China actually utilized $53.5 billions of foreign direct investment (FDI) in 2003, up only 1.44% from the previous year, according to the latest statistics report issued by the Ministry of Commerce of the People?s Republic of China. This growth is much lower than the growth achieved in 2002 --12.51%. The amount of FDI for 2003 was also lower than the expected figure of $57 billions.

The year 2002 was the first year following China?s much anticipated entry into the World Trade Orgnisation (WTO). On average, China received more than $5 billions of FDI for every month of 2003. A calculation based on this rate of growth shows that the amount of FDI that China used for 2003 was likely to exceed

$60 billions. However, investment growth rates in China began to rapidly plummet in August 2003. This has led to public concerns that the annual growth of FDI in China would become a negative figure. Fortunately, this growth began to jump in December 2003. This jump has allowed growth of the annual FDI in China to be a positive figure.

Analysts have attributed the slowdown in the growth of FDI in China to six reasons. First, the outbreak of SARS created a severe economic and social aftermath. The outbreak of SARS dampened the progress of all FDI projects on the agenda and has postponed the implementation of ongoing FDI construction projects. The outbreak of SARS has affected more than 500 such projects, which exceeded $10 billions in total.

Second, international investment still remained at low levels. According to the United Nations Conference on Trade and Development (UNCTAD), the global FDI for 2003 was $653 billions, $2 billions up from 2002. The global FDI for 2000 was $1.49 trillions, more than double the figure for 2003.

Third, the growth in FDI in the US began to recover. The annual FDI in the US for 2003 jumped to $86.6 billions, nearly double the figure for 2002. In 2003, FDI flew into the US faster than any other country.

Fourth, the competition for FDI has become increasingly fierce. neighboring countries have done all they can to divert as much FDI from China as possible.

Fifth, the export tax refund system reforms has had a great effect on FDI. As most FDI is used in the manufacturing industry, a reduction in the tax refund rate has raised production costs. This has slowed down FDI in China. Sixth, a large amount of FDI had flown into China before 2003 and it takes time to see returns on these projects.

According to an investment specialist at the UNCTAD, the recovery of the global economy will allow multinational companies to make greater profits, will lead to more mergers and company acquisitions and will improve the confidence of investors. The international flow of FDI will speed up in 2004. The global FDI is likely to exceed $700 billions.

This specialist is very confident in the future of China in terms of FDI. He believes that China?s economy will continue to rapidly develop and this rapid development will create more opportunities for foreign investors to invest in China?s new and high technological industries, service industries and the SOE reform. Amongst these fields, information technology, telecom, wholesales-retails industry, special-purpose services, banking and securities will be more attractive to foreign investors. Foreign investors will invest more and more in these fields. Therefore, the total amount of FDI that China uses will continue to grow in the coming period but the annual growth rate will not be as sharp.

Zhang Yi Source : Beijing News