By the Blouin News Business staff

China’s FDI inflows and the diversification of its economy

by in Asia-Pacific.

Passengers wait for trains at Beijing West Railway Station on January 26, 2014 in Beijing, China. AFP/Getty Images

Passengers wait for trains at Beijing West Railway Station on January 26, 2014 in Beijing, China. AFP/Getty Images

Foreign direct investment to China reached $10.8 billion in January, a 16.1% increase year on year. This comes a month after it was made public that China attracted a record $117.6 billion in FDI in 2013. The robust FDI data suggest that even if China’s growth isn’t as vibrant as it has been in previous years, global investors are still very attracted to the world’s second-largest economy. The government will most likely present these numbers as a sign of confidence and a reminder that it’s business appetite is far from receding.

January’s strong numbers are part of an upward FDI trend the country has been experiencing since March 2013. More interesting, however, is where the foreign investment is going: the service sector saw a tremendous boost as FDI into it ascended by 57% — or $6.33 billion, almost 59% of the total. Meanwhile, manufacturing sector inflows dropped 21.6% to $3.47 billion.

China committed to a dramatic opening of its services sector when it acceded to the World Trade Organization in 2001 — and businesses quickly developed a stronger interest in the populous country. While this process has borne some results, the solid FDI increase in the area is a clearer indicator that China, which has built a reputation as the world’s factory, is trying to expand its economy as much as ever. The trend is also closely connected to an increasingly rich, urbanized society.

China’s goal to diversify its economy beyond manufacturing, heavy industry and infrastructure investment has been made clear under Xi Jinping’s leadership — along with the need to avoid the middle-income trap. The economic reforms it put forward at the Third Plenum, held in November 2013, still have a long way to go. (Red Zone: China’s economic reforms).

Developing a full-bodied services sector, and steadily increasing the share of activity generated by it, is a pillar of that plan. Even more, it’s a key source of future growth. According to the World Bank, the services sector has about doubled its share of the Chinese economy since 1980 — though it still commands less of a share than it does in developed economies.

As China’s internal consumption is also growing – it’s expected to surpass Japan as the world’s second-biggest consumer when it releases private consumption numbers – it’s very possible that FDI to the services sector will stay on the highway its on — and with it more arguments for the government to present its country as a more open economy. Expect steady growth in foreign direct investment for 2014 as well.