The Ministry of Commerce says fall is partly due to 'reshoring' activities

BEIJING - Direct investment from the United States to China continued to decline in October, partly as a result of the reshoring of manufacturing activity and the rising cost of labor in China, according to the Ministry of Commerce. However, the ministry said China's foreign direct investment (FDI) increased 9 percent year-on-year.

Ministry spokesman Shen Danyang said the decline in US investment is closely connected with the country's economic slowdown and a preferential national policy of attracting investment to stimulate the economy. This prompted some reshoring - the process of returning jobs and manufacturing to the company's home country -of manufacturing activity, but Shen insisted that this will not become a general trend.

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According to the ministry, October FDI into China increased to $8.33 billion, a rise of 8.75 percent from a year earlier. That was an improvement on September's 7.88 percent, but lower than 11.11 percent in August.

The ministry said US investment continued to decline in October, but it didn't provide data. However, between January and October, the figure fell by 18.13 percent year-on-year to $2.57 billion, 9 percentage points higher than during the first nine months of the year.

Between January and October, investment from the 27 European Union (EU) nations increased by 1.05 percent to $5.51 billion.

"The grim economic situation in the US and EU is the major cause of the decline, or the slowing growth, of their investments in China. Faced with such gloomy prospects, many companies are unwilling to invest or to add investment," said Shen.

In June, President Barack Obama pledged that the US would welcome direct investment from around the world to create jobs and boost the economy. Obama also emphasized that FDI would help the US to double its exports during the next five years.

"US enthusiasm for absorbing investment also provides encouragement for American businesses that own operations in China to swing back to the US and build factories there," said Shen.

"The reshoring negatively impacted China's performance in absorbing US investment in the high-end sector," he added.

A recent report by Boston Consulting Group said 3 million new jobs will be created in the US by 2020 as Chinese labor costs rise and reshoring of manufacturing activity continues.

Experts said the rising cost of labor in China is also pushing foreign investors to move their production and investment from China to neighboring countries.

"The reason behind the decrease (in US investment) is more likely related to foreign companies transferring production to other Asian nations, such as Vietnam and Indonesia, that enjoy lower labor costs," said Zhou Shijian, an expert on Sino-US economic relations at Tsinghua University in Beijing.

Nike Inc, the world's leading maker of sportswear, said Vietnam has already replaced China as its largest shoe-manufacturing base.

However, Shen pointed out that reshoring has only happened with a handful of companies and is unlikely to become a broader trend.

"I have no doubt about the future growth of US investment in China," he said.

"Despite veiled words (from some foreign companies) about China's investment environment, the country is still the world's most attractive investment destination. Companies from different parts of the world are investing, and will actively add investment, here," said Shen.

Between January and October, China's FDI surged by 15.86 percent to $95 billion, almost equal to the total amount in 2010.

Citing the rapid growth of the luxury market, the Hong Kong-based Emperor Group said recently that over the next five years it plans to annually open 10 to 20 new stores, selling jewelry and high-end watches, on the Chinese mainland, catering for all first- and some second-tier cities.

Investment from Japan gained by as much as 65.5 percent year-on-year, and investment from 10 Asian nations increased by 20.67 percent year-on-year to $81.9 billion.

After the March 11 earthquake, which caused the deceleration of the Japanese economy, Japanese companies "realized investment activities in China would be very beneficial, so they either transferred production or increased their investment in the country", said Shen.

The first 10 months of the year saw China's outbound direct investment climb by 14.1 percent to $46.25 billion, 33.7 percent of which was realized through mergers and acquisitions.