China's Foreign Direct Investment Jumps

Foreign companies pumped $30.8 billion in direct investment from January to April

Foreign direct investment in China rose 11.3% on-year in the first four months of 2010, the government said on May 14, suggesting confidence in the world's third-largest economy continued to grow.

Foreign companies pumped in $30.8 billion in direct investment in the country from January to April, the commerce ministry said. The figure marked an acceleration from the 7.7% jump seen in the first quarter.

In April alone, foreign investment increased 24.7% to $7.3 billion.

The data includes investment by overseas companies in industries such as manufacturing, real estate and agriculture but excludes money put into banks and other financial institutions.

Meanwhile, data from the State Administration of Foreign Exchange showed that net inflow of direct investment into China totaled $17.5 billion in the first quarter of 2010.

The big inflow of foreign capital in the period, which was in part caused by low U.S. interest rates, had put strong pressure on the Chinese central bank, an unnamed SAFE official said, according to Dow Jones Newswires. It could also raise concerns about inflation, which increased 2.8% on-year last month, close to China's 3% target for 2010.

"Such big capital inflows have put huge pressures on the central bank," the official said. "However, the People's Bank of China has a lot of monetary policy operation tools, and there is room for the PBOC to reduce the pressures."

The government has taken a series of measures to curb lending and rein in soaring property prices, including raising banks' reserve requirements three times this year, which effectively limits the amount of money they can lend.

Beijing is also under growing international pressure to allow an appreciation of the yuan, which has been effectively pegged at about 6.8 to the dollar since mid-2008. Critics say the policy gives Chinese exporters an unfair advantage by making their products relatively cheaper.

Speculation has been growing in recent weeks that Beijing may soon make the yuan more flexible, with a number of central bank officials hinting that a change in the exchange rate policy could be in the offing.

The current account surplus -- the broadest measure of trade with the world -- fell 48% year-on-year in the first three months of the year to $40.9 billion, SAFE said on its website.

In 2009, China's current account surplus dropped for the first time in eight years -- by 35% on-year to $284.1 billion -- as the global crisis hit exports.

Copyright Agence France-Presse, 2010

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