Saturday 11 October 2008

FDI Flows into Mainland Surge 40pc to US$74b

Foreign funds pouring into the mainland soared 39.85 per cent to US$74.37 billion in the first nine months of this year, defying predictions that the global financial meltdown would deter investment.
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FDI Flows into Mainland Surge 40pc to US$74b

Denise Tsang
11 October 2008

Foreign funds pouring into the mainland soared 39.85 per cent to US$74.37 billion in the first nine months of this year, defying predictions that the global financial meltdown would deter investment.

Economists widely suspected the strength of foreign direct investment was related to an influx of “asylum-seeking” capital as the financial crisis in the United States and Europe accelerated in the past month.

The nine-month figure almost exceeded the full-year total of US$74.8 billion last year, the Ministry of Commerce revealed yesterday.

The growth is defying predictions the mainland economy is headed for a big slowdown and complicates Beijing’s efforts to stem the inflow of speculative capital, or hot money.

Some economists said the strong inflow of foreign funds could fuel inflation at a time when policymakers were seeking to put the economy on a low-inflation but high-growth path.

“China appears to be a safe haven for foreign capital on the back of the US and European financial crisis,” Merrill Lynch economist Lu Ting said. “The growth was so strong that the state leaders are likely to step up regulations to scrutinise the capital inflow.”

Last month, foreign direct investment jumped 26.1 per cent to US$6.64 billion from a year earlier, but slightly below the US$7 billion posted in August.

The nine-month growth this year stands at slightly below 40 per cent, closely tracking the 41.6 per cent expansion seen in the first eight months of the year.

The hefty foreign direct investment heightens inflationary risks on the back of the country’s foreign exchange reserves of about US$2 trillion and a US$152 billion trade surplus as of August.

Government policy think-tank the Chinese Academy of Social Sciences, which revealed its autumn report yesterday, predicted inflation would hover at 6.5 per cent this year, well above Premier Wen Jiabao’s target of 4.8 per cent.

The foreign funds pumping into the economy complicate state leaders’ macroeconomic policies - a cocktail of monetary, fiscal, industrial, trade and financial regulatory measures. Beijing aimed to step up the restructuring of its economic model, which relied heavily on exports and related investments, some economists said.

They forecast the inflow of speculative money, which is banking on a stronger yuan, to slow over coming months amid government efforts to slow the currency’s appreciation.

“The US dollar regained ground against all but the Japanese yen recently, which reinforced the prospect that the Chinese currency exchange rate is likely to end this year at 6.80,” Mr Lu said.

The yuan was barely changed at 6.83 against the greenback yesterday, according to the China Foreign Exchange Trade System.