Last month in China foreign direct investment (FDI) continued to fall but experts emphasized this didn't mean foreign investors were losing faith in the nation.

 

FDI in China stood at US$4.28 billion in July, down 5.49 percent year-on-year, said the Ministry of Commerce that approved 3,022 foreign-invested enterprises last month.

 

Citigroup economist Huang Yiping said the slight drop didn't mean China was any less attractive to overseas investors but it might indicate an overall slowdown in foreign investment.

 

"The figures represent less of a change in business confidence," said Huang. "It's just the end of the rush. In addition, more people are now thinking of diversification."

 

Although Huang no longer expected to see a leap in foreign investment flows to China, he said the figure was still likely to remain at a relatively high level.

 

FDI in the country totaled US$32.7 billion in the past seven months, which is down 1.16 percent year-on-year. The government approved 22,772 foreign-funded enterprises in this period -- a drop of over 7 percent from a year ago. Hong Kong, the British Virgin Islands and Japan are China's major sources of FDI.

 

The ministry did not release data on contracted foreign direct investment deals, which have been signed but are yet to be executed. And the statistics published by them left out foreign investment in the financial industry.

 

The ministry estimated that China's FDI dipped slightly to US$60.33 billion in 2005 but this figure was later revised upward to US$72.4 billion after the financial sector was taken into account. The final result marked a growth of nearly 20 percent compared to the previous year.

 

It showed that China's financial sectors including banking, insurance and securities had become a new destination for foreign direct investment. The sector attracted an annual FDI of less than US$2 billion in previous years. Experts expect the financial and service sectors would continue to attract growing foreign investment this year.

 

Industry, particularly the manufacturing sector, continues to absorb more than 70 percent of foreign investment in China.

 

After the Chinese government published new regulations on foreign investors' mergers and acquisitions (M&As) involving Chinese companies, allowing share-swaps between them in M&As, this new approach was expected to become a way of investing in the country.

 

Lu Jinyong, an investment researcher at the University of International Business and Trade, said foreign investors' M&As in China were on the rise and that the trend would continue. He said in the past foreign investment to China largely focused on building new facilities in the country, but M&As accounted for over 80 percent of total global FDI.

 

(China Daily August 16, 2006)