FDI to remain steady after entry

The World Bank has predicted the mainland's entry to the World Trade Organisation will not lead to an instant increase in capital flows, given the impact that reforms are already having on the economy.

Releasing its annual Global Development Finance report, which analyses investment flows to developing countries, the World Bank said economic growth forecasts for East Asia and the Pacific next year and in 2002 were unlikely to be affected by the mainland's entry.

'In the very short-term, China's eventual WTO accession is unlikely to lead to a significant acceleration of growth, because of improvement in the private investment climate - including inward foreign direct investment [FDI] - could be offset by an increase in unemployment as restructuring progresses and private consumption slows,' the World Bank said.

According to its forecasts, the region's estimated gross domestic product growth of 6.5 per cent last year is likely to rise to 6.6 per cent this year, before slowing to 6.3 per cent next year, and 6.2 per cent in 2002.

It said FDI flows to the mainland had been crucial to its growth, adding as much as 17 per cent to output during the past few years. It said FDI flows contracted by 12 per cent last year due to economic difficulties in Asia, and the policy environment in the mainland, with its heavy regulations for exports, localisation, technology transfer and continued restricted access to domestic markets.

The report said average growth rates for developing countries would reach 4.6 per cent this year, and 4.8 per cent in the following two years.

It forecast rates of expansion for developing countries would prove uneven, but trade-dependent developing countries - including the mainland and India - would see fairly rapid growth.

Oil and agricultural-commodity exporting nations would find it harder.

FDI will prove important to future prospects, according to the bank.

It said that, due to the resilience of flows to some countries, even during the recent financial crisis, FDI had now become the single-largest and most stable source of long-term development finance to developing countries.

'Developing countries are finally starting to recover from the worst impact of the global crisis, but this recovery is uneven,' said Uri Dadush, director of the World Bank's Prospects group.

'It's time to reflect on the lessons of the crisis to better protect the world economy in the future. One strong conclusion is that we have to take steps therefore to reduce the downside of capital flow volatility.'