Quake has minor impact on FDI in China

The Japan earthquake may bind the capital of Japan's multinational enterprises and limit their investment in China. But Bank of America-Merrill Lynch said its impact on Japan's foreign direct investment (FDI) in China will be very low.

The company released a report analyzing the possible impact that China may suffer from Japan's earthquake, tsunami and nuclear power plant explosion.

Japan has always been China's largest or second largest source of foreign direct investment (FDI) aside from Hong Kong.

Japan's FDI in China peaked in 2005 and has experienced a downward trend since then. Last year, Japan's FDI in China was $4.1 billion – down from $4.3 billion in 2009.

The report said Japan's direct investment in China in 2010 only accounted for 3.9 percent of the total. FDI is not necessary for China to maintain its economic growth, since China has a huge account surplus and foreign exchange reserves. But FDI will affect the quality of China's economic growth in the long-term.

In 2010, China received $105.7 billion in foreign direct investment, which only makes up a small part of China's $3.6 trillion yuan in fixed assets investment, the report said.