China’s Foreign Investment Rebounds

Industry groups representing multinationals are grumbling again about China. They’re upset about new “indigenous innovation” policies encouraging the purchase of locally-generated technology. See, for instance, comments from the head of the Business Software Alliance in a story I wrote last week, “Software Industry Loses Patience with China.” Other industries are angry, too, as Forbes reports in this story, “Growing Bearish: U.S. companies despair of doing normal business in China.” According to Forbes, China used to go out of its way to encourage foreign investment. Now, “American business leaders in a range of different industries are ringing the alarm” as Chinese leaders decide they don’t need to worry so much about promoting foreign investment. Indeed, Forbes writes, “Beijing seems to have had a change of heart.” Throw in the problems Google has had with Beijing, China’s imprisonment of four Rio Tinto employees and foreign irritation with Premier Wen Jiabao’s hardline position on China’s currency and you seem to have a formula for foreign businesses to rethink their commitment to the People’s Republic.

The latest numbers on foreign direct investment (FDI), though, don’t quite support the argument that Beijing’s new policies are having much of a negative impact. FDI rose 4.86% in the first two months of the year, an increase that AFP interprets as “a sign of growing confidence in the world’s third-largest economy.” (We need to look at the first two months because the week-long Chinese New Year holiday was in January in 2009 and in February this year, thus distorting the monthly figures.) The two-month total of $14 billion is down from the $18.1 billion in January-February 2008, before the crisis hit. Still, the nearly 5% year-on-year increase is a good indication that, despite the complaints from some chambers of commerce about annoying policy changes from Beijing, companies remain keen on building up their China operations.

The bad news for the multinationals: The latest figures might make Chinese officials feel even more confident that Western businesses are just bluffing when they say China’s indigenous-innovation push is scaring away investment. For more on FDI in China and around the world, check out this slide show by my colleague Andy Reinhardt on the top 25 countries for FDI. China, as it has been every year since 2002, is No. 1.

Read the original story at BusinessWeek Eye on Asia Blog