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September 16, 2009

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Home » Business » Economy

Jump in foreign investment signals new economic hope

FOREIGN investment in China rose unexpectedly in August for the first time in 11 months, signaling that overseas investors think that the nation's slowdown has bottomed out and economic growth will accelerate.

Foreign direct investment expanded 7 percent from a year earlier to US$7.49 billion, the Ministry of Commerce said yesterday.

Investment turned from a 35.7 percent slump in July when foreign money totaled US$5.36 billion.

"It is surprising that FDI turned positive so soon," said Chen Lu, an analyst at Haitong Securities Co. "But we believe China remains an attractive destination for foreign investors because of its lucrative investment environment and steady economic growth."

China's economic performance in August beat expectations, laying the foundation for a strong recovery in the world's third-largest economy.

Industrial production rose 12.3 percent, its biggest jump in 12 months. Retail sales advanced 15.4 percent, and fixed-asset investment in the first eight months swelled 33 percent.

Indeed, sentiment about China's prospects is improving along with the data.

Jonathan Slone, chairman and chief executive officer of Hong Kong-based CLSA, said in a speech in Shanghai on Monday that his investment bank has been surprised by the level of interest in China from overseas clients. He said the financial sector could be a hot spot for foreign investment as China continues to open its markets. He said CLSA expected the Chinese economy to grow 9.2 percent this year and 10 percent next year.

Foreign investment figures have shown volatility this year, however.

Li Maoyu, an analyst at Changjiang Securities Co, said the August gain could be a one-month wonder. But still, he said it indicates a stabilizing world economy and the recovery of confidence in business.

"The growth last month may simply reflect a big project that brought a large sum of capital into China," he said. "Next month there may be no such one-time big item."

The ministry does not break out the figures.

Even exports, the most ailing sector of the Chinese economy, are showing signs of improvement. In August, they fell 23.4 percent from a year earlier, ending a trend of steeper declines.

"Green shoots in the economies of the United States and European countries have boosted business confidence, and foreign investors may find it safe to start spending again," Li said.

But he said he would not rule out the possibility of another contraction in foreign investment next month because of usual fluctuations in the figure.

Foreign direct investment measures overseas money flows into China, excluding funds invested in financial markets.


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