March 13,2008
by CSC staff
Global financial turmoil and RMB appreciation are making China increasingly attractive to investors. Chen Deming, the newly appointed Minister of Commerce, explained that in the past two months, large project development has been seen to accelerate. In particular, he said, projects involving investment of more than $30 million increased by 250% over last year.
According to the latest Ministry of Commerce figures, in January and February of this year China’s foreign direct investment (FDI) increased 75.19% over the same months last year to a total amount of $18.128 billion, of which the January growth was 109.78% over the same month last year.
The rate of RMB appreciation over the dollar is thought to be the prime reason foreign companies are speeding up their investment in China. “If you want to invest your dollars in China, of course, the earlier the better, because over time that same amount of USD in your hand will bring you less RMB.”
Policy adjustments also account for the accelerated entry of foreign cash. Before the end of last year, foreign companies reinvesting their China profits were eligible for a tax refund. And policies encouraging investment in the middle and west of China are now playing their role. FDI there grew by 140% and 330%, respectively, over the same period last year.
“The international situation is a deeper reason,” said Minister Chen. “With the subprime crisis, economic development in the developed world has slowed down, so investors are more willing to put their money in China with its better investment growth.” Chinese government encourages the merger and acquisition by foreign investors involving the restructuring and consolidation of state-owned enterprises.
But soaring FDI is raising government concern over “hot,” i.e. illicit or hidden, hence unaccounted for, money inflows. Wu Xiaoling, deputy director of the Financial and Economic Affairs Committee of the National People''s Congress (NPC) and former vice governor of People’s Bank of China (PBoC), worries the subprime crisis may be driving more hot money into China, increasing inflationary pressures.