HOW DO YOU look at a figure? According to our story on the data yesterday, the mainland attracted a record US$46.84 billion in foreign direct investment (FDI) last year and that was up 14.9 per cent from the previous year, good news and reason to crow. Well yes, but that same figure was well over US$45 billion in both 1997 and 1998. What is with all this beating of chests for such a paltry increase? In actual fact, the news on investment flows into China last year is very good but the story is a little wider than just one balance of payments item on gross inflows in one category. Let us put this into perspective. Back in 1998, the authorities in Beijing were both perplexed and annoyed about one particular trend they saw. Their current account surplus was booming, almost US$30 billion for each of 1997 and 1998, but their foreign reserves were showing no growth at all. The figure seemed stuck at US$140 billion. This implied a lack of domestic confidence in the economy despite what foreigners may have been doing through FDI. It suggested that all the money coming in on the current account was quietly being shipped out again for investment abroad rather than at home. The size of the current account surplus also suggested that perhaps industrialists were not importing as much material and equipment as they would need if they thought times were good. This would not do and pronouncements were duly issued from Beijing that businesses caught breaking the rules governing these matters would face severe penalties if caught. It all seems odd in the light of subsequent events. The past three years have shown that the mainland is the world's first choice for industrial investment. Why should mainland businesses earlier have been so cautious and what are they doing now? The first clue lies once again in that foreign reserves figure. It is now US$212.2 billion, up US$46.6 billion in the past year alone. Now comes the difficult task and a little bit of guesswork as the full balance of payments is only available up to June last year, although figures for some of the critical components are available up to December. I shall just have to ask you, however, to assume that I have done the calculations and guesswork as well as they can be done as explaining them all here would take up this full page rather than just the single column I have. In any case, the results of these calculations are shown in the chart. Estimated net capital and financial inflows of all forms, net of outflows (and not just that gross FDI inflow number featured yesterday) amounted to a record of US$46.2 billion last year. This figure is obviously little different from the figure we reported but that is just coincidence. The real difference lies in the change from the previous year, not 14.9 per cent up but 24 times as much as in 2000. And therein lies the real story. Whatever it was that caused investment confidence to be a little shaky in the mainland in 1997 and 1998 and prompted those earlier signals of capital flight, it certainly is to be found no more. What we have here is about as strong a signal of investment confidence as any country could hope to have. Graphic: jake16gbz
