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December 17, 2009

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Foreign investment in China increases

FOREIGN direct investment in China climbed in November at the fastest pace in 16 months, extending a streak of gains for the fourth straight month thanks to encouraging economic performance in the world's third largest economy.

But analysts warned that these signs of growth might attract speculation in China's currency, or hot money.

China's FDI expanded 32 percent last month from a year earlier, to US$7 billion. The number of newly established foreign-invested firms rose 10 percent to 2,437, the Ministry of Commerce said yesterday.

The November gain in FDI far outstripped October's advance of 5.7 percent, but the dollar volume was very similar to the October figure of US$7.1 billion.

Despite the recent gains, investment in the first 11 months still declined almost 10 percent on an annual basis to US$77.8 billion.

'Stable' recovery

"China's FDI has been in a stable process of recovery since August," said ministry spokesman Yao Jian. "Coastal provinces including Jiangsu, Guangdong and Liaoning are staging faster growth."

Shanghai attracted US$850 million in foreign direct investment last month, up 6.3 percent from a year earlier.

Surging investment from economies under the Association of Southeast Asian Nations, which soared 60 percent last month, was the driving factor in the FDI growth, Yao said. It helped to counter declining investment from the United States and Europe, which dropped 38 percent in November.

The ministry predicted China's FDI will expand steadily and may stay within the US$7 billion to US$8 billion range in the next few months.

Li Maoyu, an analyst at the Changjiang Securities Co, said China's improving economic performance has strengthened confidence among foreign investors.

But he warned of the possibility of more speculative money flowing into the country.

Hot money

"The sharp growth in November is partly due to a low base last year, while China's stable economic performance raised stakes for the country to be one of the most attractive destinations for investment," Li said.

"However, the government should notice China's robust economy also draws in speculators, who bet Chinese currency will appreciate."

Worries about hot money have returned after China's economic prospects continued to improve, triggering anticipation for a rising yuan.

Last month, China announced a new rule that limits overseas individuals or institutions to sending foreign currencies to no more than five Chinese individuals to convert them into yuan the same day, a move aiming to curb speculative cash.


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