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China's FDI falls again amid world downturn

FOREIGN direct investment in China dropped 17.8 percent in May from a year earlier to US$6.4 billion, the eighth straight monthly decline brought on by the global recession, the Ministry of Commerce said yesterday.

The picture was not all bleak, however. Last month's contraction narrowed from a 22.5 percent drop in April, and the situation may improve as the ministry strengthens efforts to stabilize foreign investment, according to analysts.

"The FDI decline was expected as the global economy is still full of uncertainties, which prompts investors to play it safe by holding back their spending," said Tang Yonggang, an analyst at Hongyuan Securities Co.

"But in the long run, we believe foreign investors will come back because China remains one of the world's best places for investment."

The number of new foreign companies doing business in China fell 33.8 percent year on year in the first five months to 7,890, the ministry said.

Despite the FDI drop-off, Li Maoyu, an analyst at Changjiang Securities Co, insisted China's economy is on a recovery track.

"The economic data in May again sent mixed signals. But on the whole, China is recovering thanks to the strong government stimulus efforts and sustained domestic demand," Li said.

"We are optimistic because steady domestic demand is crucial. A prosperous domestic market is also key to attracting foreign investment."

China's retail sales and industrial production both posted stronger-than-expected growth in May, countering a sharp fall in exports.

Domestic spending last month jumped 15.2 percent from a year earlier to 1 trillion yuan (US$146 billion), up from a rise of 14.8 percent in April.

Industrial output gained 8.9 percent on an annual basis last month, accelerating from an advance of 7.3 percent a month earlier.

But China's exports, the sector hardest hit by the global downturn, plummeted 26.4 percent in May from the same period last year, the biggest fall in at least 14 years.

Higher efficiency

In response to the falling FDI, China will provide better support and enhance government efficiency to reverse the trend, the ministry said in a recent report.

The government will conduct an overall check of administrative procedures to better regulate the process, cutting unnecessary fees and reducing unnecessary red tape.

To help foreign companies raise funds, the Chinese government will also improve financial services and accelerate its study of a proposal to allow foreign-incorporated enterprises to sell shares on the mainland.


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