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Chinese Foreign Investment Falls in June

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Data released by the Chinese Ministry of Commerce Tuesday showed that foreign direct investment in China fell 6.9 percent in June. Investment in China fell to $6.2 billion marking the largest fall since December and the seventh month out of the last eight that has seen declines in investment.

Inbound investment in the first six months declined 3 percent from a year earlier to $59.1 billion the ministry said, after a 1.9 percent drop in the first five months. Authorities have been discussing ways to ease the capital outflows by discussing new rules such as lowering taxes on repatriated dividends and by giving benefits to foreign investors.

Investment from Europe did pick up in June, as EU members invested $3.52 billion in the Chinese economy, an increase of 1.6 percent from a year ago. In the first five months of 2012, European direct investment in China fell over 5 percent.

A Commerce Ministry spokesperson said that the country's trade surplus is expected to increase this year and remain a constant share of GDP. This follows data last week that showed that Chinese trade, and thus global trade, slowed in June. Should the trade surplus grow this year, it would mark the first time it had done so since 2008.

Slowing investment into China shows that investors still remain cautious of emerging markets. As money continues to move out of risky markets, ultra-safe government bonds have seen demand far outpace supply, sending yields to record lows. Short-term German and French bonds have seen yields go negative and U.S. 10-year yields have traded near record lows for more than one month. Should emerging markets continue to struggle, more funds could move into ultra-safe government bonds.

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