Foreign investment in mainland grows 32pc on last year

PUBLISHED : Wednesday, 16 March, 2011, 12:00am
UPDATED : Wednesday, 16 March, 2011, 12:00am

Foreign direct investment in the mainland grew by 32.2 per cent last month from a year earlier to US$7.8 billion, indicating investor confidence in the world's second-biggest economy as it shifts its dependence from investment and export to domestic consumption.

Last month's FDI total was, however, down from US$10.03 billion in January, when FDI rose 23.4 per cent from a year earlier, according to data released by the Ministry of Commerce yesterday.

The ministry did not say why the amount of FDI fell last month from the month before, but economists said monthly FDI data can be volatile. The week-long Lunar New Year holiday, which fell in early February this year, could be one reason.

January-February actual FDI increased 27.09 per cent from a year earlier to US$17.82 billion, the ministry said in a brief statement on its website.

The number of newly approved foreign-funded companies also fell last month, also largely due to the holiday. The number of foreigninvested companies newly approved in the first two months of the year rose 7.46 per cent from a year earlier to 3,399, according to the statement.

Compared with the 2,243 new foreign-funded enterprises in January, only 1,156 new foreign-invested enterprises were approved last month, down 10.9 per cent from the same period last year.

Inflows, which surged in the years after China joined the World Trade Organisation in 2001, have recovered strongly after being hit hard by the global economic slowdown.

Actual FDI rose 17.4 per cent last year to US$105.74 billion, reversing a 2.6 per cent decline to US$90.03 billion in the previous year.

Analysts believe FDI will continue to see robust growth in the coming years as multinationals continue to invest in the country to tap the world's fastest-growing consumer market.

In the 12th five-year plan endorsed by the national legislature on Monday, the government reiterated its aim to move towards a more consumption-led growth model.

But Nomura Securities said that according to recent research it conducted, China's fast-rising labour costs were likely to affect FDI flow and would cause the country's labour-intensive manufacturing industry to face more intense competition from other Asian economies.

Nomura said it expected the pace of mainland wage increases to exceed those in the Association of Southeast Asian Nations in the medium term, which in turn would change the pattern of foreign direct investment in Asia.

Foreign direct investment, along with trade surpluses and speculative inflows, have fuelled the rapid build-up of China's foreign exchange reserves, brought about international pressure on Beijing to allow the yuan to appreciate faster and added to inflation risks.

Speaking after the closing of the National People's Congress' annual session on Monday, Premier Wen Jiabao ruled out any dramatic appreciation of the yuan because of the potentially broad economic impact of such a move.

Although China has tight capital controls, there are concerns over hot money entering the country in the guise of legitimate trade and investment flows.

The services sector has been leading the FDI expansion, largely reflecting the strong capital inflow into the real estate sector. Analysts said the government's clampdown on the housing market might slow down the flow of capital into the sector.

To counter growing fund inflows, the government has been encouraging domestic companies to invest overseas.

Investment overseas by mainland companies in non-financial sectors totalled US$59 billion last year, up 36.3 per cent from a year earlier, bringing the total value of outbound direct investment by the end of January to US$261.5 billion.

Vote of confidence

FDI grew 27 per cent year on year in the first two months

The total figure for January and February, in US dollars, was: $17.8b