China, the world’s second largest economy, saw foreign investment fall 4% in 2012, the first drop since the global financial crisis began. The shift was from the record $116 billion in 2011 to $111.7 billion in 2012, and does not necessarily mean that investor confidence in China is waning. Having more than doubled sincd China joined the World Trade Organization in 2001, FDI may simply have reached a plateau between $110 and $120 billion.
In order to improve direct foreign investment, incoming president Xi Jinping is expected to provide incentives by relaxing capital account controls. However, China’s Commerce Ministry believes that it will be difficult for China to increase foreign investment because manufacturing companies are pulling out of China [which is no longer low in cost], though spokesman Shen Danyang points out that there is no large-scale pullout. While foreign investment is an indicator of economic health, it only represents a small fraction of China’s overall [international?] flows, as exports were $2 trillion in 2012 and GDP growth reached 7.8%. FDI in China is at par with the United States, which narrowly edged China in 2012. From NYTimes.