Foreign Direct Investment Dips 7.5 Percent

It is likely that foreign direct investment in China, which fell 7.5 per cent during the first half of this year, will stop declining in the second half, Chinese foreign trade experts told China Daily's Business Weekly.

But they do not expect big breakthroughs in the near future.

"Foreign direct investment in China will stay at about US$30-$40 billion during the next two or three years,'' Ma Yu, with the China Academy of International Trade and Economic Co-operation, told Business Weekly.

The actually used amount of foreign capital was reported at US$17.2 billion during the first six months of this year, according to statistics from the Ministry of Foreign Trade and Economic Co-operation (MOFTEC).

This seems out of place with the country's 8.2 per cent year-on-year increase in gross domestic product in the same period.

Although contracted foreign capital increased 24.6 per cent during the first half year, economists dismissed the figure as an unreliable index of foreign investment.

State Councilor Wu Yi earlier urged trade officials to try to slow down or stop the drop in China's foreign investment in the second half of this year in a televised conference.

Ma believes a decrease in the actual use of foreign investment is a sign that some deep-rooted problems in China's foreign investment environment are beginning to surface.

Shifting and conflicting rules, complicated examination procedure and various limitations on foreign investments may have scared away some investors.

But Liang Pei of the University of International Business and Economics told Business Weekly that the policy environment has been relatively complete, stable and favourable for foreign investors.

Decreases in foreign direct investment in China stem from cities, development zones, high-tech zones and enterprises' inefficiencies in attracting foreign investors, she told China Daily.

To interest foreign investors, cities, development zones, high tech zones and enterprises must have good projects, capable agents and convincing presentations of projects, places where China often falls short.

She said the Industrial Development Organization of the United Nations is organizing training programmes to help Chinese business leaders understand how to pick out good projects and agents and to present projects according to international practices.

Liang also pointed out that a decrease in the first six months slowed down from last year's 12 per cent.

She said China's pending entry into the World Trade Organization (WTO) and commitment to WTO rules has boosted foreign investors' confidence.

China is gradually opening up its distribution service industry and the medical service and pharmaceutical industries, where foreign investors are believed to be interested.

"The declining trend is likely to further slow down during the remaining months of the year, but is expected to turn around next year,'' said Liang.

However, Ma said it will take time for China's WTO membership to rebuild the country's image. Foreign investors are not expected to swarm into China until it commits to opening up instead of making gestures, he said.

Analysts believe China is still a No 1 choice of developing countries for many foreign investors.

Ma envisions a huge potential for foreign direct investment in China.

It's still possible that China will have US$70 billion foreign investment each year for the next five to ten years, Ma wrote in China Economic Times.

China's central and western regions, which have received little attention from foreign investors till now, are expected to become a new magnet for foreign investors thanks to the country's strategy to step up development of these areas.

China's gradual opening of the service industry is also expected to interest foreign investors.

Some analysts said the country is suffering from the lingering effects of a decline in China's foreign direct investment last year.

For the first time since China's opening up in 1978, foreign direct investment in China tumbled last year.

Economists believe that multimillion-dollar transnational mergers in developed countries and the United States' robust economy and bullish stock market took money away from China last year.





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