China's FDI inflows jump 27%

Updated: 2011-03-15 17:51


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China drew over a quarter more foreign investment in the first two months of the year compared to 2010, as firms flocked in to get a foothold in the world's fastest-growing major economy.

The 27.1 percent jump in foreign direct investment from a year ago to $17.8 billion, unveiled by the Commerce Ministry on Tuesday, was also a sign that China's economic activity stayed brisk despite a slew of policy tightening steps over the past half year.

Although investors say they worry about China's rising labour costs and other problems, many firms are still willing to look past them in exchange for booming growth.

Ting Lu, an economist at Merrill Lynch-Bank of America, said the jump in foreign investment might have been fuelled by extra spending from factories moving inland from more expensive coastal cities.

Rising salaries and property prices along China's eastern coast, home to manufacturing centers such as Guangdong, have prompted many cost-conscious firms to move factories inland where wages and the cost of living are lower.

"If there's a relocation, there is a lot of investment," said Lu, adding that some foreign investment could include speculative funds attempting to sneak into China disguised as legitimate investment.

China prohibits speculative funds from entering the country by keeping its capital account on a tight leash, so as to prevent the yuan and other Chinese asset prices from rising too quickly.

Foreign investment in China, which surged after it joined the World Trade Organisation in 2001, has recovered strongly after being hit hard by the global economic slowdown.

Too much foreign investment can also be a headache, adding to the vast pool of money in China that has driven inflation near its fastest in more than two years. The main source of that cash is China's bulging trade surplus, but large-scale FDI inflows add to the problem.


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