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China has been the first nation to come out of the dark clouds of recession. In my past articles I have tried to depict a picture of the Chinese economy as well as draw correlation with our Indian economic growth. We have seen Chinese economic growth from all sectors some correlated with Indian economic growth.

Chinese FDI investment has taken a major hit among all these growth stories. FDI fell in 2009 for the first time in four years in china. In 2009 china was able to bring forth $90 billion FDI to its economic shores.

When we dig into further numbers of FDI we found that:

� Rose for the fifth straight month in December, increasing 103% from a year earlier to $12.1 billion

� In November 2009, foreign investment rose 32% from a year earlier to $7.02 billion

� October's $7.12 billion was the FDI flow.

We also found the sectors which attracted the flow of FDI to get the real picture of Chinese economic growth fro long term. At the same time the number of approvals of projects and ventures gave us the idea of the aggressive financial and economic policy of china towards economic growth.

� The government approved the establishment of 23,435 overseas-funded ventures in 2009, down 14.8% �from a year earlier.

� In December alone, China approved 2,835 such companies, representing a year-on-year increase of 10.7%

� The flow of FDI money was in manufacturing, despite a decrease of 6.26% year on year. This sector got an inflow of 46.77 billion U.S. dollars FDI in 2009

� This also accounted for 51.95% of the total FDI. This also the prime reason for the rising overcapacity bubble of Chinese manufacturing apart from the stimulus funding.

� On the other hand service sector attracted 37.87 billion U.S. dollars, down 0.67% from that in 2008, and this accounted for 42.06% of the total.

� FDI in the real estate sector is 16.8 billion U.S. dollars in 2009, a decrease of 9.65% annually. Despite of this the real estate sector in china was over bubbled with prices of property already touching the sky levels.

The total investment in overseas markets, 40.4% or 17.5 billion U.S. dollars was used in mergers and acquisition, technology introduction, marketing, and energy and resources. Return on investments in Chinese economy is around 9% to 105 making it the 2nd economy in the global footprint to generate such return.

China has always made a higher estimation of its FDI inflow. Hence all its policies were designed in such a way that it pulls all the industries from US and Europe to start their operations in China. 

What makes china so lucrative to FDI?

� One of the reason for such huge investments in Chinese economy is that the cost of production is very cheap as yen is much lower valued as compared to major currencies.

� China has also a higher margin of savings in hand which have resulted to increasing demand despite of recession.

� The biggest disadvantage of highest population has turned into the biggest advantage for the Chinese economy attracting investments in China. Setting up base in China will act as a hub for supplying the greater China economies that include the Shanghai economy, Taiwan economy and Indian economy.

� Doing manufacturing in china not only makes the price competitiveness but also helps to reach the product to other Asian countries associated with China.

� This also results to economies of scale for companies doing business in china. If they do the business in US or Europe they will not be able to find the huge population of India and China.

Strange fact is that China have been able to attract FDI investments despite of US and Europe recession war. These FDI investments have also increased the reserves of China. China's foreign exchange reserves, the world's largest, grew 23% in 2009.

In the year 2010 china will face the hurdle of slow economic growth followed with slow export growth. Domestic demand will be in the upswing remaining more or less the same like 2009.The real reason behind slow export and economic growth of china is that when US and Europe will start economic growth they will do this at the cost of china economy.

No economy can grow until one closes the sale of the products of the shop next to him. China has replaced the goods of US from the shop floors of Us itself. Moreover the companies who are producing goods in china and doing export to US and Europe are the companies of the importing countries.

Once those economies starts they journey of their growth china will be on the verge of high risk of over capacity production and WTO cases against China will also rise .Monetary polices of china will remain under stringent pressure as it will be demanded to bring its yen value parallel to other currencies valuation.

So doing investments in china is 2010 will be bit risky and needs a wait and watch policy of the world economy in correlation to Chinese economy.

Category Others, Other Articles by - Indraneel Sen Gupta