Just before Chinese New Year a couple weeks ago I spoke at a symposium in Shanghai on Trends in Foreign Direct Investment in China in 2009. The China Economic Review sponsored the program, in which Steve Dickson partner at Harris Moure updated participants on government policy trends for FDI in 2009. You can find Steve’s paper on the trends on the China Law Blog.

Gems of self-proclaimed wisdom I offered the audience related to China’s slowing GDP growth, the Central Government’s response to the deceleration (through its much publicized fiscal stimulus package), and the effects the package would have on FDI in various industries across primary, secondary and tertiary manufacturing industries and China’s nascent services industries. For instance, the stimulus package will be good for domestic infrastructure projects, which will help reignite activity in primary industries like ore mining and processing, steel and concrete making. Secondary industries involved in the manufacture of things like sneakers, toys and plastic wares, consumer electronics and the like will see some impetus from consumption, as Chinese start feeling better about their economy. Tertiary – or capital-intensive – industries such as avionics, car manufacturing and shipbuilding will have knock-on effects; however, those will come later and will revive as much for policy as for fiscal reasons.

From Central Government’s point of view the greatest drag on the society will be the government’s inability to generate enough jobs for those that have lost them in 2008, and for the new entrants onto the scene: young people come of age AND young people that deferred market entry in lieu of a higher education they believed would all but guarantee them a job – and a relatively high-paying one at that. The magic GDP growth rate of 8% worked 8 (!) years ago when the economy was moving from primary industries into labor intensive (and dirty) secondary industries through what I call its Hong Kong model, prevalent throughout the Pearl River Delta. Since then, industries have become more productive and so require fewer workers. Economists project the economy actually needs to grow at about 9.5% annually to create the jobs the country needs to soak up the employable. That will be a tall order for an economy that in the last quarter of 2008 that saw a drop in GDP growth to 6.8%.

The glut of workers on the market is good for FDI, I posited during the talk, because it will deflate over-inflated salaries for locals, and will keep them at their posts longer than the 12 to 18 months job hoppers have been eking out to foreign enterprises. Commodity-price drops and a drop in the inflation rate will see the Chinese economy by 2010 as positive a business climate for foreign investors as it was just after SARS, in 2003.

I presented a final slide in the presentation which you’ll see in this post: an economic weather forecast for the next year and a half, for primary, secondary and tertiary/services industries. (The China Economic Review in no way endorses my economic projections; that’s just a screen shot of the slide I used during the presentation).

So, don’t forget you’re umbrella in 2009!