Plan of action aims to increase FDI cash flows

Beijing will soon unveil a detailed plan to encourage flows of foreign direct investment into the mainland to arrest a decline rarely seen in the past decade, a senior trade official said yesterday.

'You would soon see a set of measures to stabilise FDI inflows,' Vice-Minister of Commerce Chen Jian said. 'These moves will aim at boosting investor confidence, as well as expanding and facilitating foreign investors' operations.'

Foreign capital has been one of the key growth drivers on the mainland over the past 30 years but the amounts have shrunk since late last year amid the global economic crisis.

The recession has prompted companies, particularly those from the developed world, to cut spending, resulting in a 20.41 per cent drop in foreign investment flows into the mainland in the first five months.

Mr Chen did not reveal further details of the plan, but observers worried that it might invite an influx of speculative capital rather than real investments that would add industrial value and increase employment.

'I think at the moment we are not short of foreign investors craving entry into China. What matters is how they are going to spend the money,' said Yu Feng, a lawyer at the Shanghai Jiehua Attorney Affair Office, who is familiar with overseas investment regulations.

'The regulators should be more sophisticated in discerning whether they come to invest in tangible industries or simply to jump on the bandwagon of ballooning asset prices in the country. From what I can see, it's mostly for the latter reason.'

The mainland stock market has gained 65 per cent so far this year. Property sales jumped 45.3 per cent to 1 trillion yuan (HK$1.13 trillion) in the first five months of the year, compared with a 19.5 per cent decline for all of last year.

Property sales in Shanghai, particularly those of luxury flats, surged in the past two months partly because of foreign funds, sources said.

'We believe foreign capital has in one way or another found its way into the property market, some under the guise of FDI,' said an official at the municipal banking regulator.

China has stringent rules on the use of foreign funds but financial experts say they can be bypassed.

Meanwhile, foreign companies have complained about unfair competition and red tape, according to a survey by the European Chamber of Commerce in China.

Of those surveyed, 43 per cent listed discretionary enforcement of laws and regulations as the top concerns while 40 per cent complained about an arduous licensing process.