Foreign direct investment in China grows at strongest pace in 4 years in January

BEIJING (Reuters) - Foreign direct investment (FDI) in China grew at its strongest pace in nearly four years in January, surging 29.4 per cent from a year earlier to $13.9 billion as investors largely shunned the troubled manufacturing sector and focused on the more resilient services industry.

But analysts cautioned about reading too much into economic indicators for January alone, given the strong seasonal distortions caused by the timing of the Lunar New Year holidays, which began on Jan. 31 last year but start on Feb. 19 this year.

January FDI rose 4.5 per cent from December, the Commerce Ministry said on Monday. In terms of value, January FDI was the highest since June 2014.

Earlier data showed FDI in China rose just 1.7 per cent in 2014, the slackest pace since 2012. The weak performance underscored a cooling economy which is spurring more Chinese firms to plough money into assets overseas in a trend that is soon set to overtake inbound investment.

Foreign direct investment is an important gauge of the health of the world economy and is also a good indicator of where capital is flowing within the country.

Shen Danyang, the ministry's spokesman, told reporters that China's foreign direct investment will be stable for 2015, but it was too early to predict whether China will continue to be the world leader in attracting FDI this year.

China overtook the United States to become the top destination for FDI in 2014, largely due to falling inflows caused by a deal between U.S. firm Verizon Communications Inc and its British partner Vodafone, according to the United Nations economic think-tank UNCTAD.

"We are fully confident that China's FDI will be among the highest in the world (this year)," Shen said.

But he conceded that China's foreign trade still faces many uncertainties as the global economic recovery remains fragile.

He added that while the world's second-largest economy should pay attention to deflationary risks, China has not sunk into a deflationary cycle.

In January, the top 10 investors, led by Hong Kong, South Korea, Singapore, Taiwan and Japan, made up for 96.5 per cent of China's FDI, the ministry said.

In line with China's manufacturing slowdown, the data showed investors were flocking to the services industry, which has remained relatively buoyant.

Foreign direct investment in the services sector hit US$9.2 billion in January, up 45.1 per cent from a year earlier and accounting for 66 per cent of total FDI.

China's outbound direct investment (ODI) hit US$10.2 billion in January, up 40.6 per cent from a year earlier, the ministry said.

Last year, China drew a record US$119.6 billion worth of FDI, while ODI surged 14.1 per cent to a new high of US$102.9 billion.

The government has been encouraging Chinese firms to invest abroad to help them become more competitive internationally, utilise their surplus capacity, and help slow down the rapid build-up of foreign exchange reserves.