Foreign direct investment rose 16pc last month, as firms look at long-term gains Foreign companies continue to pour money into new plants and operations on the mainland despite concerns about a hard landing for the economy. Compared to the same period last year, foreign direct investment (FDI) rose 16 per cent in June and 12 per cent in the first half of this year, to US$33.9 billion, according to Ministry of Commerce figures. Foreign investment accounts for 8 per cent of total fixed-asset investment and nearly 4 per cent of the mainland's gross domestic product, and is an important source of growth. Optimism in the international business community was even more apparent in the 43 per cent rise in contracted investment, an indicator of plans for future activity. By the end of last month, China had approved the establishment of 486,965 overseas-invested enterprises, with contracted FDI of US$1.015 trillion, including $535 billion of investment already in use. Foreign investment this year would match or exceed last year's record US$53.5 billion, the Commerce Ministry said last month. Economists said foreign businesses were unfazed by the recent government restraints on money supply and bank loans, because they view China as a key market, despite the occasional ups and downs. 'Foreign investors have made a decision to discount the impact of macroeconomic controls and tightening. 'They understand that's a short-term action, while FDI requires a long-term perspective,' said BNP Paribas China economist Chen Xingdong . Central Textiles is an example. The Hong Kong-based manufacturer of cotton, Lycra and other fabrics is moving certain types of production into the mainland to take advantage of lower labour costs. 'We are building a new spinning mill in Zhenjiang that should be up and running by the end of this year or the beginning of 2005,' said Woo Yuk Lynn, the company's executive director. Foreign companies' appetite for investing on the mainland could act as a cushion if domestic spending slows more than is expected, according to HSBC China economist Qu Hongbin . 'This investment, plus strong export growth, is likely to reduce the risk of an economic hard landing even if domestic investment growth drops sharply,' he said. BNP's Mr Chen said he attended a seminar in Shanghai last month where he met foreign executives unconcerned about any hard landing. 'They are basing their decisions on the long term,' he said. Carmakers have been particularly aggressive in China. General Motors is investing US$3 billion to triple its capacity to 1.3 million vehicles a year, China's First Automotive Works is doubling capacity to 1.6 million in 2008, and Toyota hopes to sell 1 million units by the end of the decade.