan is having on retail according to Yao?

3. How big is China's stimulus plan?

Answers:

1. India and Vietnam.

2. Retail volume rose to 4.88 trillion yuan in the first five months.

3. 4 trillion yuan.