Asia: Chinese foreign investments falls to four-year low

Asian markets were mostly in the red after warnings over the Chinese economy and apprehension over a looming policy decision by the US Federal Open Markets Committee (FOMC).

Following the weak growth data from China’s industrial sector released over the weekend, news came that foreign direct investment (FDI) has fallen by 14% annually in August when an increase had been expected.

Although the Trade Ministry said it saw no obvious signs of capital outflows, FDI fell to a four-year low following a very weak July.

This suggested there had been a loss in external confidence, said Accendo's Mike Van Dulken, adding to the fears of a hard landing derived from the weekend data.

Standard & Poor's also issued a warning to China over its rigid growth targets that, considering the country's rising domestic debt and its potential impact on the financial sector, could preset a considerable global risk.

In a report published on Tuesday entitled, 'Are China's GDP Growth Targets Bad For Financial Stability?', S&P's Ratings Services said China's rigid use of gross domestic product (GDP) growth targets coupled with incentives that encourage over-performance have led to a potentially dangerous weakening of financial stability.

"This rise in debt has moved China to a position where the fragility of its financial sector is seen as the biggest macro risk to the country, if not the global economy," economist Paul Gruenwald said.

Until the government takes some bold steps to move away from rigid and asymmetric growth targets, China's financial stability will continue to be at risk, he warned.

Moreover, China's trade minister has warned it will be difficult to maintain the current pace of export growth given current uncertainties.

Analysts at Citi said they expect Chinese economic growth to moderate in the coming months to a figure of 7.3% this year and 6.9% next year.

But the wobbles from China have been coupled with mixed numbers from India, which together could cast doubt on the US recovery story, according to analysts from Rabobank.

"The big question really is how long the US can run its recovery in isolation, because wherever you look things are not looking great," Rabobank said in a note to clients.

"Take India, where export growth slowed down in August to a mere 2.4% year-on-year (YoY) - down from 7.3% in July. Although the slowdown in import growth was proportionally much less - from 4.3% to 2.1% - and thus can be seen as 'positive' from a GDP perspective, the general weakness unfortunately tallies with recent data from China, where exports growth slowed down from 14.5% YoY to 9.4% YoY.

"And Russia, Brazil and South Africa – the other three in the BRICS – do not seem to be pulling this cart either. In short, global growth momentum is waning."

In Japan, central bank governor Haruhiko Kuroda hinted that he welcomed recent yen weakness, after some Japanese companies have been prompted to boost domestic investment instead of shifting production overseas, according to Reuters.

Although the yen fell to a six-year low against the dollar this month on expectations that the FOMC may raise interest rates faster than had been expected, he assured that currency stability was a principal aim of the central bank and expressed optimism about the economy's recovery.

"Japan's economy has been on a path suggesting that the price stability target of 2% will be achieved as expected," he said in the speech in Osaka, referring to the inflation targets set in April 2013.

"We are only halfway there, however, and the Bank will continue with quantitative and qualitative easing (QQE), aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner," he said.