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Home > Business > Reuters > Report

China's FDI tops $50 billion, seen growing in 2003

January 14, 2003 14:14 IST

Foreign firms invested a record $52.7 billion in China in 2002 and may pour in even more this year, lured by cheap labour and an economy that has defied a global slowdown, economists said on Tuesday.

Actual foreign direct investment rose an annual 12.5 per cent in 2002 as foreign companies flocked to Asia's second largest economy, drawn by lower costs for making goods for export and hopes that China will open its potentially vast market wider.

The growth was slightly slower than the 14.9 per cent annual rise in 2001 to $46.8 billion. The slowing trend may continue this year, economists say, but not enough to ease concerns among Asian neighbours that China is the magnet for FDI in the region.

"The momentum of growing FDI will definitely continue this year, though the pace may not be as strong as last year," said Min Tang, chief Asian Development Bank economist in China.

"China's rapid economic growth and its stable politics are attractive to foreign investors," Tang said.

Contracted foreign investment, an indicator of future trends, surged 19.6 per cent last year to $82.8 billion, a hefty rise from the 10.4 per cent growth in 2001, the foreign trade ministry said.

Zong Liang, a senior analyst at Bank of China, predicted the inflow of FDI to China, which excludes funds raised through issuing stocks overseas, could hit about $55 billion this year.

"There are problems and risks in investing in China, but most investors are unwilling to miss opportunities," he said.

The influx of foreign investment in 2002 helped underpin a manufacturing boom, which in turn fuelled economic growth of eight per cent and helped China increase its productivity.

China's booming car market attracted its share of investment, with foreign automakers including General Motors and Hyundai Motor Co among firms jockeying for position.

Winners and losers

Other Asian countries, some under a cloud of concern over possible terrorist attacks, have been losing out steadily to China in the race for attracting foreign direct investment, analysts say.

"It's natural that once a country is deemed by investors as a hot point, other countries could be affected," Bank of China's Zong said.

"But we must admit that investors are attracted by the promising market here," he said.

The United Nations said in a report last year China was close to edging out the United States -- where investment has dropped dramatically in a weak economy -- for the first time as the world's largest FDI recipient.

But some analysts said the FDI figures may be a bit overstated. The two biggest sources of foreign investment in 2001 were Hong Kong and the Virgin Islands.

Analysts say some Chinese firms have shifted money secretly to Hong Kong and other countries and then re-invested it in China in a bid to enjoy tax breaks for foreign investors.

Still, China remains Asia's bright investment location.

South Korea said last week FDI in 2002 fell 19.4 per cent from a year earlier due to a delayed global economic recovery and fewer sales of domestic assets. It said the outlook for 2003 remained gloomy.

FDI, measured by investment plans submitted to the government during the period, fell short of target and dropped to $9.10 billion from $11.29 billion in 2001, the Seoul government said.

© Copyright 2003 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.



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