FDI grows by a large margin in July

Byzjx

Updated Mon, 23 Aug 2004 00:00:00 GMT

China's foreign direct investment grew by nearly 46 per cent in July, indicating strong confidence by foreign investors in the Chinese economy despite the government's credit tightening moves.

The nation registered an actual foreign direct investment (FDI) of US$38.4 billion in the first seven months, up 15.14 per cent year-on-year.

The contracted direct investment, an indicator of future trends, increased by 39.69 per cent to US$82.66 billion in the period.

  The Ministry said China approved 25,217 new foreign-invested ventures in the seven months, up 13.36 per cent.

Based on calculations using official information, actual FDI in July was US$4.52 billion, up nearly 46 per cent compared with a year earlier.

The growth rate of actual FDI hit a record high this year compared with 14.16 per cent of June and 15.5 per cent of May this year.

Analysts attributed the high rate to the small base in July last year, which was impacted by the aftermath of SARS outbreak.

Foreign investment slipped by nearly 19 per cent last July from a year earlier to US$3.1 billion.

Since July last year, the country experienced drops in FDI growing rate for five straight months.

But the high growth rate is also partially the result of the increasing confidence of foreign investors, who believe the country's economy will remain secure and land softly, said Wang Xiaoguang, an expert at the Academy of Macro-economic Research under the State Development and Reform Commission.

"Then they turned their contracts into real money, which pushed actual FDI higher," Wang said.

 The contracted foreign investment has stayed on a fast track despite the fluctuations in actual FDI.

For example, the contracted foreign investment in 2003 was US$115 billion, soaring 39 per cent from a year earlier, compared with 1.44-per-cent growth of actual FDI last year.

"They are just waiting for the right timing to flow into China," he said.

The debate on whether China's economy will have a hard or soft landing convinced many investors to hold on to their money, Wang said.

China has moved to prevent overheating in some selected industries such as real estate, steel, aluminum and cement production.

But recent economic figures proved the government's ability to engineer a "soft landing" for the world's fastest growing major economy and made the investors' confidence stronger, Wang said.

 Sun Xiaohua, an expert from the Chinese Academy of International Trade and Economic Co-operation, said many foreign investors went forward with their investment in expectation of further moves to open the Chinese market.

More capital will flow into fields such as banking, tourism, commerce, hospitals and education as China will realize many promises in line with its WTO agreements by December 11 this year.

Sun said the government's decision to encourage foreign investment in restructuring State-owned enterprises will also provide more opportunities for FDI.

He said multinationals' mergers and acquisitions will be a new driver in FDI flow this year.

Meanwhile, foreign companies are setting up more research and development centres and service departments to serve the Chinese market, which has grown to be their major markets besides a manufacturing base, Sun said.

 Foreign investors have set up over 600 research and development (R&D) centres in China as of June this year, with a total investment of US$4 billion.

 Chinese Government has predicted the actual FDI to China will roughly match or exceed the US$53.5 billion in 2003.