From January to November, investment flows into the western region of the country increased by 39 percent year-on-year to $6.7 billion. [Photo / China Daily]

Service sector accounts for bulk of funds streaming in from overseas

BEIJING - Foreign direct investment (FDI) growth in China booked its second-highest surge this year in November, bolstering optimism about the continued upward trend and providing fresh evidence of the country's growing attractiveness, government officials and experts said on Wednesday.

Shooting upward after three consecutive months of single-digit increases, FDI volume in November jumped 38.2 percent year-on-year to $9.7 billion, second only this year to the 39.6 percent year-on-year jump in June, official figures showed.

During the January-November period, FDI in China grew by 18 percent year-on-year to $91.7 billion, and was expected to exceed $100 billion by the end of 2010, the Ministry of Commerce said.

"The main reason behind the robust growth is China's increasing attractiveness for foreign businesses as an investment destination," said Yao Jian, a spokesman for the ministry.

This is the 16th consecutive month of growth in China's FDI.

During the first 11 months of this year, notable surges were seen in the service sector, which increased by 29.3 percent year-on-year to $41.14 billion, accounting for 44.86 percent of overall FDI volume, according to the ministry.

Meanwhile, the manufacturing sector grew 6.2 percent year-on-year in the 11-month period, 5.19 percentage points less than the same period last year, the ministry said.

From January to November, investment flows into the western region of the country increased by 39 percent year-on-year to $6.7 billion, 21 percentage points more growth than the national average.

"Growth in FDI flows into the service sector is consistent with China's industrial restructuring. In the future, the service sector is expected to demonstrate rapid increases in attracting FDI, and growth in the manufacturing sector will remain stable, " Yao said.

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Hao Hongmei, a researcher at the department of foreign investment of the Chinese Academy of International Trade and Economic Cooperation, echoed Yao's opinion.

"Because the nation is keen on industrial restructuring and upgrading, attention will be focused on the quality instead of the quantity of foreign investment, and sectors such as services and high-tech have the most potential to attract more FDI," she said.

But she warned that the trade protectionism of some developed economics could pose hurdles for investments from large multinational companies flowing into China.

In addition, improving competitiveness - for example, through lower labor costs - in some countries may also challenge China's position as the top investment destination in the world, she said.

Over the past few months, rising labor costs in China have prompted concerns that overseas businesses may feel pressure to seek opportunities in other emerging markets.

However, some experts are more optimistic.

Given the general skills level, overall labor costs in China are comparatively low, said Wang Zhile, director of the transnational corporations research center under the Ministry of Commerce.

"Seen together with other advantages, such as the growing market scale and sound industrial coordination, the country has enormous potential in attracting more investment," he said.