China Foreign Direct Investment Up 38% in November

Dec. 17, 2010
China expects full-year foreign direct investment to reach around $100 billion.

Despite efforts by authorities to cool the economy and stem liquidity flows, foreign direct investment in China leapt 38.17% in November, the government said earlier this week.

Analysts said the spike in foreign investment may have been driven by excess global liquidity and expectations that the Chinese yuan currency will appreciate.

Announcing the year-on-year figure, commerce ministry spokesman Yao Jian told a regular briefing that China attracted $9.7 billion in foreign direct investment (FDI) last month.

FDI slowed sharply in August, rising just 1.4% year-on-year compared with 29.2% in July and 39.6% in June.

But in September it picked up again, increasing 6.1% year-on-year, while in October it rose 7.9%.

Yao said foreign companies pumped $91.7 billion into China in the first 11 months of the year, up 17.73% over the same period last year.

"We expect full-year foreign direct investment to reach around $100 billion," Yao said.

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

Yao said this year's increase had been mainly driven by growth in the services sector. Foreign companies poured $41.1 billion into China's services industry from January to November, up 29.3% from the same period last year, a ministry statement said.

Such strong growth has fanned concerns about speculative foreign cash inflows adding to inflationary pressures that have Beijing's policymakers worried. Ren Xianfang, an economist with research firm IHS Global Insight in Beijing, said excess international liquidity and an anticipated yuan rise encouraged investors seeking higher returns in China amid weak growth elsewhere.

"Money has become very cheap and so will flood into emerging markets, including China," she said.

China has led heavy criticism from major world exporting countries of last month's decision by the Federal Reserve to pump $600 billion into the U.S. economy, over concerns of higher commodity prices and speculative cash inflows.

But Yao dismissed the worries, saying the FDI increase was "generally normal" but oversight over the cash flows would be "certainly enhanced".

China's consumer price index -- a key gauge of inflation -- rose 5.1% on year in November, the fastest increase in more than two years and well above Beijing's full-year target of three percent, as food costs continued to soar.

China's central bank announced in October the country's first interest rate hike in nearly three years, just one of many efforts to curb growth.

Copyright Agence France-Presse, 2010

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