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European Foreign Direct Investment in China increases

26 February 2013

Despite the fears of a decline in foreign direct investment (FDI) from European states caused by the Eurozone crisis, EU companies continue to increase their investment in China. A comparison of January 2012 and January 2013 data shows that during that time, FDI increased by 81.9 per cent to approximately €628 million, primarily from companies based in France, Germany, Sweden and Denmark. As the largest European investor, French foreign investment reached some €224 million, followed by Germany with €88 million and Sweden with €83 million in January 2013. Sweden recorded an enormous year-on-year FDI surge of around 4,060 per cent, whereas Denmark increased its business investment in China by 325 per cent.

According to Arnaldo Abruzzini, secretary-general of Eurochambers, “EU businesses have been eyeing the Chinese markets for more than two decades and now smaller companies think that the time is ripe to invest“. Frederik Erixon, director of the European Center for International Political Economy, explains the growing trend is due to “China’s continued economic expansion and the necessity to invest in production facilities close to the market”.

Even though FDI from the EU surged last month, overall FDI in China dropped by 7.3 per cent year-on-year due to the global economic slowdown and concerns over China’s recovery. In total, China registered €7.1 billion in FDI in January 2013. The decrease is in line with a consecutive 14-month trend, with the exception of May 2012 when it increased by around 0.05 per cent. A spokesman of the Chinese Ministry of Commerce clarifies that the January 2013 figures do not capture the full picture and asserts that China still remains an attractive country to invest in. “The FDI figure is unlikely to see a sharp drop this year, but will remain at a relatively steady level”, the Chinese official continued. Due to the higher labour costs in the manufacturing industry in China, China is experiencing, to some minor extent, an outsourcing trend to other countries in Asia and Latin America.

U.S. investment in China declined during the same period by 20 per cent to €207 million last month. Japanese investment also went down 20 per cent to €490 million. The island dispute between Japan and China drove down Japanese business interest in China, according to Song Hong, an economist at the Institute of World Economics and Politics.