FOREIGN investment flow into China is expected to slow next year as uncertainties over the mainland's economic structure, such as the legal and tax systems, cause investors to pause before committing huge sums of money. Chairman of the Federation of Hong Kong Industries, Raymond Ch'ien said yesterday: 'The sanctity of contracts and the rapid changes in China's tax system are going to cause long-term investors to take a temporary pause. 'They (investors) will wait for China to sort out these perceived long-term technical questions,' he said, adding that the issues needed to be resolved. Investors did not want to commit themselves to things which might change for the better. 'For example, no one knows what the tax system will be like a year from now.' Given the uncertainties, he expected long-term capital flow into China to slow down, which would result in a lower rate of growth. 'Liquidity will become even tighter in China.' As financial resources grew even scarcer, the reform of loss-making state enterprises would become extremely urgent. 'This is going to create a sense of urgency among China policy-makers to accelerate the reform programmes. In the long run, it is going to be healthy for the development of the country.' On the country's legal structure, Mr Ch'ien said it was a good thing that issues such as the McDonald's case in Beijing were highlighted. That issue had served to highlight the solidity of a contract and how much protection it offered investors. 'Unless and until investors feel comfortable and confident that the contracts which they have will be honoured in spirit and in letter by all parties they are unlikely to commit themselves to the long term.' Such cases would quicken China's pace of rationalising its legal structure by making it more transparent and fairer. 'Not just for foreign investors but for local companies as well. All these things will hasten China's pace of modernisation.' Earlier in the day, Canada's commissioner for Hong Kong, Garrett Lambert, said Canadian businesses were concerned with the case of McDonald's, and that of Australian businessman James Peng, who is being detained in China. 'They (businessmen) are looking at the McDonald's case from a commercial law perspective and the James Peng case in relation to their own vulnerability to personal prosecution. 'We should see some resolution to it. We are waiting for the decisions and therefore I won't speculate on it. 'There is a high level of concern over those cases. There is no doubt about it.' Mr Lambert was speaking after a lunch talk at a hotel. Mr Ch'ien said the short-term difficulties faced by China did not signal a weakening of China's long-term prospects. 'It does mean a basic lowering of China's growth potential. The underlying trend is still very strong,' he said. He described the next 12 months as laying the foundation for a more sustainable and balanced spurt of growth.