China's FDI Inflow Drops 7.3% in January Indicating Recovery Concerns

China's foreign direct investment inflows fell for the eighth month in January indicating overseas investor concerns on the sustainability of China's economic recovery.

According the Beijing's Ministry of Commerce, FDI fell 7.3 percent year-on-year during the month to $9.27bn from the $11.7bn recorded in the previous month mainly due to a drop in investment from key Asian economies and the US. Inflows from the European Union climbed 81.8 percent year-on-year.

"Softer Chinese growth may have made foreign businesses more cautious," Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, told Bloomberg before the release. Kowalczyk suggested that inflows may improve this year as the Chinese and global economy recovers from its recent slump.

Although FDI has a minor role in China's total capital inflows compared to exports, FDI figures are often considered an important barometer on external financial health, which is crucial to China's economy.

But the country's economic indicators for January and February are often distorted by the Lunar New Year Holidays season. Official January trade figures had beat analysts' expectations pointing to an external market recovery and boosting hopes in the world's second largest economy.

FDI inflows to China totalled $111.7bn in 2012, slightly lower than 2011's record $116bn and recording the first annual drop in three years. Beijing plans to attract about $120bn worth of FDI per year from 2012 to 2015.

Investments to China had climbed after the country became a part of World Trade Organisation in 2001. According to the Organisation for Economic Co-operation and Development (OECD), the China holds a strong chance of beating the US as the world's top FDI destination.

Analysts remain generally bullish on China's longer term economic prospects after the recent slowdown caused by the global economic crisis. According to a Reuters report, forecasts from Moody's investment agency released this week noted that the Communist nation was well on track to expand 7.5 to 8.5 percent in 2013.

"The favourable growth outlook is supported by policy easing and credit extension, particularly by the non-banking sectors, and should continue in 2014," Moody's said.