FDI reaches US$25.91b in 1st 5 months
By Dai Yan (China Daily)
Updated: 2004-06-15 08:47

China's direct foreign investment continued to maintain moderate growth in May, given the government's credit tightening moves and the large base from last year.

The nation registered actual foreign direct investment (FDI) of US$25.91 billion in the first five months, up 11.34 per cent year-on-year, according to the Ministry of Commerce. The ministry did not provide specific data for May alone.

Based on calculations using official information, actual FDI in May was around US$6.29 billion - 15.5 per cent more than last year's May figure.

The growth rates in the first five months are much lower than the figures for the same period last year, when actual FDI grew by 48 per cent. The contractual direct investment, an indicator of future trends, achieved an impressive growth rate of 49.76 per cent, to US$57.24 billion.

The ministry said China approved 17,359 new foreign-invested ventures in the five months, up 14.39 per cent.

Analysts said the slowdown in the growth rate reflected moves by the government to cool down certain selected industries along with the element of a large base in 2003.

Wang Xiaoguang, a researcher at the Academy of Macro-economic Research under the National Development and Reform Commission, said worries about overheating in some sectors has made investors cautious about investing in China.

The Chinese Government has taken measures on overheated industries such as the real estate, steel and cement and tried to control the rapid increase of bank loans.

An official from Jiangsu Province, China's largest provincial FDI destination, also confirmed that actual investment came in more slowly in the region.

Besides worries about the economy, growth is slower because some projects cannot begin without necessary bank loans or land-use rights, he said.

Wang also pointed out that international investors have shifted part of their focus from China to the United States, due to the latter's economic pick-up.

Despite the slowdown compared with the same period last year, experts said prospects for the whole year remained good.

"If we can achieve an annual gross domestic product growth of 8.5 per cent, international investors will have more confidence in China," Wang said.

He said a trend is emerging that the government measures will drive China's economic growth to slow down to a healthy rate, helping to achieve a soft landing.

He estimated the growth rate of actual FDI will remain at about 10 per cent, but it will pick up in the second half of the year reaching 15-20 per cent.

The rate will be boosted on the back of pledged investment, which will remain at a high growth rate.

Zhuang Jian, an Asian Development Bank economist, said two factors determine if a country will attract FDI: the commercial profitability of targetted investment projects and a politically stable environment.

In China's case, as profit margins in some overheating sectors are declining, and the Chinese economy is slowing down, the average returns on FDI will dwindle, he said.

The Chinese Government, to attract more FDI, must make investment rules and regulations more transparent, Zhuang said.

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