Foreign Investment Into China Picks Up In May

By Agence France-Presse Foreign investment into China picked up in May, but not enough to upset the government's delicate task of curbing money supply, data published June 14 showed. Foreign direct investment, mostly targeting the manufacturing sector, rose 11.3% in the first five months of the year from the same period in 2003 to US$25.9 billion, the commerce ministry said. The ministry published no separate data covering just the month of May, but given growth of 10.1% in the first four months of the year, it was clear that a spike took place last month. "The figures generally reflect a healthy trend which sees stable growth in capital inflows," said Huang Yiping, a Citigroup economist in Hong Kong. "The 11% growth . . . will certainly add more liquidity, but the growth is not substantial and is unlikely to produce significant pressure on the money supply side." China is attempting to tighten monetary policies in order to curb growth in an economy deemed dangerously close to overheating, but it is hampered in its efforts by the fixed exchange rate. This is because the central bank must buy incoming foreign exchange -- typically payment for new investment projects -- in order to keep the local currency, the yuan, at its peg of 8.3 to the U.S. dollar. As a result of these transactions, the central bank regularly emits new large amounts of local currency into the economy, increasing liquidity in defiance of the overall aim of curbing money growth. Contracted foreign investment, which gives an indication of future fund inflows, increased 49.8% in the first five months of 2004 to US$57.2 billion, the commerce ministry said. Copyright Agence France-Presse, 2004

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