Foreign direct investment (FDI) inflows into China kept falling in July, the largest decrease since December, due to uncertainty in the world economy as well as tight land supply and rising labor costs throughout the country, the Ministry of Commerce (MOFCOM) announced Thursday.
China attracted $7.58 billion in FDI in July, down 8.7 percent from a year earlier, ministry spokesman Shen Danyang said at a press conference.
The results came after a raft of economic data was released, including export and CPI figures which showed that China's economy is still facing downward pressure, boosting expectations the government may speed up fine-tuning measures to bolster the economy.
The July figure extended the decline that started in November 2011, with the brief exception of a rebound in May when FDI edged up 0.05 percent from a year earlier to $9.2 billion.
For the first seven months of the year, the total FDI inflows dropped 3.6 percent year-on-year to $66.67 billion, Shen said.
Shen attributed the dropping FDI inflows to the slowdown of the world economy, the US government's call to revitalize their domestic manufacturing sector as well as competition from other emerging countries such as India, Brazil and Russia which have become hot spots for multinational companies.
"Domestically, tight land supply, rising labor costs and still suppressed domestic demand have eroded our competitive edge when attracting foreign investment," Shen said.
Investment inflows from the EU fell 2.7 percent from a year earlier in the first seven months to $3.97 billion, while investment from the top 10 Asian countries and regions dropped 3.8 percent in the same period to $57.3 billion, the ministry's data showed.
"The uncertainty in the world's economy will inevitably dampen foreign investors' willingness to invest abroad and foreign capitals that are sensitive to rising costs will flow to countries with cost advantages," Li Huiyong, chief analyst at Shanghai-based Shenyin Wanguo Research & Consulting, told the Global Times.
"Less funds means downside pressure on Chinese capital spending growth, and on GDP growth. This boosts the odds of more stimulus," Dariusz Kowalczyk, a senior economist at Hong Kong-based Credit Agricole CIB said in a research note sent to the Global Times Thursday.
The country's exports rose just 1 percent year on year to $176.9 billion in July, down from the 11.3-percent growth seen in June and well below market expectations of between 7 and 8 percent, customs data released last week showed.
"With the escalation of the euro debt crisis and the slow recovery of the world economy, China's trade situation will be more severe in the second half of this year and the pressure to meet the annual trade target will be even stronger," Shen, the spokesman said.
"The further slowdown of exports to, and foreign direct investment (FDI) from Europe, caused by the adverse economic conditions there, illustrate ever more clearly that China needs other sources of growth," Dirk Moens, secretary general of the European Union Chamber of Commerce in China said in a statement sent to the Global Times Thursday.
"Removing restrictions for investments and providing market access in a climate of fair competition between all players will be an important catalyst for this to happen," Moens said.
In his inspection tour of coastal province Zhejiang between Tuesday and Wednesday, Premier Wen Jiabao said the foundations for the economy to stabilize are still not firm and the economic difficulty will persist for a while.
However, Wen said the continuous decline in consumer prices will give the government more scope to adjust monetary policy.
The country's consumer price index (CPI), a major gauge of inflation, rose 1.8 percent in July to hit a 30-month low. The country's economy grew 7.6 percent in the second quarter, the slowest pace in more than three years.