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The euro-zone debt crisis is increasingly posing a threat to China as foreign direct investment in the world's second-largest economy dropped for the third straight month.

According to the Ministry of Commerce, overseas capital flowing into the mainland declined 0.3 per cent year on year to US$9.99 billion, dragged down largely by the sour investment mood in the European Union. That followed a 12.7 per cent slide in December and a 9.8 per cent drop in November.

Investments from the EU fell 42 per cent to US$452 million last month. However, investments from the United States rose 29 per cent to US$342 million last month.

Asian capital accounted for the rest of the FDI, including funds from Hong Kong, Japan and Taiwan. Capital flowing into manufacturing dropped 0.04 per cent to US$4.7 billion because of the export slump.

"Foreign direct investment is exposed to the dire situation abroad," Ministry of Commerce spokesman Shen Danyang said. "Poor overseas demand, tight liquidity and rising production costs will place more pressure on foreign investors on the mainland."

Citing some economists, the South China Morning Post says the threat from the European debt crisis and the slow recovery in the United States could be partially offset by further liberalisation of yuan trading.

"The restriction on yuan bonds has been relaxed recently, which means more yuan will be funnelled into the mainland this year," RBS chief economist Li Cui told the newspaper.

Beijing has allowed foreign investors to use offshore yuan funds to make direct investments in the mainland.

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