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Mid-west, high-end industry to have more FDI
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16:23, June 04, 2009

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Uncertainty overshadows FDI into China

A report by the Ministry of Commerce predicts that foreign direct investment in China will go down slightly or level off in 2009, with the mid-west area and high-end industries increasingly attractive to foreign capital.

A mild increase is also possible if the world economy shows sighs of recovery in the second half of the year and China meets its target of 8 percent growth for 2009.

The ebb in the first few months will be followed by a tide, said the report.

FDI in China has dropped for seven months in a row from October last year to April this year.

It will be more difficult for China to stabilize its FDI scale if the negative impact of the global financial crisis and economic downturn continue spreading.

US and European investors will slash their overseas investment as they have been hit hardest in the crisis. However, their contribution is traditionally small in China’s FDI mix.

About half of the Chinese mainland’s FDI is from China’s Hong Kong, Macao and Taiwan, as well as Singapore. Those places are more capable of recovering from the crisis. FDI from those places is expected to increase to some extent.

In addition, there will be no scenario of hot money swarming into tax-free ports this year as there was in the first half of last year as a result of RMB appreciation.

The manufacturing sector will take a smaller share of the total FDI while the agriculture and service sectors will increase their roles in attracting FDI.

Sectors with more positive prospects include information transmission, computer service and software, pharmaceutical and new energy.

Sectors less attractive to FDI are in chemical fiber, raw materials, textile, real estate and finance.

Export-oriented industries, particularly those in processing trade, have been more vulnerable to the crisis. However, policy support has offset the impact to some extent.

A surge of FDI will not be possible in the real estate sector which is still undergoing market adjustment.

Foreign investment in the low-end, labor intensive manufacturing sector will further decrease while more capital will flow into the hi-tech, more service and high-end manufacturing sectors.

The eastern coastal areas will still be the major destination for foreign investment. However, those areas have been hit harder by the financial crisis in terms of absorbing foreign investment compared with the mid-west region.

FDI inflow into the mid-west will grow faster than the eastern areas and will have a larger share in China’s total FDI thanks to the favorable polices and lower costs in the mid-west.

Foreign investors prefer whole-funded, green field projects. They will launch less mergers and acquisitions in 2009 as the cross-border M&A has been dampened globally by the financial crisis.

By People's Daily Online

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