Tuesday, February 19, 2008

Negative news fanned by Western media failed to stop China’s FDI growth

By China Watcher

According to China’s Ministry of Commerce, foreign direct investment in China was reported at US$11.2 billion for January 2008, up 110 percent as compared with the same corresponding period a year earlier. For the whole of 2007, investment increased by 13.6% to US$74.8 billion.

The Chinese economy expanded by 11.4% in 2007, which was the highest growth rate in 13 years and this led to concerns over inflationary pressures. According to an economist from JP Morgan Chase & Co in Hong Kong, the People Bank of China may need to sell more bills to absorb more liquidity, restrict loan growth and raise lenders’ reserve requirements further.

Bloomberg news network announced that China's trade surplus jumped 23 percent in January from a year earlier to US$19.5 billion. Money supply rose 18.9 percent, the biggest gain in 20 months. Low labor costs and a potential market of 1.3 billion people attract foreign companies to China. The government is trying to prevent the inflows of money from investment and trade surpluses from stoking inflation which is already at a high rate that may affect stability in the country.

Inflation based on the CPI more than tripled to 4.8 percent from 1.5 percent in 2006. December's rate was 6.5 percent and according to China’s National Bureau of Statistic on Monday, 19 February 2008, the January level hit a new high of 7.1 percent.

The People's Bank of China raised interest rates six times in 2007 and has ordered lenders to set aside more deposits as reserves on 11 occasions since the start of last year, pushing the ratio to 15 percent, the highest ever.

To be in line with China strategic move to a higher technology level and also to minimize pollution, the Chinese government has started to limit foreign direct investment in ``important mineral resources'' and in industries that are deemed heavy polluters and consumers of resources and energy.

As part of economic development plan to balance up the society, the government has also encouraged investment away from the eastern coastal cities and into less-developed regions in the west and the center. The country's five-year plan, running through 2010, also aims for a shift from assembly work to designing and producing high-technology brands.

A 25 percent tax rate for foreign companies is being phased in from this year. Previously they paid 15 percent, while the rate for local businesses was 33 percent. Now, both will pay the same rate.

The hordes of negative news over food safety and toy quality do little to dampen investors’ appetites from investing or conducting joint ventures in the world's fourth-biggest economy, which is expected to surpass the German’s economy by the end of this year.

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