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China on course to beat govt growth target: IMF
by Staff Writers
Beijing (AFP) July 17, 2013

FDI into China climbs in first half: government
Beijing (AFP) July 17, 2013 - Foreign direct investment (FDI) into China rose 4.9 percent year-on-year during the first half of 2013, official data showed Wednesday, despite slowing growth in the world's second-largest economy.

Outbound investment from China leapt 29.0 percent to $45.6 billion, the commerce ministry announced, with major increases in the crucial US and Australian markets.

Incoming FDI, which excludes financial sectors, increased to $62.0 billion from January through June, the ministry said. For June itself, it rose 20.1 percent year-on-year to $14.4 billion.

"Investment from Japan, the EU and US maintained rather rapid growth," ministry spokesman Shen Danyang told reporters.

Japan invested $4.7 billion in the six-month period, up 14.4 percent on year, with EU investment 14.7 percent higher at $4.0 billion and that from the United States rising 12.3 percent to $1.8 billion.

The vast majority of investment into China comes from a group of 10 Asian countries and regions including Hong Kong, Taiwan, Japan and Singapore.

Inflows from those economies gained 5.3 percent on-year to $53.8 billion during the first half.

Inward investment fell in 2012 for the first time in three years as clouds gathered over the global economy such as in Europe, while China suffered its own economic slowdown and political tensions soared with Japan.

"It is premature to come to the conclusion FDI has recovered with the single month data in June," Shen said. "But FDI was relatively stable in the first half and gradually rebounded.

"We expect FDI to maintain steady growth in the second half of the year."

China's economy grew at its slowest pace in 13 years in 2012 as gross domestic product expanded 7.8 percent.

In the first half of this year growth slipped again to 7.6 percent, Beijing said this week.

Chinese overseas investment increased significantly in the period, with money flowing into the United States almost quadrupling, jumping 290 percent year-on-year.

It almost doubled into resource-rich Australia, where it went up 93 percent, and investment into the European Union also rose 50 percent.

However, investment into Japan, with which China is embroiled in a row over disputed islands in the East China Sea, fell 9.1 percent.

Shen said the fall was mainly a result of a widening choice of investment destinations for cash-rich Chinese companies, as well as "investment barriers" in Japan.

"Whether the Japanese economy and its investment environment is the most ideal among all the countries and regions for (Chinese) companies to go is up to the market and the companies to decide," he said.

In May China's Shuanghui International announced it would buy US meats giant Smithfield for $4.7 billion, while Australia is a crucial source of commodities for Beijing.

Mergers and acquisitions accounted for around 30 percent of China's investment in the first half, Shen said, citing oil giant CNOOC's $15.1 billion purchase of Canada's Nexen -- the largest ever overseas takeover by a Chinese firm -- as an example.

The most appealing sectors for Chinese investors were construction, which surged 541 percent in January-June, science and technology (151 percent), mining (142 percent) and real estate (110 percent).

The International Monetary Fund on Wednesday said China's economy is on course to grow 7.75 percent in 2013 -- higher than the government's 7.5 percent target and actual growth of 7.6 percent in the first half of the year.

But the IMF also expressed concern about looming financial risks and warned that, longer term, annual economic growth rates could plummet if China fails to follow through with promises to rebalance its economy.

For this year and next, however, the IMF sees no significant risk for a sharp slowdown in the world's second-largest economy, said Markus Rodlauer, the Fund's mission chief for China.

"The latest data confirm that growth is on track more or less towards the authorities' growth target and probably even slightly higher than that," Rodlauer told reporters on a conference call.

"While there are some downside risks to this outlook, we are quite confident that growth is on a solid, reasonable path," he added.

Rodlauer spoke as the IMF released documents covering the results of its regular "Article IV consultation" with the Chinese government.

China's leaders are vowing to pivot the economy away from reliance on exports and investment and steer it towards domestic demand as the primary growth driver.

The IMF welcomed that aim, saying such a "reform strategy... charts a path toward mitigating risks, rebalancing growth, and addressing income disparities, thus safeguarding China's important contribution to global growth".

Longer term, however, the Washington-based Fund warned that sustaining strong future growth depends on following through with reforms.

"Time is running out on the current model," it said, cautioning that economic growth could eventually slow to about four percent, while per capita GDP "would remain about a quarter of that of the United States through 2030".

The IMF's optimism for growth prospects this year comes after private economists expressed alarm following slowing growth the past two quarters, with some doubting the government can achieve its target.

The National Bureau of Statistics announced Monday that China's gross domestic product (GDP) grew 7.5 percent year-on-year in the April-June period.

That represented a deceleration from the first quarter's 7.7 percent, which in turn was worse than 7.9 percent in the final three months of 2012.

China's economy, a key engine of global growth, grew 7.8 percent last year, its worst performance since 1999.

The IMF's latest growth assessment is unchanged from late May when it downgraded its outlook from the previous 8.0 percent. The institution also sees Chinese growth barely changing in 2014, at 7.7 percent.

The Fund cited "resilient domestic demand offsetting lingering weakness in the external environment" as backing up this year's expected growth.

Prospects, however, were "clouded by mounting domestic vulnerabilities in the financial, fiscal and real estate sectors", it said.

Rodlauer noted that China has maintained growth since 2008, the year of the global financial crisis, via heavy reliance on credit expansion and investment, which he said has also helped boost other economies and lessened the impact of the turmoil.

"However this heavy reliance on investment and credit is not sustainable," he said.

Total social financing, a broad measure of credit including traditional bank lending and newer kinds of credit, has jumped to almost 200 percent of GDP currently from about 130 percent in 2008, he said.

Reforming the financial sector, he added, "will be critical" to protect financial stability and bring about "the transition to a more balanced and more sustainable growth path".

The IMF urged China to "contain risks to financial stability by reining in credit growth and non-traditional forms of lending".

A cash crunch roiled Chinese financial markets late last month before the central People's Bank of China, which had ordered banks to strengthen liquidity management, moved to calm nerves with an offer of support.

The turmoil, though brief, highlighted mounting concerns over excessive lending by banks and other problems in China's financial system, including opaque non-bank forms of lending, often called "shadow finance".


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