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China's 2010 FDI exceeds US$100 bln for 1st time

FOREIGN direct investment in China surged to a record high last year, with an abrupt spike in December which could be bolstered by an inflow of speculative money.

China wrapped up 2010 with a total of US$105.7 billion in FDI, up 17.4 percent from a year earlier, the Ministry of Commerce said today.

It was the first time that foreign direct investment in China surpassed the US$100-billion barrier, compared with 2.6 percent drop in 2009.

"The best ever performance for China in attracting foreign investment is based on China's good economic performance," said Li Maoyu, an analyst at the Changjiang Securities Co. "But we can hardly say all the investment will do good to China's economy."

In December alone, foreign investment amounted to US$14 billion, a sudden jump from November's US$9.7 billion, which was already a huge increase of 38.17 percent from a year earlier.

"The acceleration in recent months is really unexpected," said Chen Wei, an analyst at China Minzu Securities Co. "We can't rule out the possibilities that some of the inflow came from speculators who are betting on China's further raise of interest rates and yuan's appreciation."

He explained that the growth of foreign investment used to be flat at year end, because it is not a time for investors to make big decisions.

China has lifted the interest rates twice in the past four months to tame inflation and curb asset bubbles. With the Consumer Price Index, the main gauge of inflation, reaching a 28-month high in November, another interest rate rise is widely expected.

Meanwhile, China is under mounting political pressure to appreciate its currency when Chinese President Hu Jintao visits Washington this week. The yuan has appreciated 4.75 percent against the greenback in 2010, and some economists estimated the yuan will further appreciate by 5 to 6 percent this year.

In its report last week, Washington-based World Bank warned that excessive capital flowing into emerging markets may hamper the world's economic expansion in the long run.

It said heavy inflows to certain big middle-income economies may carry risks and threaten medium-term recovery, especially if currency values rise suddenly or if asset bubbles emerge.

Net international equity flows into developing countries rose by an annualized 42 percent last year, while nine countries, including China, received the bulk of the increase, the report said.

With the US starting another round of monetary policy easing, analysts said the surge of FDI in China is unlikely to halt in future months, and such a trend may make it harder for policymakers to raise interest rates.

The People's Bank of China announced last Friday to increase the reserve requirement ratio to tame inflation, instead of an interest rate rise.

Ministry spokesman Yao Jian reaffirmed yesterday that the government will strengthen efforts to track speculative funds and stop them from flowing into sensitive industries such as property and financial markets.




 

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