Wednesday, April 15, 2009

FDI into China declines for the 6th month straight

Not good news on the heels of already mixed messages emerging from the stimulus passed a few months back.

Even if China's stimulus can get the domestic economy going, it alone will not be enough to bring it out of recession... no less help the global economy economy get back on its feet as many hope.

According to this Bloomberg article:

FDI has dropped 9.5% to $8.4 billion from a year earlier.

Month wise, February FDI dropped 15.8% in February.

Consumer spending fell 20.6% percent to $21.8 billion.

“Foreign direct investment will continue to drop in the coming months as multinationals face a continued credit crunch and a deeper world recession,” said Lu Zhengwei, a Shanghai- based economists at Industrial Bank Co. “Investors will remain cautious until the world economy and consumer demand recover.”

China’s government said last month it will simplify approvals for overseas capital entering the nation by giving local governments more authority to approve such spending.

In response the Chinese government is planning:

To continue providing liquidity to ensure loan growth in order to keep demand flowing (click here to read more about China's surging loans)

Rural-sales programs through the provision of billion yuan ($2.9 billion) in subsidies for rural consumers buying electronics, home appliances, cell phones and other commodities. The government hopes this will allow the economy to tap into a very unexploited consumer market, numbering hundreds of millions of people.

If China could get the rural economy going it would be a great move for macro economy in the long term. When I was studying rural economics a continuous theme presented by the government was their hope the rural areas of China would develop in response to migrants sending money home and bringing a sophisticated mentality back when they visit or move home.

China is also counting on its rural population of 350-600 million to enter the mainstream economy.

Buy goods and services. Pay taxes to build their own new roads and schools. Rent empty apartments. Save their money in Chinese banks. Buy Chinese stocks. Basically to help in increasing China's GDP and overall level of development..