China's emerging economic centre expects foreign direct investment to fall by about 20 per cent this year, after three consecutive years of massive commitments. A Shanghai Foreign Investment Commission official said the lag effect of last year's removal of duty-free imports of machinery and equipment for foreign enterprises was likely to be shown in this year's investment figures. With the removal, foreign investors have to pay duties on imported machinery, raising the cost of doing business in China and hitting small and medium-sized foreign companies. 'The effect of the tariff changes takes time to show, but I expect this to be reflected in our investment figures this year,' the commission's deputy director of project promotion division, Xia Zhongguang, said. Last year, Shanghai's contractual investment rose 5 per cent to US$11.06 billion, the third consecutive year it surpassed $10 billion. The rise came amid a country-wide trend of declining contractual investment. China's contractual investment last year fell about 20 per cent to $73.2 billion, although actual investment rose 13 per cent to $42.3 billion. 'This year, I do not think we will attract investment reaching last year's figure of $11 billion,' Mr Xia said. 'More likely than not, it will drop by 20 per cent or a little more,' he said. He said Shanghai would remain a popular site for foreign investors as its infrastructure and location made it easy for investors to access other Chinese markets. By the end of last year, Shanghai had approved 15,692 foreign-funded ventures with contractual investment of $45.3 billion, of which about a third had actually been invested. Hong Kong accounted for nearly half the contractual investment, making it Shanghai's biggest foreign investor, followed by Japan and the United States. Mr Xia predicted Hong Kong's investment in Shanghai would increase because the Chinese city would like to tap Hong Kong's expertise in areas such as fashion design, printing and packaging. Hong Kong investments are currently concentrated in real-estate development. 'Under our economic blueprint, we are also promoting the infrastructure sector, which Hong Kong investors are interested to take part in,' Mr Xia said. Analysts said the emergence of Shanghai as a financial and economic hub for the Yangtze River delta was a factor attracting foreign investors. The Hong Kong Trade Development Council has encouraged local investors to team with up with their Shanghainese counterparts.
