China's foreign direct investment decreased roughly 3.7 percent in 2012 from 2011. It is a first fall in China's annual FDI since 2009, according to the official figures. China saw its 2012 FDI drop as investors either had not been so keen on investing in emerging markets due to current economic conditions or had been choosing to transfer their businesses to markets with cheaper workforce.

China's 2012 FDI

On the 16th of January, the Ministry of Commerce posted data showing that China's FDI in 2012 decreased approximately 3.7 percent to roughly $112 billion, down from a record $116 billion in 2011. China, however, saw its non-financial investment abroad climbed as much as 28.6 percent to slightly over $72 billion. As for December 2012, China's FDI declined roughly 4.5 percent to approximately $11.7 billion from a year earlier.

FDI is thought to be a significant indicator of the conditions of the external economy. As China's manufacturing sector is much externally-oriented, latest data showed that political leaders should be observing economic trends carefully so that they can react efficiently and effectively.

According to released data, China saw investments inflows from the European Union decline as much as 3.8 percent to about $6.1 in 2012 from a year earlier. But the world's second largest economy also posted drops in FDI from the top 10 Asian economies, including Hong Kong and Singapore. Data showed that it decreased approximately 4.8 percent to more than $95 billion in 2012. But the investment from Japan, which is also in the top 10 Asian economies, jumped about 16.3 percent to nearly $7.4 billion. Also FDI from the United States increased roughly 4.5 percent to slightly over $3.1 billion.

As for full-year FDI in the service sector, data showed that it declined roughly 2.6 percent to as much as $53.8 billion. The bigger decline was noted in full-year FDI inflows in the manufacturing sector decreased about 6.2 percent to nearly $49 billion form a year earlier.

Despite the fact that the world's second largest economy posted a significant increase in exports and imports in December, certainly data on FDI might be unsetting as China missed the 10 percent growth forecast for trade in 2012. However the Ministry of Commerce underlined in the released statement: "The growth momentum of investment from some developed countries including the United States and Japan was good," adding that Chinese direct investment rose about 28.6 percent to over $77.2 billion in 2012 compared to a year earlier.

Investment Exodus from China

Just few years back, China was a desirable destination for many foreign investment projects. However, the world's second economy, is losing its extreme predominance as the investment destination due to rising cost of land and workforce, financing costs as well as ecological constraints. Analysts are convinced that other emerging markets, such as Indonesia, might benefit from the current trends as they are becoming more competitive and profitable for investors.

Yet, it is natural that foreign investors come and go as their seek the best places for their businesses. And even though some international companies have withdrawn their investments in China, it does not mean that China has lost its investment attractiveness. Indeed, foreign investors have been pulling out from China as they have seen the second largest economy struggling. However the government of the People's Republic of China is taking steps to secure the country from uncertainties and persuade foreign companies to invest.

Industry Leaders Magazine