China’s trade outlook for 2012 is worsening, darkened especially by growing problems in Europe, the Commerce Ministry said on Thursday as it revealed the longest run of falling inward investment growth in the economy since the 2008-09 global crisis.
The ministry singled out problems in the European Union — China’s biggest overseas market — as the core difficulty for exporters to overcome as it published data showing foreign direct investment (FDI) from the EU fell 2.7% year on year to $4.0 billion U.S. in the first seven months of 2012.
"Right now, the sharp drop of exports to E.U. countries is the biggest important factor weighing on China’s export growth," Commerce Ministry spokesman Shen Danyang told a news conference held alongside the publication of FDI data.
China aims to grow total trade by an average of 10% in 2012, but shipments have been volatile so far this year.
Data published earlier this month showed China’s exports to the E.U. sank 16.2% year-on-year in July to 29.4 billion.
July export growth overall virtually stalled, up just 1.0% on a year ago versus the consensus estimate in a Reuters poll of an 8.6% expansion. Import growth was 4.7% year-on-year in July against expectations of 7.2%.
Weaker trade and factory output data and persistent global weakness has led some analysts to question whether the economy would slowly rebound in the third quarter, as many market watchers had expected just a few weeks ago.
China’s economy expanded at its slowest pace in more than three years in the second quarter, up 7.6% on 2011 as demand at home and abroad slackened, confirming a downtrend that has full-year growth on course for its weakest since 1999.
The consensus forecast in the latest Reuters poll is for growth of 8% in 2012.
As exporters battle with a global economic slowdown, falling inward investment is doubly worrying for investors as around 200 million jobs in the country are estimated to be oriented towards the external sector and fixed asset investment generates about half of China’s economic output.
The Commerce Ministry said China drew $66.7 billion U.S. in foreign direct investment (FDI) between January and July, down 3.6% on the same period a year earlier. July’s inflow alone was $7.6 billion U.S., down 8.7% on-year.
China’s Communist Party leadership envisages consumers in the 1.3-billion-strong population becoming the engine of economic expansion in a generation to come.
Shen said that the FDI drop was only temporary and that multinational companies were still confident about China’s prospects, despite data showing a 6.4% fall in manufacturing FDI and a 3.2% drop in service sector inflows in the first seven months of 2012 versus 2011.
Firms in the United States, Germany, Singapore and Japan appear to bear him out.
Year-on-year data for July showed inflows from Germany jumped 27.1% to $1 billion, while those from Singapore surged 25% to $4.4 billion U.S. and commitments from Japan grew 19.1% to $4.7 billion U.S. U.S. inflows ticked 1% higher to $2 billion U.S.
China drew a record $116 billion U.S. in foreign direct investment last year. The Commerce Ministry aims to attract an average of $120 billion U.S. in each of the next four years. It is roughly on course to hit the target in 2012.
China’s total outbound direct investment from non-financial firms in the first seven months totaled $42.2 billion U.S., up 52.8% year on year.
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