Are China's FDI figures fudged?

China's economic statistics are notoriously unreliable, but most agree that China has been the recipient of huge amounts of foreign direct investment (FDI). But not according to the UNCTAD World Investment Report 2005, which reported that China came third in global FDI inflows in 2004, after the United States and the United Kingdom. This has not gone unnoticed. Simon World quotes a Business World report China fudged FDI nos: Unctad:

China claims FDI of $5.42 bn from US in 2002 while US says $924 mn, a variation of 83%. Adding a new twist to the debate over China’s awesome FDI figures, a recent Unctad report has said the numbers claimed by the country are far in excess of those reported by investors. China claims that it got FDI worth $5.42 billion from the US in 2002. But the US says it has invested a meagre $924 million during the period, Unctad’s World Investment Report 2005, says.

...Interestingly, an OECD report titled “China: Progress and Policy review” points out that FDI flow into China from OECD countries during 1995-2000 was $39.3 billion, while the Chinese commerce ministry shows $77 billion. The OECD report states, “MOFCOM (ministry of commerce of the People’s Republic of China) FDI statistics are not based on the internationally recognised standards that are generally applied by OECD countries.

Simon comments:

Even allowing for different calculation methods, these are huge differences. Has the China boom been more hype than reality? If FDI has been lower than typically believed, there is even more "hot money" and less stable forms of investment in China and the trade/captial account problems between America and China are even more worrying.

Martyn at Peking Duck chips in, asking Are China's FDI figures exaggerated?

For the last decade in particular, the Chinese government has turned 'selling China' into an art form. The government has successfully sold China as 'the place to be' for foreign investors.  ...However, for the last couple of years, many commentators have pointed to cracks appearing in the unsustainable China economy. Economic growth itself naturally comes in cycles. China needs FDI now more than ever in order to maintain the momentum of economic growth and provide jobs for its bulging workforce. Are the government, therefore, resorting to gross exaggeration of their FDI figures in order to keep up appearances?

But it's not all bad news. China did, even on the UNCTAD figures, see FDI inflows pick up from $53.5bn in 2003 to $60.6 bn last year. And mergers and acquisitions saw much stronger gains. Chapter 1 of the UNCTAD report states:

There was a significant rise in cross-border M&A purchases in China and India, with a doubling of value in both countries, to record highs of $6.8 billion and $1.8 billion respectively. For the first time, China became the largest target country for cross-border M&As in developing countries.

The big rise in United Kingdom FDI inflows has not gone unnoticed, either. They rose almost four-fold from $20.3bn to $78.4bn, almost as much as the inflows to Germany, France and Italy combined. Chapter 2 of the report noted the UK had "experienced relatively strong economic growth" relative to the Eurozone. It also suggested that "Germany and Italy had suffered because of their weak economic growth and rigid labour markets". (For press reports see The Times and Financial Times).

Footnote: See table B.1 in the Annexes (PDF) of the 2005 UNCTAD report for the country FDI numbers. Box I.1 on 'Problems with FDI data' in Chapter 1 (PDF) gives some examples of the problems with the Chinese data.