Mainland FDI reaches US$36.9b in 7 months

PUBLISHED : Tuesday, 14 August, 2007, 12:00am
UPDATED : Tuesday, 14 August, 2007, 12:00am

Investment may beat US$60b forecast this year

Foreign capital continued to pour into the mainland's runaway economy last month when foreign direct investment in the country increased 17.84 per cent from a year earlier to US$5.04 billion.

The gain took the total in the first seven months 12.92 per cent higher from a year earlier to US$36.93 billion, the Ministry of Commerce said yesterday.

Economists said the magnitude of growth, either on a monthly or a seven-month basis, outstripped the 12.18 per cent rise in the first six months of this year and raised the prospect FDI would surpass the ministry's forecast of US$60 billion at the end of the year.

'The strong growth is not abating at all despite policies on tightening economic growth,' said Bank of East Asia chief economist Paul Tang Sai-on.

The ministry's forecast points to a 13.66 per cent decline from last year's US$69.5 billion. Even so, economists were widely betting this year's total would remain flat or even grow.

The country this year has raised interest rates three times and commercial banks' deposit ratios by six times as part of a package of macroeconomic measures aimed at reining in inflation and tightening liquidity.

Hong Kong is the biggest foreign investor so far this year, accounting for 33.36 per cent of the seven-month total. It is followed by the British Virgin Islands, South Korea, Japan, Singapore, the United States, Cayman Islands, Samoa, Taiwan and Mauritius, which is favoured as a nominal base by some investors for tax purposes.

Mr Tang reckoned that most of the foreign investment flowed into manufacturing.

The influx of foreign capital might slow in coming months, said Credit Suisse First Boston chief regional economist Dong Tao.

'Foreign direct investment is likely to face headwinds due to rising wages and production costs, higher taxes for foreign entities and yuan appreciation,' he said. Full-year FDI would climb 3.59 per cent to US$72 billion from US$69.5 billion last year, he estimated.

Many of the 70,000 Hong Kong manufacturers in the Pearl River Delta have expressed concerns over eroded profitability and competitiveness due to the strength of the yuan, labour shortages, higher energy costs and bigger investments in environmental protection.

The mainland's reputation as the 'world's factory' faced challenges from countries like Vietnam and India, where costs were lower and labour supply abundant, some economists said.

Mr Tang forecast a trend for growing investment in the service sectors in the long run as the country sought to discourage 'highly polluted, energy-consuming and resources-oriented' exports.

Some economists expect the forecast slowdown in FDI will be more apparent next year when corporate income tax for overseas companies is increased to be in line with that of domestic companies.