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Wang Xiangwei

The mainland's inflow of actual foreign direct investment (FDI) plunged sharply in the first two months of the year amid concerns over a slowing economy and stability of the yuan.

 Actual FDI fell 9.54 per cent year on year to US$4.2 billion, the China News Service reported yesterday, citing figures from the Ministry of Foreign Trade and Economic Co-operation (Moftec).

 It did not explain the fall.

 Meanwhile, contracted FDI - an indicator of investment intentions - rose 17.52 per cent year on year for the two months to $5.51 billion.

 Economists said yesterday the sharp increase in contracted FDI could have been prompted by quicker approval of foreign-funded projects.

 During the period, Beijing approved the establishment of 2,230 foreign-funded enterprises, up 1.59 per cent year on year.

 By the end of last month, accumulated FDI increased to $271.66 billion while contracted FDI came in at $578.36 billion, the Moftec figures showed.

  Tao Dong, senior regional economist at Credit Suisse First Boston, said the plunge in actual FDI was magnified due to a higher statistical comparison base in the first two months of last year.

  However, Mr Tao said this year's FDI inflows would face even more pressure.

  'I expect to see some decline in FDI for the whole year but there will not be a substantial drop,' he said.

  Last year, FDI rose a year on year 0.7 per cent to $45.6 billion, data which made the mainland one of the world's largest recipients of foreign investment.

 Mr Tao said Beijing would find it hard to sustain the growth momentum in FDI because of the Asian financial crisis.

  'Foreign investors are reluctant to commit money at the moment because of the negative market sentiment towards the mainland's economy,' he said.

 Mr Tao said concerns over the stability of the yuan and the fall-out from the collapse of Guangdong International Trust and Investment Corp also played a part.

  In the past few years, FDI and exports have been seen as the mainland's engines of economic growth, but officials have admitted they would have to rely on domestic demand to keep the economy going.



FDI pledges up, but inflows fall