Foreign direct investment up 32.9pc on rosy outlook

PUBLISHED : Wednesday, 20 April, 2011, 12:00am
UPDATED : Wednesday, 20 April, 2011, 12:00am


Foreign direct investment in the mainland surged almost by a third last month from a year ago as fast growth and prospects of further appreciation in the yuan boosted confidence.

The Ministry of Commerce yesterday said actual foreign investment - rather than investments agreed by contracts to be made in the future - increased 32.9 per cent year on year to US$12.52 billion in March. For the first quarter, investment was up 29.4 per cent to US$30.34 billion.

'An increasing portion of foreign direct investment is flowing into services industries, with a concentration in real estate, logistics and computer applications,' said Yao Jian, the ministry's spokesman.

Foreign investment in the services sector soared 36.4 per cent in the first three months to account for 47.4 per cent of total foreign investment in the quarter, while investment attracted by the manufacturing industry grew 23.6 per cent, according to the ministry.

US-based retailer Starbucks, for one, has revealed plans to have 1,500 stores on the mainland by 2015, nearly four times the current level, pinning hopes on robust consumption in coming years.

The mainland economy expanded 9.7 per cent in the first quarter despite measures to cool inflation, which increased 5.4 per cent year on year in March to a 32-month high.

Actual foreign investment in the real estate sector jumped more than 50 per cent year on year in the first two months, underscoring huge investor interest despite increasing policy tightening by the central government.

Analysts widely expect the mainland to remain a magnet for foreign capital as advantages including robust economic growth and an anticipated 5 per cent or so currency appreciation this year outweigh rising labour costs and restrictive policies.

Foreign investment in the mainland recovered quickly after the global financial crisis, with actual investment rising 17.4 per cent last year, reversing a 2.6 per cent decline in 2009.

Capital inflows from investment, trade and by illicit means have boosted foreign reserves, which crossed the US$3 trillion mark for the first time at the end of last month.

In the first quarter, foreign-exchange reserves increased by US$198 billion. Stripping out foreign direct investment, trade deficit and valuation changes due to foreign-exchange fluctuations, the source of about US$139 billion is unexplained, compared with US$109 billion in the previous quarter, which suggests larger inflows of hot money.

Zhou Xiaochuan, governor of the People's Bank of China, warned on Monday that 'foreign-exchange reserves have exceeded the reasonable levels that we actually need'.

In a speech in Tsinghua University, he said: 'The rapid increase in reserves may have led to excessive liquidity and has exerted significant sterilisation pressure. If the government doesn't strike the right balance with its policies, the build-up could cause big risks.'