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Foreign investment drops 2.1%
(Shenzhen Daily/Agencies)
Updated: 2005-10-17 09:15

Foreign direct investment (FDI) in China, the world's second-largest recipient of funds from abroad, fell 2.1 percent in the first nine months of the year. Contracted investment, an indicator of future flows, rose about a fifth.

Actual foreign investment slid to US$43.3 billion, the Beijing-based Ministry of Commerce said Sunday on its Web site. Contracted foreign investment, or investment pledged but not yet used, jumped 22 percent from a year earlier to US$130.3 billion.

China's low wages and growing demand have helped the nation attract about US$600 billion of funds from abroad since 1978. Expansion by overseas companies has made China the world's biggest producer of mobile phones, laptop computers and clothing, and factories built with foreign money account for more than half of the nation's exports.

"The pipeline still looks good,'' said Rob Subbaraman, a Tokyo-based senior economist with Lehman Brothers Holdings Inc. "China is still a very attractive place to produce goods, and not just because of the cheap labor."

China ranks after the United States, which received US$96 billion in foreign direct investment in 2004, according to a report published Sept. 30 by the United Nations. Global foreign direct investment climbed 2 percent to US$648 billion last year, the report said.

Companies such as Ericsson AB, which traditionally mainly operated factories in China, are moving research facilities to the nation as the nation's universities produce more engineers. Ericsson, the world's largest maker of mobile phone networks, said last month it will invest US$1 billion in manufacturing and research in China over the next five years.

Since Motorola Inc., one of Ericsson's biggest competitors, set up the first foreign research and development lab in China in 1993, the number of such facilities in the country has increased to more than 700, the UN report said.

Motorola has invested US$4 billion in China since 1986, Simon Leung, president of Motorola's Asia-Pacific unit, said.

Also boosting foreign investment in China are purchases by foreign financial institutions of stakes in Chinese banks, including BNP Paribas SA's plan to buy almost a fifth of Nanjing City Commercial Bank for US$87 million, announced Oct. 12.

International banks and investment funds agreed to buy more than US$10 billion of stakes in Chinese lenders including Bank of China and China Construction Bank Corp., two of the nation's three biggest banks. They're trying to gain a foothold in an economy that's averaged 9.5 percent growth for the past two decades.

The dip in foreign direct investment this year comes even as fixed-asset investment is picking up, growing 27.4 percent in the first eight months following a 27.2 percent expansion through July.

Some overseas companies may have reined in investment as industries including steel, real estate and autos are saddled with excess capacity, said Subbaraman. Volkswagen AG, China's biggest carmaker in the first half, said Chinese sales in September rose only 2 percent as it cut prices.


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