European investors cool toward China

China's economic slowdown and the sovereign debt crisis have taken a toll on bilateral investment between China and Europe, recent data shows.

Foreign direct investment from the European Union to China declined 6.3 percent year-on-year from January to September to $4.83 billion (3.7 billion euros), according to the Chinese Ministry of Commerce. China's outbound investment to Europe also dropped by 30.3 percent over the period, compared with a 35 percent increase to Russia and 22.2 percent to Japan.

Foreign direct investment fell for the 10th time in 11 months in September, reaching $8.43 billion, down 6.8 percent year-on-year. This year only May bucked the downward trend with a slight gain, according to the ministry. In total, the first nine months saw China's FDI decline 3.8 percent year-on-year to $83.42 billion.

"Decline is the general picture for FDI in China as rising costs have reduced its attraction for foreign investors and investment opportunities have shrunk following rapid rises in FDI over recent decades," says Li Xunlei, deputy general manager and chief economist at Haitong Securities Co Ltd.

According to Xiang Songzuo, chief economist of the Agricultural Bank of China Ltd, slowing economic growth combined with poor global economic conditions have dented the enthusiasm of foreign investors.

"China still needs FDI, but investment is more likely to flow to fields such as the Internet and finance and foreign investment guidelines will be subject to further adjustment," he says.

Xiang adds that slowing FDI inflows will affect China's economic restructuring and shows a lack of optimism among foreign companies about China's economic prospects.

China's GDP growth slowed from 9.7 percent in the first quarter of 2011 to 7.4 percent in the third quarter of this year, dragged down primarily by a decline in investment and exports.

"In the short term, declining FDI will not severely affect China's economic growth. But economic expansion will almost certainly slow in the future," Li says.

"China will maintain relatively fast economic growth and retain a certain attraction in terms of FDI. But the challenges will increase from other emerging economies, such as Vietnam, India and Indonesia."

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