Indian FDI catches up with the dragon

NEW DELHI: India may soon have a chance to catch up with China as far as attracting FDI is concerned. Experts predict that foreign investments into China may soon be heading for a downward trend.

A large number of Chinese companies have indicated that their foreign partners are reducing investments in the country, according to a leading global business intelligence and analysis group Stratfor. Foreign direct investment (FDI) declined by 0.7% in the first half of ‘06 in China compared to India where FDI grew by 158% between January and March ‘06.

Major investors in China like South Korea, Japan and USA have decreased their investments in the Asian dragon. FDI into China from South Korea dropped by 39.49%, from Japan dropped by 31.37% and from the United States it dropped by 18.27%, in the first six months of ‘06. While the decline may not be much, it is the loss of investor confidence on the part of South Korea in China that has run alarm bells for other countries, says a recent report prepared by Stratfor.

The business intelligence and analysis group points out that if the trend continues it may lead to substantial loss of employment in China. The reason is that FDI accounts for almost 60% of exports from the country, making it an export-driven economy. India on the other hand is not dependent on FDI for exports. FDI is coming into the country to cater to its huge domestic market and a burgeoning middle class.

From automobiles to IT and electronics hardware, India has a huge demand for a wide range of products.China also seems to be fighting hard to keep its face together. In ‘05, China revised its FDI numbers upward, to counteract statistics showing a decline in FDI. China, however, claimed that it had forgotten to include the financial services sector in FDI statistics.