Foreign investment in China booms

WTO membership is a spur for investment

Foreign direct investment (FDI) in China has surged 20.7% in the first nine months of 2001 and analysts expect it to benefit from the US military action against Afghanistan.

If we go back to a Cold War view, China will benefit

Professor Edmund Fitzgerald
Oxford University

China, the fastest growing economy in Asia this year with 7.8% growth in the second quarter, attracted direct investment of $32.3bn in the period, the Ministry of Foreign Trade and Economic Cooperation said.

The FDI boom in China has been driven over the past year by anticipation that China will soon gain entry to the World Trade Organisation (WTO).

Contractual investment, which includes future commitments, rose 30.4% to $49.3bn, the report said.

Risk shift

China is expected to attract more FDI at the expense of its Asian neighbours because of the US military action against Afghanistan.

Investors have lost out on China's stock markets

"If we go back to a Cold War view, China will benefit," said Professor Edmund Fitzgerald, Director of the Finance and Trade Policy Research Centre at Oxford University.

The risk factor in countries like Indonesia, the Philippines and Pakistan has risen since the 11 September attacks on the US.

"Actual risks have risen, but the perception of risk is rising more rapidly," said Mahmud Nawaz of consultancy Emerging Market Economics, which advises companies on investment decisions in developing countries.

FDI has fuelled growth in Asia, which according to the International Monetary Fund received more than one-third of the total $146bn net foreign investment in 2000.

Investment cap

But in a move which may discourage some foreign investment, China's stock market regulator has cap the amount money companies can raise on the stock market.

Shandong Airlines has been forced to halve a planned sale of new shares to 567m yuan ($68.5m).

The regulator has limited the new share issues to a company's net asset value to stop them "raising too much money and using it inappropriately", a Shandong Air spokesman said.

China's stock market has fallen 22% in the last three months and a regulatory probe has found many companies misused money from share sales or "lost" it on share speculation.

The China Securities Regulatory Commission is reportedly still refining the rules.

Shandong Air, which had been hoping to buy two Boeing 737-800 planes, would force the carrier to seek other financing, such as bank loans, the company said.