Foreign direct investment in southern China may fall 60% this year, with regulatory risk and a lack of incentives seen as greater drags on investor confidence than the global financial crisis, according to a major survey by the region’s American Chamber of Commerce.
Total investments in the area by the companies surveyed were expected to fall to around $6.5 billion this year from $11 billion in 2008, the report showed. Some 551 companies participated in the survey, including multinationals like Procter & Gamble and Wal-Mart Stores Inc, with collective revenue of over $26 billion.
“We’re seeing signs of weakness, signs of lower investment amounts, but we also seeing signs of cautious optimism towards the future, and continued expansion of American companies,” said Harley Seyedin, president of the American Chamber of Commerce in South China.
China’s foreign direct investment in January fell 32.6% from a year earlier to $7.54 billion, although the figure was distorted by a traditional dip during the Lunar New Year holiday. Officials noted, however, that the figure was still above the average inflow of $6.2 billion in the few months after the deepening of the global financial crisis in September.
Asian exports, including those from China, have crumbled in recent months as key markets such as the United States and Europe fell into recession. Rather than the crisis itself, however, Amcham said China’s sudden and frequent regulatory shifts including on VAT processing directives over the past year were a key factor for reduced investment confidence among foreign firms.
“There’s no doubt that some businesses are unwilling to invest when they don’t know how the next regulation is going to invest their next investment.” Amcham also urged Chinese authorities to reinstate more investment incentives like tax breaks and land concessions to avoid losing FDI to regional rivals like India and Vietnam.
Amcham’s South China results contrasted with the more bullish findings of a survey by Amcham last month in Shanghai, in which firms were upbeat on the FDI outlook given China’s strong growth prospects.
Despite the closure of tens of thousands of factories and millions of layoffs of workers over the past year, the survey suggested overall business sentiment remained fairly robust.
Some 92% of firms said they were already profitable or would be within two years, while 29% said the overall business environment had “decreased somewhat” and only 5% said it had “decreased greatly”. “We have absolutely no sign of any American companies downsizing or closing,” Seyedin told reporters in Guangzhou.
While projected investments were likely to wane in South China in 2009, the net amount of expected investments over a three-year-period was still expected to reach around $10.9 billion, the survey found. (Reuters)