2012-01-18

Illogical headline and reason for China slowdown

Global woes hit investors' appetite for China outlay
Analysts said weakening growth in the US and the sovereign debt crisis in the euro zone have dimmed foreign companies' appetite for investing in the world's fastest-growing major economy.
China's own growth outlook was another factor behind the decline in FDI in the last few months of 2011.
"One, cash-strapped foreign investors cut their investment in China as a result of the euro-zone debt crisis; two, some investors fear a hard landing in China," said Ting Lu, chief China economist at Bank of America-Merrill Lynch. Lu said negative FDI growth could last several months.
Number two is the story, fear. For the past several years, investors were running away from slow developed world growth rates and debt problems, and into China's rapidly growing economy. A "hard landing" in China is a growth rate of 4-5%, still great compared to Europe and the U.S. Why would investors leave when the relative performance still has a large gap? The explanation is social mood and herding behavior. People are afraid generally and some of that fear may be getting transferred to China, but they are also looking at China's economy and concerned that it will slowdown much faster that anticipated. Also, I suspect that not a small reason for the shifting statistics is Chinese money leaving China, rather than foreigners not coming.

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