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Beijing vows 'stability' as foreign investment falls amid global woes
Associated Press - December 15, 2011
The $8.8 billion in FDI in November – down 9.8 percent from a year earlier – was a sudden deterioration compared with an increase of 8.8 percent in October, the Commerce Ministry said. FDI covers spending on physical assets such as factories and doesn't include financial assets such as stocks.
Exports, industrial production and property dealings are slowing, and China's leaders wrapped up their annual economic planning conference on Wednesday with statements suggesting they will be more pro-active in moving to fend off the chill from the European debt crisis.
With the European Union – China's largest export market – in the doldrums, Commerce Ministry spokesman Shen Danyang described trade prospects as "grim" on Thursday.
After 30 years of rapid growth, the economy is bound to slow, Yu Bin, head of macroeconomic research at the Development Research Center of the State Council, or cabinet, said on Thursday.
"We believe China is now coming to the end of this period of high economic growth," he told reporters in Beijing. The question is by how much.
The economy grew 9.1 percent in July-September, after expanding 9.5 percent in the first half of the year. Yu said the government's forecast for growth in the coming year was "lower than 9 percent."
Three years ago, with exports plunging, a 4 trillion yuan ($586 billion) stimulus package backed by lavish bank lending helped China's manufacturing sector bounce back quickly from the ripple effects of the global crisis. Investment in construction projects and real estate went into overdrive.
That helped shift the economy toward a greater reliance on domestic demand instead of exports – a needed rebalancing sought both by Beijing and by its trading partners. But the lending spree was so heavily weighted toward investment that it failed to raise consumer spending as a share of the economy, economists say.
Investment rose from 43 percent of economic activity in 2008 to over 50 percent in 2010. Consumer spending, the lion's share of activity in most modern industrial economies, fell.
"The failure to make significant progress in reorienting the economy toward household spending is now being exposed as foreign demand is again slowing," economist Mark Williams of Capital Economics said in a research note on Thursday.
Export growth has fallen steadily since hitting a peak of nearly 36 percent in March, and economists are forecasting foreign trade will be a drag on growth next year.
FDI in January-November rose 13.2 percent to $103.8 billion – a slowing from the 15.9 percent increase from January-October.
An 18 percent increase in investment from other Asian economies to $89.6 billion, helped to offset a 23 percent decline in US spending this year, as of the end of November, to $2.74 billion. Investment from the EU held steady, edging up 0.3 percent from a year earlier to $5.98 billion.
At their yearly economic work conference, Chinese leaders pledged fine-tuning to ensure stable and more balanced growth while fighting inflation, but offered no major shifts in policy.
The gathering endorsed the ruling communist party's agenda for keeping a "prudent" monetary policy to counter inflation and a "pro-active" fiscal policy to support growth.
It also pledged to keep curbs on the property sector in place to guard against a rebound in prices, and called for keeping the value of China's currency, the yuan, "basically stable," according to a statement issued by the official Xinhua News Agency.
China plans to prop up falling exports by setting up special trade "bases" and aiding exporters in inland areas, which have lagged behind the richer coastal regions, state media cited Commerce Ministry officials as saying.
Tax cuts and increased government spending in key areas such as high-tech and energy are also likely, though analysts say they do not expect stimulus comparable to the 4 trillion yuan package deployed in response to the 2008 global crisis.
By targeting specific sectors, authorities aim to prevent the sort of runaway investment, driven by bank lending, that drove inflation to 6.5 percent in July and has left housing prices prone to inflate into financially risky bubbles.
With labor unrest flaring and financial conditions deteriorating across many sectors, from small companies to government-backed building projects, Beijing's mantra is "stability."
That word was repeated five times in just one sentence of the official dispatch that vowed continuity in policies for the sake of keeping social stability.
An expected transition next year to a new generation of communist leaders has accentuated Beijing's obsession with keeping control.
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